Financial Modelling of Transition to Escrow Schemes in Urban Residential Construction: A Case Study of Tashkent City

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The paper aims to forecast the financial implications of transitioning to mandatory escrow schemes in Tashkent's residential real estate market using a representative project and a detailed three-statement financial model. It evaluates the economic effects on developers, banks, and apartment buyers before the actual implementation of the regulation. 

Recommended improvements for the article:

1- The abstract lacks clarity in presenting quantitative results. Including key numerical outputs such as IRR comparisons between DDY and escrow models would improve clarity and engagement.

 

2- The results would benefit from comparison with other dual-objective or simplified models. Specifically, the three-objective optimization should be compared with bi-objective cases to evaluate how added complexity improves or affects decision quality.

 

3- The use of a representative-agent model for a financial forecast is not novel in itself, but the specific combination with Uzbekistan’s transition to escrow provides some contextual originality. However, additional benchmarking with models from similar economies would help validate its contribution.

 

4- It is recommended that a flowchart be added at the beginning of the methodology section to help readers better understand the structure and sequence of the research process.

Author Response

The paper aims to forecast the financial implications of transitioning to mandatory escrow schemes in Tashkent's residential real estate market using a representative project and a detailed three-statement financial model. It evaluates the economic effects on developers, banks, and apartment buyers before the actual implementation of the regulation. 

Recommended improvements for the article:

1- The abstract lacks clarity in presenting quantitative results. Including key numerical outputs such as IRR comparisons between DDY and escrow models would improve clarity and engagement.

Reply: Such a comparison is actually undertaken in Table 5 (between lines 465 -466) in terms of IRR and Equity requirements. As suggested by the reviewer, the context of such IRR comparison has now been made more clear in the revised abstract. 

2- The results would benefit from comparison with other dual-objective or simplified models. Specifically, the three-objective optimization should be compared with bi-objective cases to evaluate how added complexity improves or affects decision quality.

Reply:  The paper mentions the 3-statement financial modelling framework made out of the balance sheet, P&L and the CFS statements. It never mentions any three-objective optimization (whatever it may mean, in practice), even though it is implied in the context of financing the project’s investment costs that developers optimize their IRR (or NPV) through the great use of leverage and subject to their available equity. Some developers, however, may choose to optimize their accounting return on equity (ROE), and our modelling framework helps them to do that as well. In short, our paper doesn’t normatively theorize about the objective metric to be optimized, nor does it prescribe any notion of three-objective optimization.         

3- The use of a representative-agent model for a financial forecast is not novel in itself, but the specific combination with Uzbekistan’s transition to escrow provides some contextual originality. However, additional benchmarking with models from similar economies would help validate its contribution.

Reply: Yes, the use of a representative-agent model for escrow-related financial forecast is not novel as already have been mentioned in the Paper, e.g. by Chayetskiy et al (2020)), which is the key reference exactly specific to the escrow context. In other real estate modelling contexts representative agent models are also practiced (see the new Araya (2020) reference being added to the Paper, which is a good overview source).   We believe it is the combination of this representative agent idea with the 3-statement financial modelling framework that makes our contribution to the escrow analysis literature novel, and helps guard against many modelling mistakes that can be captured within the integrated 3-statement modelling framework. Additionally, as remarked upon, this novel theoretical combination has a contextual originally, by being fleshed out with Uzbekistan institutional context.  

 

4- It is recommended that a flowchart be added at the beginning of the methodology section to help readers better understand the structure and sequence of the research process.

Reply: Such a flow chart has been added as Fig. 2 in the revised Paper.

We hightly appreciate and are thankful for the reviwer's effort and attention devoted to our Paper!    

Reviewer 2 Report

Comments and Suggestions for Authors

The manuscript provides a relevant ex-ante industry-level analysis of the forthcoming mandatory escrow schemes in residential and mixed-use construction in Tashkent, scheduled for implementation in 2026. The topic is timely and contributes to the literature on construction finance reforms in transition economies. However, several aspects of the manuscript require revision before it can be considered for publication:

1. The formatting of Tables 1 (line 50), 2 (line 127), 3 (line 318), and 4 (line 432) needs to be improved for clarity. The spacing and alignment should be consistent with the journal’s guidelines.
2. Quality of Figure 1 (lines 97–99): Figure 1 should be redesigned to reflect a more professional and publication-ready standard. Currently, the visual does not meet academic presentation norms.
3. The two paragraphs at lines 149–154 and also those at lines 609–621 appear closely related and would benefit from being merged into single, more coherent paragraphs to enhance the narrative flow.
4. Table Continuity (line 456, Table 5): Table 5 is split across pages, which disrupts readability. If a table must span multiple pages, the header should be repeated on the new page to assist reader comprehension.
5. The numbering of tables should follow a consistent sequence. At line 457, the next table should be labeled as Table 6, not 5, to maintain the correct order.
6. One notable omission in the current manuscript is the lack of a robustness check to validate the proposed model. I recommend that the authors conduct and report at least one form of robustness or sensitivity analysis to strengthen the credibility and reliability of the findings.
7. The formatting of the references is inconsistent and needs to be aligned with the journal’s style guide. Proper citation formatting is essential for professional presentation.

In summary, the manuscript addresses an important policy transition in Uzbekistan’s construction sector, but it requires both structural and analytical improvements. Addressing the issues above will substantially enhance the clarity, rigor, and presentation of the paper.

Author Response

The manuscript provides a relevant ex-ante industry-level analysis of the forthcoming mandatory escrow schemes in residential and mixed-use construction in Tashkent, scheduled for implementation in 2026. The topic is timely and contributes to the literature on construction finance reforms in transition economies. However, several aspects of the manuscript require revision before it can be considered for publication:

1. The formatting of Tables 1 (line 50), 2 (line 127), 3 (line 318), and 4 (line 432) needs to be improved for clarity. The spacing and alignment should be consistent with the journal’s guidelines.

Reply: I read the Journal guidelines here: https://www.mdpi.com/journal/buildings/instructions#figures   and they explicitly mentioned using smaller font for tables (but no smaller than 8, so we used 9), and use dots instead of commas to separate fractional numbers. Suitable changes have been made now in the revised text to comply with that.

2. Quality of Figure 1 (lines 97–99): Figure 1 should be redesigned to reflect a more professional and publication-ready standard. Currently, the visual does not meet academic presentation norms.

Reply: Fig. 1 is actually based on a Figure from a Paper by Matveeva (2020) published in a peer-reviewed Journal, with some of our own more concrete details of settlements added in and modifications to allow for Uzbekistan context.  If by making it look more professional is meant to have uniform colour-scheme applied and no-frills arrows, that is what the redesigned version of the figure now looks in the revised version of the manuscript. Generally, the Figure is not central to the manuscript and can be deleted, but it makes for a helpful visual, nonetheless, to a not fully initiated reader.

3. The two paragraphs at lines 149–154 and also those at lines 609–621 appear closely related and would benefit from being merged into single, more coherent paragraphs to enhance the narrative flow.

Reply: the paragraph in lines 149-154 elaborates the initial hypothesis, while the latter paragraph is maintained in the confirmatory tone, hence those have been kept separately. The effect of the redistribution is now mentioned to be up to $50 mln. at the current interest rates.

4.Table Continuity (line 456, Table 5): Table 5 is split across pages, which disrupts readability. If a table must span multiple pages, the header should be repeated on the new page to assist reader comprehension.

Reply: In the re-arranged layout of the table, now the table doesn’t span multiple pages in the Word editor.

5.The numbering of tables should follow a consistent sequence. At line 457, the next table should be labeled as Table 6, not 5, to maintain the correct order.

Reply: the sequencing of Tables has now been re-arranged in the revised manuscript.

6. One notable omission in the current manuscript is the lack of a robustness check to validate the proposed model. I recommend that the authors conduct and report at least one form of robustness or sensitivity analysis to strengthen the credibility and reliability of the findings.

Reply: Yes, robustness checks in the form of univariate sensitivity analyses have been conducted. Key sensitivity results have been reported in the notes to Table 5. Work in progress may represent multivariate sensitivity analyses, e.g.  Monte-Carlo simulations.    

7. The formatting of the references is inconsistent and needs to be aligned with the journal’s style guide. Proper citation formatting is essential for professional presentation.

Reply: Reference formatting has now been aligned with the Journal guidelines on style from here: https://www.mdpi.com/journal/buildings/instructions#figures . Where abbreviations for journals were not available, those abbreviations have been made by authors in a standard way.  Year of publication has been retained in the opening of the reference, since same authors may have multiple works published in different years.

We are deeply thankful for the reviwer's efforts in reviewing our manuscript.