Construction Financing Research Articles

Analysis of bankruptcy factors of the Russian developers

In 2019, there was a transition to project financing of housing construction in Russia. As a result, by the end of 2021, more than 73% of the area of apartments under construction are sold using escrow accounts. However, about 21% of the apartments being sold are being built by developers who are in the process of bankruptcy. Regional primary housing markets are, firstly, segmented, and secondly, in some regions – mainly in the regions of the Far North, Eastern Siberia and the Far East – there is a high concentration of developers, which can lead to additional negative consequences in terms of the development of housing markets of these regions in case of bankruptcy of regional companies. In this situation, it is important to form additional tools for assessing the risks of bankruptcy of companies in order to be able to prevent negative consequences in a timely manner in the future. Despite the fact that a large number of scientific publications of both foreign and domestic researchers have been devoted to the issues of modeling the risks of bankruptcy of firms, only a small number of authors have addressed the issues of assessing the financial stability of Russian developers. The novelty of this study consists in constructing a model for predicting the probability of bankruptcy of developers in Russia (that is, a risk management system) based on an original database, which, in addition to financial coefficients from companies' reports, also includes industry-specific indicators. The aim of the work is to build a quantitative model of bankruptcy risks of developers (in the short and medium term) based on easily observable characteristics of their activities. The results obtained show that the probability of bankruptcy is high for companies with low values of return on assets, asset turnover ratio and current liquidity ratio. Additional factors that reduce the likelihood of bankruptcy are the fact of the developer's group membership, experience in housing construction. Also, the financial stability of companies in the industry as a whole is affected by macroeconomic shocks.

Church Building and Society in the Later Middle Ages by Gabriel Byng

Reviewed by: Church Building and Society in the Later Middle Ages by Gabriel Byng Judy Bailey Byng, Gabriel, Church Building and Society in the Later Middle Ages (Cambridge Studies in Medieval Life and Thought: Fourth Series, 107), Cambridge, Cambridge University Press, 2017; hardback; pp. xi, 324; R.R.P. £75.00; ISBN 9781107157095. This well-researched volume on the administration, management, and financing of English parish church construction in the late medieval period takes a different perspective from that of previous scholars. Gabriel Byng does not seek to add to the literature about pious motivation. Rather, he examines the ‘nuts and bolts’ of church building—the financing of building projects, the management of projects via contracting committees and fabric wardens, and the complex nature of fundraising efforts. It is refreshing to read a new perspective about the surge of parish church building in the late medieval period. Byng’s work concentrates on the political economy of the parish rather than individual piety or community cohesion. The integration of economic data such as prices for raw materials, labour costs, and wages, with churchwardens’ accounts and contracts indicates that these projects were often complex and multi-faceted. Project managers needed considerable financial acumen to manage church building in England at this time. The volume is divided into six chapters. The first two chapters examine the financing of building projects; firstly, by parishioners, and secondly through patronage by ecclesiastical institutions or the gentry. Chapters 3 and 4 examine how the construction was organized. The key role of churchwardens in the parish has been examined by many scholars such as Beat Kümin in his 1996 book The Shaping of a Community: The Rise and Reformation of the English Parish c. 1400–1560 (Ashgate, 1996). Byng confirms this role by adding that parishes with strong wardens, who were held in high regard and had the ability and wherewithal to access funds, could galvanize the community and push through projects. However, if the project grew too large or complex, temporary contracting committees or fabric wardens were employed. The final chapter explores the role in organizing building construction by the clergy, gentry, or the aristocracy. In one example, Byng uses private fabric accounts kept by the lord of the manor, John Bolney, to analyse the construction of the parish church tower in Bolney, West Sussex, in 1536–37. These accounts clearly show that John Bolney shared financial and organizational responsibility with the parish. The churchwarden arranged lodgings for two masons and organized the contract for timberwork. Without these surviving accounts, it might well be assumed that the parish had no role in the tower construction. [End Page 279] This book is an excellent addition to the large corpus of material on the late medieval parish. It provides a holistic insight into the economic, social, and political complexities of parish church building. Judy Bailey Barmera, South Australia Copyright © 2022 Judy Bailey

Trends and prospects of the bond financing in the construction sector of the Russian Federation

The authors analyze the data on the issues of bonds for issuers of various types in the Russian construction sector in 2020–2021. The comparison of this instrument of financing with bank crediting is also carried out, and as a result the authors make the conclusion, that the banking sector was used during the studied period more actively because of the interest rates reduction. The other reason of the lag of the bond financing is the opacity of the reporting, made by most the companies in the industry. However, the authors believe that the bond financing of construction can purchase great popularity in case of the rise of the prices of bank loans for construction.

Ключові характеристики та структура ринку житлової нерухомості в поточних умовах

The article examines the factors influencing the functioning of the residential real estate sector, the real estate market situation, the competitive situation, and the investment attractiveness of the sector. It is emphasized that the role of residential real estate performs several functions in society, in particular, it satisfies the need for housing, is an object of economic activity, and acts as a mechanism in the implementation of the social policy of the State. The main stages of the formation of the strategy for the development of the residential real estate segment are allocated, it is worth taking into account the behavior patterns and requests of potential customers, in particular: the segmentation of the primary residential real estate market; identification of factors affecting consumer behavior; modeling the process of making a purchase decision: awareness of needs; assessment of financial opportunities; collection and analysis of information; assessment and selection of real estate options; the decision to purchase property; conclusion of an agreement. It is determined that it is expedient to introduce civilized relations between real estate market participants, which is possible by promoting the implementation of legislative initiatives aimed at introducing a housing construction financing model using escrow accounts and ensuring the guarantee of investors' rights regarding real estate objects, which are under construction. The own structure of the residential real estate market and participants in the market process are proposed, according to which the activity of regional markets, which are divided into primary and secondary markets, are indicators of the activity of national residential real estate markets. The subjects of the primary market are investors, creditors, designers, builders, developers, project organizations, construction companies or organizations; concerning the secondary market - realtors, brokers, appraisers, sellers, tenants. In addition, groups of market participants are allocated, in particular group 1 – professional participants working on a commercial basis; group 2 – analysts on the residential real estate market; group 3 – insurance companies, notary offices, law firms, mortgage banks, land resources fund, property rights registration bodies, real estate assessment agencies, technical inventory bodies, judicial bodies.

Бухгалтерський облік та оподаткування інститутів спільного інвестування, як одного із механізмів фінансування житлового будівництва

Crisis phenomena and speculations in housing construction led to strict state regulations to attract financing and investments in this area. In addition, an additional participant (intermediary) was entered into the system of economic relations, whose mission is to supervise and control the timely execution of construction and installation works and the effective use of financial resources received from investors. One of the possible forms of functioning of such intermediaries is joint investment institutes. Orienting these institutions to satisfy the interests of various groups of participants – investors and developers – requires establishing an appropriate management information support system, which is mainly based on accounting data. At the same time, the issue of taxation of operations for financing housing construction through joint investment institutions is no less relevant. The article is devoted to disclosing the peculiarities of accounting and taxation of housing construction financing processes through the creation of joint investment institutions. The methodological basis of this research is the methods of imperative analysis, deduction, graphic and comparison. The legislative and normative regulation of the functioning of joint investment institutes, particularly for the needs of the organization of housing construction financing, has been studied. Proposals regarding the accounting of the activity of corporate and mutual investment funds, as well as operations involving their attraction of investments to finance housing construction are substantiated. The peculiarities of taxation of these transactions with income tax and value-added tax under the imperatives of Ukrainian tax legislation are characterized. The practicality of using joint investment institutes as a mechanism for financing housing construction in Ukraine was argued to minimize investment risks, control spending and tax burden planning.

A subject-oriented approach to the development of relationships between participants in the investment and construction process in theconditions of project financing of housing construction

A subject-oriented approach to the development of relationships between participants in the investment and construction process in theconditions of project financing of housing construction

Information model of material and technical and financial resources in housing in Ukraine and Europe: accounting and management aspect

The purpose of the study is to form an information model of material, technical and financial resources in construction, based on identifying and taking into account the existing initial conditions and developing proposals for their improvement at the level of accounting and management by improving the documentation process. The article examines the relationship between material, technical and financial resources in housing construction. It is proposed to consider the information resource as the main resource, because it has an impact on the formation of all other resources, and therefore, in fact, manages them. This gives rise to new types of resources that are somewhat changing the pace and direction of governance and the global economy as a whole. The potential possibility of the working population of Ukraine to purchase housing by making two hypotheses is calculated. The first hypothesis concerns the ability of the working population to save money from wages, if the working person can live according to the subsistence level. The second hypothesis calls into question the first. At the junction of these hypotheses, appropriate conclusions are formed regarding the improvement of sources of financing for housing construction. Due to the study of problematic aspects of housing construction, a model of material, technical and financial resources in the context of digitalization has been formed. The derivative conditions of such resources are singled out here, namely: assistance in the restoration of natural resources; search for alternative resources; saving time; optimization of material costs; the emergence of a new type of currency; speed of calculations. Based on their research, it is proposed to improve financial and management accounting for the formation of new synthetic and analytical accounts, internal and intermediate management documents and the methodology of financial accounting.

Use of the PPP mechanism for financing of tourist facilities construction

Use of the PPP mechanism for financing of tourist facilities construction

How Does Low-Density Urbanization Reduce the Financial Sustainability of Chinese Cities? A Debt Perspective

Low-density urbanization threatens urban social and ecological sustainability not only directly by excessively encroaching on suburban farmland and ecological space, but may also indirectly do so by undermining the financial basis of sustainable urban development. To address this relationship, this study empirically examines the effect of low-density urbanization on local government debt by using panel data of prefecture-level cities in China from 2006 to 2015. Results show that the scale of local government debt increases significantly with a rise in urban expansion. Furthermore, this study found that low-density urbanization affects local government debt in two ways. First, low-density urban expansion reduces the land output efficiency, which decreases potential fiscal revenue and thus increases local government debt. Second, low-density urban expansion raises the construction and maintenance expenditure of urban infrastructure, which increases the demand for urban construction financing and thus pushes up the scale of debt. The results of the heterogeneous study indicate that low-density urbanization significantly affects local government debt mainly in Central/Western regions, small and medium-sized cities, cities with high fiscal stress and development pressure, and residentially expanding cities. On the contrary, low-density urbanization has no significant effect on the Eastern regions, large cities, cities with low fiscal stress and development pressure, and spatially expanding cities. This study theoretically explored and empirically verified a critical indirect effect of low-density urbanization on urban sustainability by increasing fiscal risks, which is, and will continue to be, a common and vital challenge faced by cities in China and other rapidly urbanizing developing countries.

Цільові облігації: ризики та доцільність застосування

The conditions for attracting and the availability of capital to finance construction are important for the economic development of Ukraine. The article considers how the institutional environment and variability of legislation, in particular, in the investment and fiscal spheres cause developers and participants in capital markets to constantly search for the most optimal in terms of taxation and least risky instruments for financing construction, one of which is corporate target bonds. To assess the risks of using target bonds in construction financing, the evolution of the legal form of issuance, circulation and redemption of target corporate bonds in Ukraine was considered, which was too late to avoid large-scale defaults and too fragmented to properly protect investors’ rights. The rudimentary nature of target real estate bonds in Ukraine, their inconsistency with the EU experience in terms of regulation and practice of capital and real estate markets. The functionality of the existing publicly available databases on the stock market of Ukraine for aggregation and analysis of information on different types of financial instruments, including target corporate bonds were confirmed. Investment and fiscal risks of using target corporate bonds for real estate financing are studied. It is proved that the scheme of financing construction through the issuance of target corporate bonds has significant risks for investors and developers. The contradictory nature of the implementation of EU legal norms on the classification of financial instruments and the lack of adequate mechanisms to protect investors in target corporate bonds are substantiated. To deepen the analytical justification of the results in further research, it is advisable to pay special attention to a comprehensive study of the advantages and disadvantages of existing and future models of construction financing in regularly updated legislation, in particular in the field of taxation and capital markets regulation.

Managing financial risks to improve financial success of public—private partnership projects: a theoretical framework

PurposeSuccessful execution of public–private partnership (PPP) projects is the most desirable outcome to all stakeholders. Previous studies show that one of the topmost obstacles to fulfil this desire on the project is financial risks. Nonetheless, inadequate holistic studies exist on linking the management of this challenge to the financial returns of the project. This study aims to develop a theoretical framework interrelating financial risks, financial controls and financial performance of PPP projects.Design/methodology/approachThe theoretical framework is informed and supported by existing theories and previous empirical studies from construction management, finance and economics. The underlying theories captured in the framework were chosen for their relevance and applicability to PPP projects. The propositions developed from the analysis of the theories and the empirical literature are summarised in three main hypotheses and 26 operationalised sub-hypotheses.FindingsThe major elements of the framework include the financial risks and 12 sub-themes which are commonly experienced on PPP projects. Financial policies and procedures on controlling financial losses of the projects are also included in the framework. Lastly, this study creates financial criteria on the projects which are intrinsically embedded in the framework to serve as benchmark to support the measurement of financial success.Research limitations/implicationsThis study is a theoretical review of classical theories and empirical studies, and therefore, not all researches and managerial controls have not been included in this framework due to restricted time and limited studies on the topic.Practical implicationsThis paper would serve as a multidimensional guide to project managers to mitigate financial risks and hopefully enhance the financial success of PPPs. Theoretically, this paper outlines the dimensions of managing financial risks of PPPs that require valid and reliable measurement to test the interrelationships of the constructs by further studies in the construction research community.Originality/valueThis theoretical framework makes ambitious efforts to embrace multifaceted theories from different disciplines to shed light on holistic mechanisms to mitigate financial risks to improve financial returns of PPP projects.

Alternative ways of financing of construction in the Russian practice

Alternative ways of financing of construction in the Russian practice

Research of the problems of project financing of construction of residential real estate using the escrow account mechanism

The article shows the current situation in the real estate market. The publication considers the main problems of financing investment and construction projects, as well as the use of the escrow account mechanism. The study also proposes the main ways to solve the existing issues. The main focus of the research paper is on the lack of explanations regarding the ability of banks to dispose of money in escrow accounts, credit conditions, as well as the growth in real estate prices when developers switch to a new mechanism of settlement with shareholders. In addition, the authors analysed the pricing policy of developers before and after amendments to Federal Law No. 214-FZ, dated on December 30, 2004 “On Participation in Shared-Equity Construction of Apartment Buildings and Other Real Estate Objects and on Amendments to Certain Legislative Acts of the Russian Federation”. The study presents the possible consequences of introducing amendments to the law, switching to escrow accounts.

Testing and fitting a Maskan bank marketing model using an integrated supply chain approach in the construction and housing industry

Maskan Bank is one of the state-owned banks with a wide range of banking services, including financing for housing and construction, financing plans of the government development programs in housing development, inclusive public banking services to conduct its inherent mission, and banking businesses requiring financing from standard methods and banking marketing. This research aimed to provide Maskan bank marketing model using an integrated supply chain approach considering the financial and credit turnover in the construction and housing industry. The Grounded theory strategies, including reading documents, in-depth interviews with experts and extracting concepts, and open, axial, and selective coding, were used in the qualitative section using the mixed method. Then, a paradigm model was presented with 6 dimensions and 42 components. The descriptive survey method was used in the quantitative part, and PLS software was used to test the proposed model. The results were confirmed and fitted in a model for Maskan bank marketing using an integrated supply chain approach in the construction and housing industry.

FINANCING OF HOUSING THROUGH REAL ESTATE FUNDS: THE RELATIONSHIP BETWEEN LEGAL, TAX AND ACCOUNTING ASPECTS

Abstract. The article examines the processes of housing construction financing through the mechanism of creating funds for real estate transactions from the standpoint of legal and scientific-theoretical justification. The interrelation of legal, tax, and accounting aspects in the process of housing financing through real estate funds and the impact of the issuance of property certificates as equity instruments on the activities of managers of real estate funds are determined. In the context of providing the housing with financial resources, the dynamics of the index of capital investment in housing construction and the commissioned area of residential real estate as indicators of housing development are analyzed in recent years in Ukraine. It is determined that the current Ukrainian legislation provides five mechanisms of financing of housing construction: construction financing funds, housing cooperatives, real estate funds, mutual investment institutions, issuance of interest-free (target) bonds. However, not all of them are widely used. In the course of the research, it was established that real estate funds are created for the owners of certificates of this fund to receive income from real estate transactions. Certificates of the real estate fund, which the manager issues when creating such a fund, are securities that certify the right of its owner to receive income from investing in real estate transactions and are in their economic essence equity securities. Emphasis is placed on the accounting aspect of such financing as the main source of financial information for managing the activities of the real estate fund. To improve the accounting and analytical support for the management of such a fund, the correspondence of accounts is proposed to reflect the typical business transactions related to the management of the property of the real estate fund. Based on a critical analysis of the current domestic legislation, the tax consequences of the processes of housing construction financing through the mechanism of creating funds for real estate transactions are substantiated. Keywords: financing, housing construction, real estate fund, objects of accounting, taxation. JEL Classification G23, H25, L74, M41, R21 Formulas: 0; fig.: 2; tabl.: 1; bibl.: 22.

Key drivers for green building project financing in Ghana

PurposeThe majority of the literature on green buildings in Ghana focuses on environmental benefits, innovative designs, construction technologies and project management techniques. However, little is known about how such facilities are financed. This issue creates potential knowledge gaps, one of which this study aims to address. This study examines the key drivers for green building project financing in Ghana.Design/methodology/approachThe study uses an explanatory sequential design with an initial quantitative instrument phase, followed by a qualitative data collection phase. An extensive critical comparative review of the literature resulted in the identification of eight potential drivers. One hundred and twenty-seven questionnaire responses based upon these drivers from the Ghanaian construction industry were received. Data were coded with SPSS v22, analysed descriptively (mean, standard deviation and standard error) and via inferential analysis (One Way ANOVA and One-Sample t-Test). These data were then validated through semi-structured interviews with ten industry professionals within the Ghana Green Building Council. Data obtained from the semi-structured validation interviews were analysed through the side-by-side comparison of the qualitative data with the quantitative data.FindingsThough all eight drivers are important, the five key drivers for the Ghanian construction industry were identified as, in order of importance, “high return on investment”, “emerging business opportunity”, “ethical investment”, “conservation of resources” and “mandatory regulations, standards, and policies”. The interviewees agreed to and confirmed the importance of these identified drivers for green building project financing from validating the survey's key findings.Research limitations/implicationsKey limitations of this study are the restrictions regarding the geographical location of the collected data (i.e. Kumasi and Accra); timing of the study and sample size (i.e. the COVID-19 pandemic making it difficult to obtain adequate data).Practical implicationsThough this study was conducted in Ghana, its implications could be useful to researchers, policymakers, stakeholders and practitioners in wider sub-Saharan Africa. For instance, financial institutions can invest in green buildings to expand their green construction and mortgage finance products to build higher value and lower risk portfolios. The findings from this study can provide investors with the enhanced certainty needed to help guide and inform their investment decisions, i.e. what to invest in, and when, by how much and how a scheme being “green” may influence their rate of return. Also, for building developers, it will give them a clearer understanding of the business case for green buildings and how to differentiate themselves in the market to grow their businesses.Originality/valueThis study's findings provide insights into an under-investigated topic in Ghana and offer new and additional information and insights to the current state-of-the-art on the factors that drive green building project financing.

The building financing fund: main problems of ensuring and protection of beneficiary’s rights and interests

The active usage of investment and financing mechanisms in sphere of construction of housing determines the necessity of involving the financial means of individuals and legal entities to such process and comes with risks for investors. At the same time the negative experience associated with frauds in sphere of construction of housing that caused a damage to the persons who had invested in housing within the territory of Ukraine and the intentions of lawmaker to establish the juridical mechanisms of financing of the construction that would neutralize or minimalize appropriate dangers determines the necessity to researched such juridical schemes in context of ensuring and protection of rights and interests of the participants of appropriate relationships. The author determines the advantages and disadvantages of the model of financing of construction of housing through building financing funds. It is defined that the obvious advantages of such model are: the professionalism of trustee; the usage of such ensuring and protective means for beneficiary’s (investor’s) rights and interests as hypothec, insurance of the developer’s risk of break the terms of obligations execution. The ensuring character also has the process of fixation of an investment object for beneficiary. At the same time the author states that it is difficult to justify the “encumbrance” of basic investment model by abovementioned ensuring and protective components. Even within basic investment model the beneficiary’s (investor’s) rights and interests could be ensured by hypothec of proprietary interests rights. Moreover the beneficiary (investor) can use insurance. The main advantage of the mechanism of financing of the construction through the building financing fund is the beneficiaries (investors) possibility to acquire with less organizational costs of a right of property on unfinished building in case when developer breaks his obligations. But at the same time the mechanism of financing of the construction through the fund rises the price of investment objects because of additional expenses. It is defined that despite of the provision of part three of the article 4 of the Law of Ukraine On investment Activity such provision does not neutralize a possibility to use alternative juridical schemes of the investment and financing of housing.

Insufficient construction financing

Insufficient construction financing

Comparative legal characteristics of the conditions for the financing of housing construction

The article presents a comparative legal analysis of the laws of Ukraine, France and Germany regarding the regulation of housingconstruction conditions.According to French law, the buyer of real estate under construction can be any individual aged at least 18 years and with fullcapacity.There are no special requirements for real estate developers under construction. However, such developers must meet the generalrequirements for property developers. For example, they must obtain a construction permit or a preliminary declaration, if necessary,for a new construction project. The building permit is issued by either the mayor or the prefect. The building permit is valid for threeyears, during which the developer must begin construction. However, the relevant authorities may extend the period (period of time)for the start of such construction. After the start of construction work can not be suspended for more than a yearLegislation stipulates that the buyer can purchase real estate, which is under construction, only under contractual mechanisms.In particular, the purchase of unfinished construction projects usually includes two stages:– the first stage – the conclusion of a preliminary (reserve) agreement between the buyer and the developer (“Preliminary contract”);–the second stage – the conclusion of the final contract of sale (“VEFA Agreement”) between the buyer and the developer.The French legislation describes in detail the procedure and amount of financing the construction of housing by investors (buyers).German law regulates housing construction in a slightly different way, however, as in French law, there is also a provision on thegradual financing of housing construction.In Ukrainian legislation today there is no provision for the need for gradual financing of housing by investors (buyers). This situationin practice often harms the rights of investors.The use of escrow accounts in the construction of investors can improve the situation of investors in Ukraine, which in fact, byanalogy with the legislation of France and Germany, will allow the gradual financing of housing construction.

Debating points of accounting to reflect escrow account transactions by the developer organization

Subject. This article discusses the issues of reflection of information on settlements with equity construction investors both on off-balance and balance sheet accounts of the developer. Objectives. The article aims to determine the extent of the transition to project financing of housing construction using escrow accounts, explore options for accounting for incoming funds of equity construction investors, and develop a methodology that helps avoid tampering with the balance sheet total of developers. Methods. For the study, we used induction, deduction, analysis, synthesis, and the calculation and graphic, monographic, and accounting and analytical methods. Results. In some cases, the findings have revealed significant discrepancies the way funds available to escrow accounts get accounted for. An analysis of the causes of these deviations confirms the need to develop an off-balance sheet accounting methodology. Conclusions and Relevance. The updated methodology is structured in such a way that the investors' funds are accounted by the developer in one account, another account is used for settlements with the equity construction investors, and the funds placed by the bank on the escrow accounts are reflected in the off-balance sheet of the developer, without misrepresenting the balance sheet total. The results can be used in the theory and practice of construction companies in the process of accounting and reporting by business entities of various forms of ownership, as well as for further scientific developments and practical applications.