Russia has tried several times to protect the money people invest in housing construction. The mechanism has evolved from developer liability insurance, through a compensation fund, to project financing with escrow accounts. Here is how the money of people buying homes in new developments is protected today and which insurance still matters for buyers.

How buyer protection has changed

Shared construction — buying a flat from a developer before the building is completed — is governed by Federal Law No. 214-FZ "On Participation in Shared Construction of Apartment Buildings and Other Real Estate". In recent years the way buyers are protected has changed three times.

  1. Developer liability insurance. From 2014, developers had to secure their obligations under each shared construction agreement (DDU in Russian) with a bank guarantee, civil liability insurance with an insurance company or membership of a mutual insurance society. The system proved unreliable: some of the insurers active in this segment lost their own licences.
  2. Compensation fund. In 2017 the Fund for the Protection of the Rights of Participants in Shared Construction was set up. Instead of buying insurance, developers began paying mandatory contributions into it for every shared construction agreement.
  3. Escrow accounts. Since 1 July 2019, escrow accounts have been the main way of paying under shared construction agreements: the buyer's money is held by a bank and is not passed to the developer until construction is finished. Projects that were well advanced before the reform could be completed under the old rules.

In 2022 the Fund for the Protection of the Rights of Participants in Shared Construction was renamed the public law company "Territorial Development Fund" (FRT in Russian). It continues to deal with problem projects and has taken on new functions.

How an escrow account works

An escrow account is a special bank account on which the buyer's money is blocked until the conditions set out in the agreement are met. The scheme looks like this:

  1. The buyer and the developer sign a shared construction agreement, which is registered with Rosreestr (the federal property registration service).
  2. The buyer opens an escrow account with an authorised bank and pays in the price — their own money or a mortgage loan.
  3. Construction is financed by the bank through a project loan to the developer; throughout this time the buyers' money stays in escrow.
  4. Once the building is commissioned and ownership of at least one unit in it is registered, the bank transfers the funds to the developer.

If the developer goes bankrupt or the building is not completed, the agreement is terminated and the money in the escrow account is returned to the buyer.

Insurance of escrow funds

Funds held in escrow accounts for payments under shared construction agreements are covered by the deposit insurance system under Federal Law No. 177-FZ. If the bank loses its licence, the Deposit Insurance Agency (DIA) reimburses them up to 10 million rubles, separately from the person's ordinary deposits in the same bank.

What the Territorial Development Fund does

The fund deals with buildings that were constructed under the old rules — without escrow — and became problem projects. As a rule, the fund steps in after the developer has been declared bankrupt. Depending on the fund's decision, the building is either completed or the buyers receive monetary compensation. The procedure and conditions are set by law and by decisions of the fund's supervisory board.

Which insurance still matters for buyers

Escrow protects the money until the building is handed over. Once you receive the keys, the risks — fire, water leaks, damage to the finishing — pass to you as the owner. This is where the following come in:

  • Mortgage insurance. When a flat is bought with a mortgage, Federal Law No. 102-FZ "On Mortgage (Pledge of Real Estate)" requires the pledged property to be insured against loss and damage — once ownership is registered. Borrower life insurance and title insurance are voluntary, although the bank may offer a lower interest rate if you have them.
  • Home insurance. A voluntary policy covers finishing, utility systems, household contents and liability to neighbours for water damage.
  • Title insurance. This is more relevant to the secondary market: a flat bought from a developer under a shared construction agreement has no chain of previous owners.

What to check before buying a new-build flat

  • Payment goes through an escrow account, not directly to the developer.
  • The project declaration is published in the unified housing construction information system.
  • The shared construction agreement is registered with Rosreestr.
  • The bank holding the escrow account is on the list of authorised banks maintained by the Bank of Russia.
  • The agreement sets out the handover date and the developer's liability for delays.

You can find a policy for your mortgage or new flat in the mortgage insurance and home insurance sections and estimate the cost with the mortgage insurance calculator. More explanations of the law are in the Laws section.