News

18/07/14

Repair in a new prime property: risk areas

Up to 70% of property buyers are looking for a finished apartment with out-of-the-box interior design solutions, as buying a “concrete shell” apartment entails a host of problems. Experts of Barkli Corporation have analyzed key risks run by owners of “concrete shells: new unfinished apartment.

The experts of Barkli Corporation estimate the offer of fully finished apartments and suites in Moscow to be just 20-25% of the prime property market. If the demand for them keeps growing at such pace as in recent years, by 2020 an overwhelming share of apartments in Moscow’s newly built prime property will be commissioned fully ready for living.

Sales of finished homes is a standard for most countries. For instance, 90% houses – in any price segment – are commissioned on a turnkey basis in Western Europe. In Russia, apartments in the first prime developments of Moscow built in the late 1990s were also often offered on a turn-key basis. But at that time such property sold poorly. For many customers, an apartment in a newly built prime property was the first purchase of real property and they wanted to implement their fantasies and ambitions by personally designing their future interiors from start to finish. But having tried themselves in the role of architects and designers, property buyers realized that repair is an unpleasant and cost and time consuming thing. Even if you hire a good construction firm that provides high quality services, communicating with foremen, choosing construction and finishing materials, following up the work at different stages requires the direct involvement by the customer. Having faced the home improvement adventure once, most apartment buyers are unwilling to repeat it.

“Buying an unfinished apartment in a new construction project is a risky and costly thing for a number of reasons,” says Yekaterina Fonareva, Barkli Corporation’s Commercial Director. “First of all, the owner assumes the full responsibility for work quality, both during the repair and after its completion. For instance, if the plumbing equipment is installed incorrectly and causes a flooding in the neighbor’s apartment, the owner will be held liable. Later, the owner may surely recover the money by filing a recourse action against the repair firm. But this will be preceded by long and unpleasant disputes with contractors and neighbors.”

Of course, the owner is not fully protected against such issues even if he or she buys an apartment with a finish by developer. But in practice similar situations are quite rate. First, developers are very careful about choosing their contractors to provide highly professional repairs. Second, the law provides that the developer is fully responsible for a commissioned project. The warranty valid for five years provides that the developer must remedy all faults identified during the property’s operation free of charge.

Moreover, the apartment’s owner must maintain the safety of common facilities: lobbies, halls and elevators. Experts estimate that the repair per square meter requires 70 kg of finishing materials in average. This means that the repairs in a 100 sq m apartment will require seven tons of materials to be taken through common facilities. With such amounts, the risk to damage the finishing of common facilities grows very high, while its repair will require extra costs. However, even if contractors are very careful, workers hired by neighbors can also damage common facilities. 50 tons of finishing materials will be required for a 700 sq m floor, 1,000 tons for a 20-storey staircase! After a similar load, the common hall is unlikely to remain in the same state as it was when you moved in. The owner who has caused damage to common facilities will have to reimburse the operating company for the cost of repair.

The third reason for which purchasing a fully finished apartment is much more attractive is that you do not waste your time for the repair. According to statistical data, repairs take from three or six months to one year. In some case, they take as many as several years. The apartment becomes an idle asset for that time. You can’t live in it or lease it, and it is hard to sell it. While the only thing you need in a fully finished apartment is furniture.

Finally, a major problem that buyers of newly built property want to avoid is long repair in neighbors’ apartments. “You can’t say how fast all residents will finish their repairs,” says Yekaterina Fonareva. “This means that all new residents will have to live on a construction site for many months, with the noise of drills and the buzz of buzz saws. Affluent customers are used to live in comfort, and the purchase of a fully finished apartment spares them the need to suffer these inconveniencies for an indefinite period of time.”

By buying finished apartments in a newly built prime property, customers saves their nerves, efforts, time, and money. Savings on finishing materials and equipment account for up to 35% of their market price.”

“Our surveys show that the percentage of buyers interested in buying fully finished apartments has grown from 30% to 70% over the last six years,” says Yekaterina Fonareva. “In our projects, finishes include all preparatory and final finishing with MEP layout. Customers are delivered apartments with final finishing (floor, walls, ceiling, interior doors, in-built lights), an in-built kitchen with plumbing and household appliances, and bathrooms with plumbing equipment. Thus, they are spared the most labor-consuming, lengthy and costly stages of repair. All they are left to do for a comfortable living experience is to buy furniture and decorative interior elements.”

Barkli’s analysts believe that in the near future developer will be more actively responding to buyers’ demand, and the number of fully finished apartment projects will grow. “In three to five years, the situation in the prime segment may become similar to European markets that do not offer unfinished apartments. In the worst case, Moscow will say farewell to “concrete shells” in seven years,” concludes Yekaterina Fonareva.

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