Little hope for banks: 9 alternatives to corporate lending and standard mortgages

According to the results of the first quarter of 2025, the volume of mortgage lending, which is the main incentive for sales of new buildings in the Russian Federation, fell by 50%. Due to the collapse in demand, many developers have frozen new projects until better times. Alternative sources of capital for developers and new, flexible schemes for purchasing new apartments for citizens will help to find a way out of the impasse. At the request of MK, the list of non-standard financial instruments that can revive the Russian construction industry was prepared by Optima Development CEO David Khudoyan.

Sharing the Risk: Syndicated Loans

Lending from one bank is risky for large development projects. Especially against the backdrop of their consolidation in Russia. Syndicated lending – joint financing of a project by several banks – will help reduce the cost of the loan and risks. One bank, the leading agent, organizes the transaction: structures the loan, attracts partners and controls the process. With a shortage of liquidity and current high rates, this is an attractive alternative for large developers. This scheme is popular in the USA, including in the construction of commercial real estate. In Russia, unfortunately, this instrument is still poorly developed, but it is promising due to the growth in the scale of projects, including the renovation of entire city blocks.

Bond Market: ESG Bonds

Specialized bonds should become another source of financing, no longer of the banking type. According to Cbonds, there are 240 issues of construction company bonds in circulation on the domestic market of the Russian Federation for a total of 1.43 trillion rubles. Russian developers are still looking at this instrument with caution due to restrictions. For example, the issuing company must have an appropriate credit rating and reporting according to IFRS standards.

In these conditions, ESG bonds with state participation have good prospects: "green" ones - for eco-construction, regular social ones - for projects with a positive social effect. Such securities attract investors focused on ESG factors. For example, in Germany, municipalities finance eco-friendly infrastructure projects in this way, and in Australia - social housing. Issuers can be both authorities and developers with state guarantees.

Evolution of Mutual Funds: Real Estate Funds

Real estate investment trusts (REITs) – companies that own, manage or finance income-generating real estate – play an important role in construction worldwide. Especially in housing, as in the US, for example. In Russia, their analogue is closed-end mutual investment funds (ZPIF), but their potential has not been fully realized. For ZPIFs to become as effective as Western REITs, we need a developed secondary market for units, transparency and high returns for investors. The state, for example, through the Russian Direct Investment Fund (which is not yet involved in housing projects), could stimulate private funds.

The State: From a "Night Watchman" to an Active Player

In Russia, the state often acts as a kind of "night watchman" in the housing sector, intervening only when clouds gather over the construction market. However, in many countries, the state is an active and permanent player. For example, in the US, the LIHTC program provides tax breaks to investors in affordable housing. In Germany, there are construction savings banks with the participation of the state and employers, providing targeted preferential loans. In Singapore, the state committee Housing and Development Board (HDB) plays a key role. This shows that subsidies can be permanent support measures. In Russia, there is also a positive example of an active role - the Moscow state enterprise "Administration of Civil Construction" (KP UGS), a large developer.

Rethinking Escrow: Account Construction and Phased Unwinding

In addition to finding new sources of investment, Russia also needs other approaches to working with buyers. The current system of escrow accounts is safe for them, but it puts a financial burden on developers. World practice, especially in the US, suggests a gradual opening of escrow accounts as work is completed. This approach improves the cash flow of developers, increases transparency for buyers by monitoring construction, and reduces risks for creditors. The main question for Russia is who will control this process and how. It will probably require the introduction of the American model with a specialized intermediary company between the bank, developer, and investor, ensuring technology and transparency.

Installment plan from the developer: do not prohibit, but develop in a civilized manner

Today, one of the key instruments for maintaining demand in the national market for new buildings has become installment payments from the developer. This mechanism, in fact, allowed the industry to avoid a deeper failure. However, the spontaneous development of this instrument has given rise to discussions about its regulation and possible risks. It is important to understand that instead of prohibitions and excessive "tightening of the screws", which can deprive the market of the necessary flexibility, installment payments need to be developed.

The main advantage of installments is their flexibility. They can be adapted to different financial possibilities and life situations. For example, we practice three programs: with an interest-free installment plan for up to 2.5 years. Another flexible option with a "deferred" payment: with a 50% contribution with a 12-month deferment of the second contribution, also without interest. For those who value the minimum initial payment, an installment plan is provided until the end of construction with an initial contribution of 10% with 12% per annum.

Expanding the Possibility: Rent with Option to Buy

Rent-to-own schemes can also be an effective tool for stimulating demand for housing, primarily for citizens who cannot immediately obtain a mortgage. Potential buyers rent housing for a certain period with the option to subsequently buy it at a pre-agreed price. Part of the rent payments can be counted towards the down payment. Rent-to-buy schemes are popular in the UK, Australia, and even in less wealthy countries, such as Nigeria.

Buying together: the cooperative housing model

Housing cooperatives today play an important role in providing housing in Europe (Switzerland, Germany, the Netherlands, Sweden) and in developing countries. For example, in India, about 191 thousand housing cooperatives unite almost 290 million people. Their activities are coordinated by the National Federation of Housing Cooperatives (NCHF), founded in 1969. Indian cooperatives receive active government support. They are financed by share contributions, savings, assistance from public and financial organizations. State and cooperative banks (HUDCO, NHB) issue them preferential loans.

Parental Help: Real Estate Crowdfunding

Crowdfunding is a new tool for Russia, but a very promising one. Platforms like the American financial technology company Fundrise allow private investors with small capital (for example, from $10 thousand) to invest in real estate projects.

Interest in crowdfunding donations is also growing. For example, in the US, the HomeFundIt platform helps raise funds for a down payment. Buyers launch campaigns on social networks, attracting donations from relatives and strangers. Donations are encouraged by bonuses and discounts from partners. Buyers themselves can return up to 7.5% of their purchases to the collection fund, and upon reaching the goal, they receive a “closing grant” of up to $2,000. Considering that 22% of Russians (VTsIOM) help children with housing, the potential of such platforms in Russia is enormous.

Thus, in the context of extremely expensive loans, reliance on traditional bank financing and standard mortgages is not viable. Therefore, the Russian construction industry needs to move to diversified sources of capital for developers and flexible purchasing schemes for citizens.