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The project finance model in the supply of residential and commercial premises

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Author Info

  • Damir Juricic

    (Centre for Business Finance Management d.o.o., Rijeka)

  • Damir Brajkovic
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    Abstract

    A supply of dwellings greater than the demand, a reduction in the availability of housing loans and increased credit risk, caused, inter alia, by the financial crisis: these are the basic features of today’s residential property and commercial premises markets in Croatia today. Built but unsold housing units have exposed private investors, who have organised the supply of units within the balance sheet of their firms, to significant risk of underinvestment. The materialisation of this risk is most manifested in the impossibility of funding the core business because of loans that they have agreed on for the construction of dwelling units meant for sale on the market. The paper then proposes a model that, if it were applied, could insure investors to a greater extent against the risk of underinvestment. The supply of dwelling units with protected rentals by the local public sector organised in the traditional manner, i.e. according to a model in which the local public sector figures in the role of investor, distributes the burden of development costs onto the future generations as well. However, practice has shown that traditional models inequitably expose future generations to the risk of a reduction in the quality of this kind of public service. From this point of view the proposed model transfers to the future generation not only the costs but also the obligations to secure equal qualities of public service in such a way that the private investor long-term assumes the risk of the availability of public building. The problem in this kind of organisation of the supply of a public service is double taxation via VAT, changes in the law concerning which are accordingly proposed.

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    File URL: http://www.ijf.hr/eng/FTP/2010/2/juricic-brajkovic.pdf
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    Bibliographic Info

    Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

    Volume (Year): 34 (2010)
    Issue (Month): 2 ()
    Pages: 181-206

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    Handle: RePEc:ipf:finteo:v:34:y:2010:i:2:p:181-206

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    Keywords: project financing; housing construction;

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