One of the mechanisms for attracting investors to finance housing construction is the Institute of Joint Investment (CII). CII are corporate and mutual funds. A corporate investment fund is a legal entity formed in the form of a joint stock company. A mutual investment fund is not a legal entity, but is created by an asset management company (AMC), which further manages the assets of these funds.
The most popular and widespread models of financing housing construction through CII are forward contracts (one of the types of derivatives) (FC).
Forward contract is an agreement that certifies a person’s obligation to purchase or sell an underlying asset at a specified time and on specified terms in the future, with the fixing of the price of such sale at the time the contract is entered into.
Conventionally, the scheme of investing in housing construction through forward contract can be divided into three stages
The investor is not involved at this stage. The developer applies to the commodity exchange, which on its electronic platform in accordance with the contract with the developer, organizes and conducts an open auction for the sale of property rights to real estate, by concluding forward contract. Next, AMC, which manages the assets of the fund participates in this auction in order to conclude the forward contract. According to the results of the auction, between the developer and the AMC is concluded forward contract, the subject of which is the underlying asset, namely, for example, property rights to the apartment, which will become real estate in the future. This contract is registered by the commodity exchange.
In the second stage, an investor appears
The investor turns to the developer to invest. Then, from his participation, an application for participation in an open auction and a one-time order for the purchase of such a forward contract is submitted. In this case, all documents are submitted to the commodity exchange. According to the results of the auction, a purchase agreement is concluded between the AMC and the investor. To fulfill this agreement, the investor pays money to the fund (the amount is specified in the agreement). After full payment, the derivative is transferred from the AMC to the address of the investor, about which an act is drawn up.
In the third stage there is a relationship between the developer and the investor
The investor applies to the developer and submits it to the forward contract, which is the act of acceptance and transfer of such a contract. In parallel, a contract of sale of property rights to the apartment. The investor is then obliged to pay to the developer. Upon completion of construction, an act of transfer and transfer of property rights is drawn up between the developer and the investor. The developer also submits all the necessary documents for further registration of ownership. The end result is an extract from the Register of Real Rights.
If you have additional questions – contact the lawyers of Prikhodko&Partners Law Firm, we will be happy to help you, as we have many years of experience in real estate.