Let's start with the fact that buying an apartment in a building under construction is an investment, and investment always involves risks. The golden rule of any investor sounds like this -
“High-Risk, High-Reward”, which means high risk - high reward. In other words: if you want to get a high reward, be ready for high risk.
Risk Assessment
It includes identification, analysis and assessment of risks. First, you need to identify sources of risk, possible consequences and their causes, based on analysis, historical data and expert opinion. Then analyze the nature of the risk and determine its level. Then assess whether the level of risk is acceptable according to internal risk criteria.
«The biggest risk you can take is to take no risk» Mark Zuckerberg
When buying an apartment in a new building, we highlight the following types of risks:
- Legal. Related to the legality of the construction object and the possibility of its acceptance for operation in the future. Are legal rights to the land plot registered, are there technical conditions for connecting engineering communications, have permits for construction work been issued, is construction being carried out in accordance with approved urban planning conditions and restrictions, detailed plan of the territory and general plan? We have already written about legal risks in the article How to buy an apartment in a new building, avoiding risks!
- Construction. Related to the possibility of building the object without defects. Does the company have experience constructing similar objects? Are building codes and regulations being followed?
- Economic. Related to the ability to successfully sell and finance construction. How in demand are the apartment layout solutions in this building on the market? Has the company delayed construction and for how long? What is the sales dynamics? What is the readiness level of the building? Does the developer offer flexible financial terms for purchase?
- Political. Related to the ability or inability to influence the making of necessary decisions at the level of state government authorities or local self-government. Which political forces do the owners and managers of the construction company belong to? What is the balance of political forces? How could the situation change and what are the sentiments of the population?
Only such a comprehensive assessment can show the real picture and the probability of successful completion of construction of the house. In Ukraine as a whole and in Odessa in particular, unfortunately, there are examples where even objects with all necessary permitting documentation were frozen due to unsuccessful apartment layout solutions of the house. After a comprehensive risk assessment, one can proceed to managing them.
What are the risk management options and what is applicable for investing in new construction?
There are four basic risk management methods:
- acceptance method. Conscious acceptance and retention of risk.
- avoidance method. Refusal to purchase an object with excessive risk;
- transfer method. Insurance or hedging of risk. These instruments are not available at the stage when the house is being built. Insurance companies refuse to accept such risks.
- reduction method. A classic example - diversi
