Too Cheap Apartment: Deal or Trap?

Low cost per square meter or apartment, favorable installment plan for a long term, or too low interest rate on mortgage – all this means it's time to be suspicious. A free cheese is only in a mouse trap, reminds Maria Litinetsкая. 

Maria Litinetsкая is an expert and Managing Partner of "Metrium Group", a real estate agency and consulting company operating in the Moscow region and St. Petersburg. And now – good news

Good news: advertising for new constructions rarely outright deceives the consumer. The fact is that now, advertising of construction projects and everything related to buying property or mortgage is regulated not only by the provisions of the law on advertising (38-FZ), but also by the law on shared participation in construction (214-FZ) and the law on mortgage (102-FZ). 

Federal Antimonopoly Service (FAS) strictly monitors compliance with legislative norms in property advertising, which successfully helps both competitors and attentive consumers. 

Therefore, before entering the market, advertisements undergo several checks, starting from the developer's legal department and ending with advertising agencies or media outlets that own ad spaces. According to the law, they can also be punished for publishing inaccurate information.

Another point: high competition, as well as the obligation to write in advertisements 'truth, only truth and nothing but truth', prompts developers to resort to tricks, presenting ordinary market offers as 'super-exclusive'. 

There are also other situations. For example, a developer tries to attract maximum working capital during a certain period – he needs to pay for most of the contractor’s work or settle with the bank that finances construction. In such cases, a developer can organize a 'sale', offering apartments with significant discounts. 

Being in such an offer – a good opportunity for buyers to save money on purchasing housing. How to recognize a favorable offer and distinguish it from an advertising move? There are several key points to pay attention to. 

Suspicion for a buyer of an apartment in a new building – a correct trait. Doubt everything, recheck all facts that you receive from the developer and the market. If you see an extremely low price for a 'square' in the advertisement, it should first of all make you suspicious, not pleased.

The reason is that an overly favorable offer might be a sign of the developer's insolvency. Experts claim: companies that are solid on their feet cannot have discounts over 10%. A greater price reduction can be interpreted as a possible sign of imminent bankruptcy.

However, it is usually the case that in the advertisement for an object with low cost per square meter, the price of the largest and least liquid apartment is simply listed. The 'square' in standard one- and two-room apartments costs much less attractively, for example, 20–30% more.

If you see an extremely low price for a 'square' in the advertisement, it should first of all make you suspicious, not pleased

How to find the truth? Read the small print: the developer should explain what exactly is hidden behind the advertised price. 

If you can't read it (missed the ad or the font was too small – that also happens), call the phone number provided in the advertisement or just the developer's number, and ask a direct question: what is the cost per square meter in the apartment that interests you specifically. If the information is confirmed, and you find out that you can buy a suspiciously cheap apartment that suits you, move to the next point.

Why is the apartment in the advertisement cheaper than the average price for such an apartment in this location? There may be several reasons. 

Option 1. It's not an apartment. Building apartments costs less than ordinary multi-apartment buildings, so prices for such lots are significantly lower. For many, the difference between apartments and apartments is still not obvious, but it exists; there's a lot of information on this topic online. Meanwhile, the advertisement for apartments does not differ much from the advertisement for apartments: it shows a nice 3D model of a multi-story building, lists the lot cost, and highlights the object's advantages.

Option 2. This apartment does not exist yet. Sometimes developers of large residential complexes advertise low apartment prices in buildings that have either not started construction or are at the excavation stage. But they present such apartments in the ad under another 'sauce', taking advantage of the fact that other buildings in the complex are either built or at a high degree of completion. The only advice here is to carefully study the ad content. It should contain information about which building is meant. If not, call the developer and ask.

Option 3. This apartment does not and will not exist. For marketing purposes, the developer has listed several apartments at artificially low prices. These options are often booked literally in a matter of hours or even before the start of the ad campaign. In general, you won't be able to buy an apartment at such a price. Unless you're very, very lucky. But the chances are about the same as winning in a lottery.

On the new construction market, the main argument for buyers is the apartment price. And while this is still relevant, marketers of construction companies will continue to come up with ways to place the lowest possible figure in the advertisement to draw attention to their residential complex. All we can recommend in this situation is to prepare for patience and always double-check the numbers from the ad: on the object's website and by calling the developer directly.

via GIPHY

Favorable installment plan for a long term

Perhaps in the future, transparent mechanisms will appear that allow developers to provide installment plans for a long period. However, at present such options do not have well-developed schemes regulated by additional legislation. Therefore, when you see in the advertisement a long-term interest-free installment plan, activate all your suspicion to the maximum.

The developer cannot give the buyer an installment plan that exceeds the period of house delivery, as written in the DDU. The reason is that monetary relations between the developer and the participant cease after keys are handed over and the act is signed. An installment plan for a longer period is essentially not an installment plan, but rather a complex form of lending, where you borrow money from the developer or a third-party organization to buy an apartment and then pay for it in stages. 

The developer cannot give the buyer an installment plan that exceeds the period of house delivery, as written in the DDU

Find out all details: who will be the creditor, will a guarantee be required and what kind, why are the conditions too favorable, and are they actually favorable if you read all contract terms? If no guarantee is required, why won't the lending organization go bankrupt when faced with a high level of defaults? And how will you pay for your property in such case?

In general, such offers do not appear very often. Perhaps this scheme is suitable for you and will help solve the apartment issue effectively. But when signing such an installment plan, always get support from a professional lawyer.

Nature has no bad weather, and banks have no cheap mortgages. When you see in the advertisement an interest rate significantly lower, or even twice as low as the key rate of the Central Bank of Russia, it is most likely just a discount from the construction company.

Today this is a common marketing tool for the real estate market: ordinary discount (usually not exceeding 5% of the apartment's cost) is presented as some kind of 'financial aid' from the developer to the buyer for paying interest on a loan. 

To promote this, they roughly allocate the term and loan amount, indicating in the ad 'remaining' interest rate that the buyer must pay. In the end, you will sign a contract with the bank containing the regular interest rate on the mortgage loan. And the discount from the developer you could have used differently. 

via GIPHY