The individual housing construction (IHC) market in Russia is facing increased fraud and risks, making suburban living dreams more inaccessible. Rising prices, labor shortages, and a drop in demand have created a challenging environment, leading to more cases of unfinished projects, defects, and financial losses for buyers. Experts are advising caution and thorough vetting of developers to minimize risks.

Several factors have converged to create a crisis in the IHC market. Since 2021, prices for building materials have been rising, with the situation worsening in 2024. Migration policies tightening have reduced the number of work crews available, while qualified engineers are leaving for opportunities abroad. Mortgage rates have surged, effectively excluding many families from the market.

The introduction of escrow accounts, intended to protect clients’ money, has also presented challenges. While escrow accounts are designed to streamline the market and increase transparency, the rapid implementation has created difficulties for small construction companies that did not have time to adapt. The system has also failed to fully account for the specifics of IHC.

The crisis has affected all participants in the IHC market, including construction companies, clients, and banks. Distrust has grown among clients, and banks have tightened checks on appraisals and loan applications. Insurance companies are also studying documents more carefully and revising valuation methods.

There has been an increase in the number of defrauded clients throughout the country, leading to the creation of registers for both victims and unscrupulous construction companies. In the Sverdlovsk region, authorities are keeping lists of victims and companies with questionable practices, sharing the information with the prosecutor’s office and banks. Experts estimate that thousands of families have been affected nationwide.

Many clients have fallen victim to companies that entered the market during its peak period. The pandemic-driven boom in IHC attracted not only serious players but also those looking to make quick profits. The accreditation process has also come under scrutiny, with some companies obtaining loans based on unsubstantiated claims of past projects.

Winning a lawsuit against a fraudulent developer does not guarantee a quick return of funds. Clients who find themselves in situations where construction has stalled and the developer is unresponsive are advised to file a lawsuit. While clients often win these cases, recovering the awarded money can be a lengthy and challenging process.

Experts emphasize that the IHC market should not be universally labeled as highly risky, and suggest dividing the market into two categories: buying a ready-made house versus signing a contract for construction. Building a house is currently considered riskier than buying an apartment in a new building due to the lack of regulations similar to those governing apartment construction.

Buying a ready-made house, whether from a developer or on the secondary market, is considered a safer option. Ready-made homes offer the advantage of immediate occupancy and may be available at competitive prices as developers seek to maintain cash flow.

Despite recent declines in sales, the suburban house market is still active, with clients becoming more cautious and informed. Buyers are increasingly scrutinizing construction technologies and materials, and seeking recommendations from previous clients.

To minimize risks, experts advise checking the legal and public profiles of construction companies, visiting construction sites, and paying in installments based on completed stages of work. It is crucial to study other projects by the developer and verify progress on your site.

The market is facing further challenges, including an increase in VAT and a decrease in the income threshold for the simplified VAT taxation system, which are expected to drive up prices for private house construction. Experts predict that house prices will increase by 5% by the end of this year and by another 10-15% next year.

The IHC market is evolving, with established companies adapting to the new environment and new players struggling to enter. Some developers have managed to maintain or even grow in recent years by focusing on selling ready-made houses and implementing well-established business processes.