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Buyer of new apartment may not get home if developer goes bankrupt

ByEditor

Feb 10, 2024

The guarantees that protect buyers provide some security, but often it’s not enough. The most challenging situation arises when the construction site is abandoned in the middle of development, leaving the buyers at risk. Bankruptcy of the builder can be a nightmare for new home buyers, potentially leaving them without a completed home and losing a significant amount of money.

The construction industry has been facing bankruptcy of companies of various sizes. When a developer goes bankrupt in the middle of building a new property, it poses a difficult situation for buyers who have already purchased apartments or houses during the construction phase. This can lead to significant financial and logistical challenges for the buyers.

In RS properties, security during the construction phase is only at least five percent of the contract price at the beginning and at least ten percent of the total amount of the trading prices of the shares sold later on. The post-construction bond in the RS properties provides protection for buyers after completion. However, there are concerns about the adequacy of this security.

Furthermore, construction defects can take years to surface and can be quite costly to repair. Buyers can try to reduce risks by conducting thorough background checks on the construction company and hiring a construction observer to monitor the progress and appropriateness of construction work. There is a need for legislative changes to improve the protection of building societies and shareholders in case of bankruptcy situations. This includes increasing the amount of collateral during and after the construction phase and clarifying provisions in the non-performance bond deductibles.

Experts also stress the need for better security arrangements and options for buyers, including faster and more efficient processes for using collaterals when they are needed. There is also a need for better provisions regarding who takes responsibility for construction projects when developers go bankrupt in the middle of the project. Legislative changes are necessary to improve protection for buyers in the event of bankruptcy.

By Editor

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