Strategies of developers to housing supply within framework of project financing

Abstract

The problem of providing comfortable and affordable housing for Russian citizens as a national goal has gained an impetus to solution after the introduction at the legislative level of project financing for housing construction using escrow accounts. The application of this new method of financing to the decision-making algorithm of a developer requires mathematical modeling of the economic ratios of the main indicators of the developer’s activities, taking into account the interests of other subjects in the housing construction sector: banks and population. The approach proposed by the authors is aimed primarily at expanding the supply in the housing market. We have formalized the possible sale strategies of the developer using a matrix approach in varying prices and the number of meters sold at different stages of construction, as well as interest rates for bank crediting, depending on the degree of escrow accounts accumulation. Testing the model has shown that developers should face serious problems related to increasing the cost of replenishing working capital for the construction process, which will inevitably be included in the price per square meter of housing and paid by the consumer (population). At the same time, banks become the main controllers and beneficiaries of the project financing. The model developed and tested by the authors will allow construction organizations to overcome the first difficulties of project financing application and competently and consistently make a choice of a strategy for offering housing to buyers, taking into account the variability of the economic parameters of all parties.

Keywords

• project financing
• supply in the housing market
• costs
• working capital requirements
• escrow accounts