The construction industry is facing a crisis, with many companies going bankrupt. The most difficult situation for buyers is when the developer of a new property goes bankrupt in the middle of building the home. This can leave buyers without a completed project and out of pocket.
In Finland, a large portion of new projects include RS properties or apartments that are already sold during the construction phase. However, other New destinations differ in that the apartments start to be sold only after the building control has approved the building for use.
When a developer goes bankrupt in the middle of construction, it can take the project to completion. However, this does not happen in practice. “Perhaps this could happen if the building was almost finished,” says Tapio Nevala, a lawyer and chairman of the real estate brokerage and housing trade division. “The bankruptcy estate has no assets and often no interest in completing the project.” Even if liquidation is carried out on an apartment sale, there is no guarantee that buyers will get their money back. “It is by no means clear that the buyer would get the price he paid back,” says Tapio Haltia, a legal expert from Kiinteistöliito.
If buyers want to continue with the project themselves, they will have to find a new company to build it at worst under very unfavorable conditions and prices. Additional costs are guaranteed to be there. In general, when construction is in progress, buyers’ security is limited to security during construction phase which must be at least five percent of contract price at beginning and later ten percent of total amount trading prices shares sold at later stages. “In practice, with this amount of security, built object cannot be completed,” says Marianne Palo, chairman of legal and opinion committee Central Association Real Estate Agents Talon after completion shareholders are protected by post-construction bond in RS properties which must be at least two percent total trading prices shares sold 2 years after approval for use and valid for 15 months. Construction defects may only be revealed years after developers file for bankruptcy but protection provided by non-performance guarantee is practically an insurance policy with maximum compensation amount 25 percent construction costs valid for nine years after approval for use but law mentions 10 years which calculated from approval into use building process starts immediately after signing contract so additional time should be taken into consideration . Additionally non-performance guarantee includes deductibles error specific like housing company deductible no more than two percent construction costs or shareholders deductible no more than 1% debt free purchase price housing stock . Buyers can also hire their own auditor who has right to see transactions in purchase price accounts able monitor payments made from account aimed specifically at construction object progress . According to Palo there’s deficiency in law as external entity not obliged monitor on behalf buyers part of construction work ready stage often buyers trust developer word pay installments accordingly .