The list itself has been known for a long time, and there is nothing uniquely Moldovan about it: separating construction from development, linking government support to infrastructure-backed projects, introducing infrastructure contracts, and transitioning to project-based financing.
The problem isn’t a lack of the right words. The problem is consistency. A list of reforms without an understanding of what needs to be done first—and what might only take effect in five years—is not a plan, but a wish list.
How can we overcome the crisis?
First and foremost, we must distinguish between two entirely different tasks: overcoming the crisis that is already unfolding, and transforming the market model itself over the next five to ten years.
These are different processes, with different affected parties, tools, and risks. Attempting to resolve them in a single way almost inevitably leads to the government once again stimulating demand, reviving sales for a few years, and thereby restoring the very structure that created the crisis in the first place.
Today, the crisis is already unfolding simultaneously on two fronts. On the supply side, sales are falling, construction companies’ cash flows are drying up, projects are being halted, and developers are unable to meet their obligations to equity investors—obligations that were based on the previous pace of apartment sales. Unfinished construction projects are emerging, which quickly fall into a state of legal uncertainty.
In European—and especially German—discussions, the natural response to such a situation is to improve the efficiency of insolvency procedures. The logic is clear: if a project’s business model no longer works, it is necessary to quickly assess the project’s viability, preserve the value of the assets, protect creditors, and either complete the project or transfer it to a new operator.
However, mechanically applying this solution to Moldova could yield the exact opposite result.
Our problem is that a developer’s controlled insolvency is by no means always simply the result of a failed project. It can be used as a tool to complete the project in the beneficiary’s interest: assets are transferred out before the proceedings begin, obligations to co-investors remain with the old company, transactions with affiliated entities erode the asset base, and the property itself remains in limbo—a state in which keeping it frozen is sometimes more profitable for the scheme’s owner than honestly completing construction or selling it to a new investor.
Speeding up such a procedure without changing its substance does not mean revitalizing the market, but simply accelerating the implementation of an already existing scheme.
Therefore, the sequence must be reversed. First, beneficial owners must be held accountable for the withdrawal of assets during the pre-bankruptcy period; there must be a thorough audit of transactions with affiliated parties; and the funds of co-investors must be protected through an escrow account or a bank guarantee for the project’s completion.
An apartment buyer should not automatically become the lender of last resort in someone else’s financial scheme.
And only after the main channels for abuse have been shut down does it make sense to expedite insolvency proceedings for projects where the crisis is truly caused by economic factors.
How can we avoid systemic social risk?
At the same time, another crisis is unfolding that is of considerably less interest to participants in professional discussions. This is the crisis facing households that purchased their only home using a mortgage loan, including through the government’s Prima Casă program.
The dynamics here are entirely different. The collateral is the apartment itself—the very asset whose liquidity today depends on the quality of the neighborhood, infrastructure, and the overall volume of investment supply.
If the home was purchased in a rising market in an area with inadequate infrastructure, and the price was propped up by cheap credit and investment demand, a market downturn could cause the apartment’s value to fall below the remaining mortgage debt.
This creates a classic situation of negative equity for the borrower. The family finds itself in a financial trap. It is impossible to sell the apartment without taking a loss and retaining part of the debt. Refinancing the loan is difficult, since the new bank receives collateral whose value has declined. Stopping payments means risking the loss of one’s only home.
If unemployment rises or incomes fall at the same time, the problem of an individual borrower begins to turn into a systemic social risk.
Another distinctive feature of Prima Casă is that the government itself contributed to the creation of this risk by guaranteeing the loan and encouraging home purchases.
Under this structure, a significant portion of the ultimate risk is transferred from the financial institution to the government and the borrower. This creates a strange situation: the government first stimulates demand for an asset without setting requirements for the quality of the property, and then is forced to deal with the consequences of its reduced liquidity.
Therefore, protection for such borrowers cannot be derived from measures designed to support developers.
A loan restructuring mechanism is needed for families who have objectively lost part of their income, rather than an automatic transition to foreclosure. During a sharp market downturn, restrictions on the forced sale of a borrower’s sole mortgaged home at a price significantly below the value used when the loan was issued should be considered separately.
Selling such an asset at the market bottom does not solve the problem—it locks in a loss, devastates the family’s financial situation, and increases the government’s social spending.
Why doesn’t the current market model work?
But this is merely dealing with the consequences. The market’s structural problem runs deeper. And here, it is not a single instrument that needs to be changed, but the very object around which the market is organized.
Today, the Moldovan real estate market effectively trades in two separate units: square meters and land plots. The buyer purchases a square meter. The developer seeks a plot of land. The bank finances the apartment buyer. The municipality issues a building permit for a specific project.
Each participant acts rationally within the scope of their own task, but no one is responsible for the end result—a functioning neighborhood.
This is precisely why we have developed a mature construction contracting market, but have not developed a fully-fledged real estate development market.
The contractor knows how to build. He is capable of organizing the construction site, procuring materials, hiring labor, and erecting a building.
Development begins earlier and ends much later than construction. It involves working with land, infrastructure, the financial model, the area’s function, transportation, commercial properties, and the long-term value of the developed district.
In Moldova, these roles have been conflated. A construction company was labeled a developer, and it was assumed that the market was thus established.
As a result, the contractor is forced to act as a land-use planner, even though its business model is structured entirely differently: find a plot, obtain the maximum allowable density, build, sell, and exit the project.
This is not a criticism of construction companies. They are behaving rationally within the institutional system that was created for them.
Consequently, reform must begin with changing the market unit. Instead of isolated plots and square meters, this unit should be a territorial project—a packaged set of urban planning rights, infrastructure obligations, and economic parameters.
There should be competition for the development of the territory
Here, there is a temptation to mechanically replicate the German model of a municipal land bank.
For Moldova, this solution looks good only on paper. A significant portion of Chisinau’s territories potentially suitable for development is burdened by a complex structure of rights, the Soviet legacy of collective ownership, incomplete demarcation, and a large number of owners.
To create a traditional land bank, the municipality would have to either purchase the land—which requires enormous capital—or spend years negotiating with dozens of owners, or resort to expropriation mechanisms, which are politically and legally highly contentious in a country where trust in property institutions is already low.
Another approach is more realistic. The municipality does not necessarily need to own all the land to organize the area’s development. Its task is to define the boundaries of the development zone, the permissible density, the functional designation, the transportation network, the infrastructure capacity, and the obligations of the future operator.
All of this is compiled into a single project package and becomes the subject of a transparent competitive bidding process.
The closest German institutional equivalent is Konzeptvergabe, although this mechanism would need to be significantly expanded for Moldovan conditions. In German practice, the focus is more often on awarding a specific plot of land based on the quality of the proposed concept.
In our model, the subject of the competition should be the development plan for the territory as a system of rights and obligations. Competition should not be over the ability to build the maximum number of square meters on a plot, but over the best solution for the territory.
At the same time, one cannot simply shift the problem of fragmented ownership onto the competition winner and consider the land issue resolved. A classic problem of dissenting parties will arise: several owners within the development area, realizing the critical importance of their plots, will be able to block the project or demand a price many times higher than the economic value of the land.
Therefore, the competitive bidding model must be supplemented with a land reorganization mechanism.
This does not involve confiscation or mandatory purchase of the entire territory by the municipality. The idea is to redistribute land rights within an approved development zone in such a way as to create plots suitable for development, secure land for roads and public infrastructure, and at the same time preserve the economic equivalence of the owners’ rights.
This results in a sequential process: the municipality defines the development area and its function; land reorganization is carried out; a project package is prepared; a developer is selected through a competitive bidding process; infrastructure obligations are established; and project financing is secured.
Only then does the construction contract come into play.
Separating the Roles of Contractor and Developer
It is precisely at this point that contracting and development finally take their proper places.
The developer organizes the land, capital, infrastructure, and the area’s function. The contractor builds.
The bank finances the project with clearly defined rights, phases, and cash flows.
The municipality is responsible not for selling permits, but for the public outcome of the area’s development.
In this model, the infrastructure agreement ceases to be yet another tax on construction. Its terms are determined as early as the project design and competitive selection stages.
It is known in advance what strain will be placed on roads, water, sewer systems, electrical grids, public transportation, schools, and preschools; which parts of the infrastructure will be built by the developer, which by the municipality, and within what timeframes.
It is fundamentally important that the infrastructure fee be tied to a specific territory. If the money goes into the general municipal budget, it almost inevitably becomes ordinary fiscal revenue. The developer passes the additional fee on to the price of the apartment, the buyer pays more, and yet the road, utility network, or school near the new neighborhood still doesn’t materialize. We end up with a new tax but retain the old model.
This, in turn, changes the very logic of municipal finance. Today, housing construction is all too often viewed by local authorities as a source of quick revenue. More permits, more projects, more transactions—that means more money and visible economic activity.
But a new residential neighborhood also creates long-term obligations for the municipality. It must be connected to the transportation system, roads must be maintained, streets must be lit, social infrastructure must be provided, and utility capacity must be expanded.
Therefore, every major project must be evaluated not by the number of square meters completed, nor even by the amount of initial revenue generated for the budget.
It is necessary to calculate the total cost of the area to the municipality over its entire life cycle: future revenues minus the cost of building and maintaining infrastructure.
If this balance is negative, the project does not constitute development, no matter how many cranes are visible on the horizon. It is simply a transfer of private income to the present and public expenditures to the future.
What is the role of the government and banks?
Once the first areas operating under the new model emerge, government support for demand can be adjusted.
Prima Casă and other mortgage incentive mechanisms should gradually stop subsidizing the purchase of any apartment simply because it is formally classified as housing. State guarantees should be tied to the quality of the product itself and the area in which that product is developed.
This does not mean a ban on purchasing apartments in other developments. The point is this: if the government assumes part of the financial risk, it has the right to determine what type of housing supply it supports. Subsidizing the purchase of housing in developments lacking infrastructure means that the budget effectively guarantees the liquidity of an asset that is inherently flawed in its design.
But linking subsidies to a specific area is not enough if the nature of the demand itself is not examined. A high-quality location eliminates one risk—the infrastructure risk—but does not eliminate another: an apartment in a well-serviced neighborhood can just as easily be purchased not for living in, but as a substitute for a bank deposit. And then the government guarantee will once again be supporting not household demand, but investment demand—only for a higher-quality asset.
Therefore, the Prima Casă program and any other form of government support for demand must be based on an independent assessment mechanism: not only of the quality of the location, but also of whether the housing is being purchased for residential purposes or as a financial instrument. And how new construction relates to the actual occupancy rate of the existing housing stock.
Without this metric, the system will repeat the same mistake in a new guise after a few cycles—it will begin to guarantee the liquidity of apartments that will once again stand empty, only this time in well-designed neighborhoods.
And only once a project emerges as a clearly defined institutional entity does full-scale bank financing of the development become possible.
Today, calls for banks to “finance projects, not just mortgages” change very little. Banks truly have nothing to work with. There is no institutional developer, no fixed infrastructure commitments, no clear sequence for developing the territory, land risk is vague, and cash flows depend almost exclusively on the pre-sale of apartments.
When an approved development plan, a developer, an infrastructure agreement, a phased development plan, and a system of land rights are in place, a project financing opportunity arises. The bank can then evaluate not just a promise to build another building, but the cash flow of a full-cycle project.
The new model must be safeguarded
Of course, a project competition in and of itself is not a cure for Moldovan administrative practices. A non-transparent procedure will quickly turn “Konzeptvergabe” Moldovan-style into yet another way to neatly distribute rights among pre-selected participants.
Therefore, safeguarding the new model must be built around the public disclosure of criteria, independent professional evaluation of concepts, disclosure of participants’ beneficiaries, and the prohibition of making substantial changes to the winning project after the competition without a new procedure.
But this is already a matter of protecting the institution, not abandoning it.
Today, the simplest political solution once again appears to be lowering mortgage costs, expanding government guarantees, speeding up the issuance of permits, and offering tax breaks to construction companies.
Such measures are indeed capable of reviving sales for a while. But they will only revive the same model: more credit for buyers, more demand for existing supply, new price increases, new localized densification, and even greater infrastructure debt for cities.
This is not a way out of the crisis. It is the start of the next cycle under the same conditions.
Therefore, the response to the current crisis cannot consist of a single program or a single law.
Existing distressed properties must be addressed through a protected insolvency procedure, first by closing off opportunities for asset stripping.
Households facing negative equity and loss of income need a restructuring mechanism, not the automatic loss of their only home.
But at the same time, we must begin a structural overhaul of the market itself.
Moldova does not need to rebuild its construction sector from scratch. It is already established and technically capable of building.
It is necessary to create the missing institutional layer above it—real estate development—and to stop treating the square meter as the market’s primary product.
The product should be a territorial project: land, infrastructure, economic function, capital, and a long-term development model, brought together into a unified system of rights and obligations.
As long as these functions remain intertwined, the government will repeatedly step in to prop up sales, mistakenly believing this to be a way to save the construction industry.
And in a few years, we’ll find ourselves facing the same crisis all over again. Only this time, the square meter will be more expensive, the infrastructure will be older, and the cost of the next mistake will be significantly higher.
Dmitrii Taraburca,
expert in real estate appraisal and development
