Pre-Sale of Flats as a Method to Limit Market Risk

Abstract

The focus of this study is on the analysis of the developer’s and purchaser’s risks that result from pre-sale of flats in the real estate market. This study attempts to analyze developer’s and purchaser’s risks that result from pre-sale of flats in the real estate market. The study discusses the results concerning the economic indices that stimulate behaviors of participants and analysis of the Developer’s Act in the aspect of benefits and risk for market participants. The provisions of the new Developer’s Act that introduce regulations beneficial for both customers and developers (thus improving their safety) were also discussed. The Developers Act emphasizes the importance of pre-sale as a limitation of market risk that results from finding customers at the stage of pre-sale, guarantee to sell investments at the pre-defined prices and finding funds for financing developer’s projects. The analysis of benefits for both purchasers and developers that result from pre-sale of flats secured with escrow accounts points directly to reduced market and financial risks incurred by developers and lower purchaser’s risk of losing their resources. It was also stressed that, however, the costs of all the legal and financial solutions increase the financial load for the customers.