On March 19, CMWP Uzbekistan initiated a webinar dedicated to one of the most pressing issues in the real estate market – the introduction of escrow accounts, a new mechanism for Uzbekistan.

 

Experienced financial sector experts participated in the discussion:

Irakli Elashvili, Deputy Chairman of the Management Board of Ipoteka Bank OTP Group, and Karen Srapionov, Managing Partner of AVESTA INVESTMENT GROUP.

 

Denis Sokolov, General Director of CMWP Uzbekistan, also participated and moderated the session.

 

Key discussion points:

  1. The objective of introducing escrow accounts in Uzbekistan – protecting buyers and reducing developer risks.

The necessity of implementing this mechanism is driven by issues such as the misuse of funds, unregistered loans, shell companies, and unfinished projects.

  1. Challenges of the traditional shared equity financing model
  2. Selling apartments in the early stages of construction is the primary source of funding.
  3. High risks: developers may fail to complete the project or misuse funds.
  4. The state's task and goal are to protect buyers and increase market confidence.
  5. How escrow accounts work
  6. Buyers' funds are held in a special bank account and are only accessible to the developer after construction is completed or specific project milestones are reached.
  7. The bank monitors the process, providing project financing to verified developers for construction.
  8. Buyers receive enhanced protection for their investments, guaranteed by the bank and the state.
  9. The role of banks in the new system
  10. Ipoteka Bank (a subsidiary of OTP Group) is actively developing products for the new legislation.
  11. The bank announced its readiness to finance projects up to $100 million, offering project financing in soums. Discussions are underway with the regulator regarding the possibility of introducing foreign currency financing.
  12. Developers will be subject to specific requirements, currently being developed by the bank, to obtain financing. These will include the need to confirm experience and mandatory personal capital contribution.
  13. Impact on the real estate market
  14. Developers will be able to scale projects using credit funds, not just their own investments.
  15. Construction quality and pricing transparency will improve.
  16. The new mechanisms will lead to an increase in housing costs.

Conclusions and recommendations:

  1. The introduction of escrow accounts is an inevitable stage in the development of Uzbekistan's real estate market.
  2. Developers need to prepare for the new requirements in advance and establish transparent financial models.
  3. Banks, investors, and the state will shape the new architecture of the commercial and residential real estate market.
  4. For successful market adaptation, it is crucial to have discussions and collaborative efforts among all participants: developers, banks, investors, and regulators.