A few days ago, many families suddenly woke up from the dream of owning their own four walls. The property developer Project Immobilien based in Nuremberg is bankrupt. The future of 118 construction projects with 1852 apartments is uncertain. So far, no one knows what will happen to the money that has been paid. Craftsmen with unpaid bills are also affected. Many builders ask themselves how they can protect themselves from the bankruptcy of a project developer.
Can I insure myself in the event that the developer goes bankrupt?
Usually not. Private individuals who buy a property from a property developer cannot protect themselves against the property developer slipping into insolvency during the construction period. “So-called construction completion insurance is usually taken out by the project developers themselves, if at all,” says Michael Schlueter, managing partner of Schlueter Assecuranz, an insurance brokerage company based in Leonberg that specializes in the construction and real estate industry. The company includes the costs for the policy in the construction price – so the client actually pays them.
How high are the costs?
The price of construction completion insurance is usually calculated as a percentage of the construction costs. According to the comparison portal Verivox, this percentage is often three percent of the construction costs. For example, a construction project worth 200,000 euros will incur 6,000 euros. The higher the construction costs, the higher the insurance premiums. “The insurance contains a one-off amount for the insurance cover, the costs for the structural inspection of the construction project and the construction supervision by experts,” says the brokerage platform Immoverkauf24.
Why is this so expensive?
The three percent is an average. Insurers calculate the price for a corresponding policy individually for the property, explains insurance broker Schlueter. “A property that is built on the banks of the Rhine in Düsseldorf has completely different risks than a terraced housing estate in the Harz Mountains.”
What does such insurance cover?
Construction completion insurance is a guarantee in case the developer goes bankrupt. If construction is halted because the property developer is in need of money, it costs the builder real money because he has to pay interest on his construction financing even if construction is not progressing. In the event of seizure or insolvency, construction falters or comes to a standstill. Then the construction completion insurance steps in.
However, it only takes on up to 20 percent of the construction costs and is responsible for compensating for the damage incurred. This can be additional costs, for example, if another developer has to be found to complete the project. Banks often require such coverage to be in place before they issue mortgage lending.
Do all property developers have such a construction completion insurance?
Expert Schlueter knows that very few companies take out such a policy of their own accord. “Informed customers can insist that the project developer take out insurance for the property before signing the contract.” A piece of good advice for builders: When choosing a developer, you should pay attention to whether they have a policy or are willing to take it out. A corresponding insurance says something about the seriousness of a construction company. Insurers only offer such contracts after a thorough examination and check the economic performance of the company before the contract is concluded.
How else can private builders protect themselves?
The Bauherren-Schutzbund recommends paying attention to a balanced payment plan in order to avoid hidden advance payments. “So you should only pay for what has actually been done,” says the association, which advises private builders. “That’s why builders should always keep an eye on the construction progress and the completion of the building. As a guideline, no more than 50 percent of the total construction sum should have been paid by the time the shell is completed.”
Some builders have construction insurance. Does that help?
If a construction company goes bankrupt, this contract is of no use. He pays for storm damage to the half-finished house or for theft from the building that is not yet inhabited, for example if thieves unscrew the radiators. This policy can be just as important as building liability coverage, which pays for damage to third parties. If you also want to protect your building against fire, you should look for a residential building insurer that offers shell protection. But one thing is clear: These contracts do not help to overcome the consequences of bankruptcy.