How to avoid surprises when buying an apartment in a new building

Apartments in Ukraine are two to three times cheaper in buildings under construction. Buying such apartments can be a beneficial investment that IT specialists are currently interested in gauging by the number of requests we receive. However, this transaction is somewhat risky in Ukraine. Have you heard stories about owners of apartments in never-finished buildings? Or about one apartment being sold to several people? Many victims in such stories are our clients from the IT industry. Almost always, there were red flags buyers ignored even before signing the contract.

Still, you can buy an apartment in a new building. We will teach you to recognize dishonest real estate sellers at the negotiation stage. We have collected the five most common surprises from developers and advice on how to recognize them before transferring money to their accounts.

How people buy apartments in new buildings

Someone who decides to invest in real estate during the construction stage usually goes to the developer’s sales department. There, they are put in comfortable chairs, treated to delicious coffee, and shown bright booklets and videos with simulations of the planned residential complex. A pleasant and sincere manager tells them how many apartments in the building have already been sold. He or she even says that the potential buyers don’t need to look for a realtor or a lawyer themselves — the developer’s specialists will take care of everything.

It looks attractive. Many people decide that the expenses for a lawyer are unnecessary and may be avoided. Why not take this opportunity? Sometimes, they even save on notary services, not entering into preliminary agreements and only making out a receipt, trusting the developer’s lawyers.

Experience has shown that it is best not to do this, as it involves serious sums of money and the risk of investing in a problematic object.

A lawyer will warn you about bottlenecks in the suggested contract. And if necessary, your lawyer will suspend the signing of the agreement.

In addition, it should be understood that the contracts suggested by developers comprehensively protect their interests. With such a contract, in case of any problems — failure of the developer to fulfil their obligations, failures in the building commissioning, etc. — it will be extremely difficult and sometimes impossible for buyers to obtain compensation or get back their investments. Even in court.

Based on our experience, only 20% of developers agree to make changes to contracts (and these changes relate to conditions that openly discriminate against the buyer). This is not enough. Therefore, we advise you to first check the fairness of your potential counterparty’s practices.

Have you already chosen a developer and want to check their contract? Follow the link and we will help.

Five surprises when purchasing apartments at the construction stage

1. Inconsistency of the real project with what was shown before signing the contract

The developer sells you a beautiful picture. Your primary task is to verify whether it’s real. Most often, the illustrative materials are full of discrepancies with the real project. There may be differences in the number and placement of parking spaces, children’s playgrounds, beautification, other elements of improvement, or even the number of floors.

Therefore, you should ask the developer to provide you with the construction project or at least documents with the landscaping plan. This is not confidential information, and you have the right to request it. If you find a few inconsistencies, this is a reason to consider the developer’s good intentions.

2. Lack of licensing documents for land plot use or development

It is also your right to check licensing documents. In the ideal case, these documents should be assessed by a lawyer, as shortcomings may be unobvious at first glance. If permits are out of order, the building may never be commissioned and you may not get the property rights for the purchased apartment.

Of course, you may go to court and try to terminate the contract with the developer. However, this usually takes a long time without giving any guarantees. You will fall into a certain legal vacuum from which it is difficult to escape without losses. Therefore, it’s best to check everything before signing a contract to purchase an apartment.

3. Problems with connecting utilities

It sometimes happens that even a commissioned building cannot be connected to the gas, water, sewer, and other utilities. To assess the risk of facing such a surprise, you (or your lawyer) need to make requests to the respective utility providers to verify information about the possibility of connecting utilities to the building.

4. One apartment is sold to several people

Usually, this reveals itself when one of the owners begins to register the ownership right to the purchased apartment and finds out someone else already has it. To check this, your lawyer may make a request for information on investors in the residential complex or building.

In practice, if both you and someone else have already paid the developer for an apartment, the working principle is that the early bird catches the worm. The one who manages to register the ownership right is the lucky one. Any others will have to somehow resolve this issue with the developer.

5. Deception of investors as a business strategy

The developer digs a pit, killed the piles, and sometimes even builds the first few floors — and then begins selling apartments. Usually, there are enough customers because the price per square meter in such cases is much lower than average. Such a “developer” collects money from investors, then bankrupts the selling companies, closes them, and disappears.

To protect yourself from getting into this situation, we advise your lawyers to:

• check the average cost per square meter in buildings in your city at the same stage of construction
• check the reputation of the developer: how long they’ve been in the market, whether they’ve built already commissioned buildings, whether there are legal claims against the developer, how those claims were resolved

If the price offered to you is noticeably different from the market average or there is the slightest suspicion about the decency of the developer, do not take risks.

Is it better not to buy apartments in unfinished buildings?

Despite the risks, buying an apartment in a building at the initial stage of construction can be a profitable investment. The Ukrainian real estate market is developing, and openly fraudulent schemes are becoming less common.

To protect your money from dishonest or unprofessional developers, use our advice or take an experienced lawyer to the first meeting with the sales department. After all, developers’ contracts mainly protect developers’ interests, not yours. Therefore, carefully check for potential surprises at the negotiation stage. If you have any questions, follow the link and we will answer them.

Author

Yevheniia Matrosova

Attorney, Senior Lawyer

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