Is New Wave of Defrauded Homebuyers Swelling in Russia?

Is New Wave of Defrauded Homebuyers Swelling in Russia?


The interests of Russian defrauded homebuyers are again under threat. At present, the main issue is related to the Foundation for Protection of Rights of Defrauded Homebuyers. This organization was established to protect their rights and interests. After scrutinizing the activities of the fund, the Accounts Chamber detected threats and risks that were likely only to aggravate the situation.

The auditors of the Accounts Chamber have published the report “The analysis of efficiency of the actual use of regulations of the Russian Federation aimed at maintaining the legitimate rights of participants in shared-equity construction projects.” The report was based on data on how the protection of defrauded homebuyers was done from 2014 through 2019. First of all, the experts of the Accounts Chamber were concerned by the fact that the money allocated from the federal budget, was spent by the fund with a significant schedule delay. In 2018, the fund spent only 43.5 mln rubles ($607457.05,) or 0.54% of 8 bln rubles ($111,716,240) earmarked for that year. In 2019, a total of 8.1 bln rubles was assimilated ($113,112,693), that is, 18.6% of the scheduled 43.56 bln rubles ($608,294,926.80).

The auditors' important remark was also caused by the fact that the foundation's employees received salaries much higher than average ones not only across Russia in general, but also in Moscow. According to the Accounts Chamber, the payroll of the fund's executives in 2019 increased 32.5 times compared to 2017 and stood at 370.7 mln rubles ($5,176,651.27.) Almost 87% of last year’s expenses were related to labour remunerations.

During the investigation of the foundation's activities, very interesting facts concerning the money allocated for its work were established. For example, according to the assessment of the organization itself, more than 686 bln rubles ($9,473,660,000) are required to complete the construction of all the problem houses. Along with that, in March 2019, Dom.RF sent proposals to the Finance Ministry and the Ministry of Construction. They indicated that the organization needed 722 bln rubles ($9,970,820,000) to solve the housing problems. However, these figures are nothing more then plans and intentions. In reality, according to the report, budget allocations to the fund in the period of 2021 through 2022 have not been provided yet, while only 3 bln rubles ($41,430,000) have been reserved for 2020. However, at the end of April, the Foundation for Protection of Rights of Defrauded Homebuyers already received 30 bln rubles ($414,300,000) as part of the anti-crisis measures decreed by President Vladimir Putin. For the period of 2020 through 2022, the funds in the amount of a little over 40 bln rubles are provided to finish the problem construction projects in 31 regions alone.

The introduction of the system of escrow accounts should at least have protected the industry from new problems. The developers themselves harshly criticized this initiative because of its knotty implementation. However, as the review of the HSE Center for Economic Research shows, by spring 2020, the sector had almost completely changed over to new rules. But then the COVID-19 pandemic began.

“In early March, a swoop attack of the novel coronavirus hit the people and the Russian economy, including the construction industry,” says the review. “As a result, in the second quarter of 2020 almost all the indicators characterizing the construction activities made a tailspin. There were also indicators of the first level, such as demand for construction services or the amount of orders, the amount of construction works and the financial metrics – the financial resources and profit of the fund.”

According to its authors, the industry is unlikely to show compensatory growth in the third quarter. They stressed in particular the heavy impact on construction services in the second quarter.

“The decline in demand naturally caused a decrease in supply,” said the HSE report. “As a result, the financial condition of the majority of construction companies has worsened.”

At the same time, the situation in the regions around the problem construction sites is getting better very slowly. In the Aviator micro-district of Perm, homebuyers are waiting for their multi-storey residential building to be commissioned for the fourth year on end. The developer answers all the questions saying that there is no money. And there is no money since 2019. The years are rolling on, and there is no money,” the Perm residents say bitterly.

The situation in Samara was disconcerting, too. More than 5,000 officially recognized defrauded homebuyers have been waiting for their apartments for decades. Some progress has been made, but very slowly. In 2019, only 500 people received the long-awaited apartments.

On July 8, at a regular meeting of the Public Association of Defrauded Homebuyers of the Samara Region, the participants recorded a video address to Vladimir Putin, Prime Minister Mikhail Mishustin and Deputy Prime Minister Marat Khusnullin. The homebuyers told the officials about the situation in their city. They said that without assistance from the government and the Foundation for Protection of Rights of Defrauded Homebuyers, they might have never got the apartments.

The residents of Ulyanovsk took it a step further, as they no longer rely on promises of the authorities. They recorded an appeal to God and posted it on the Internet. They addressed their video message to the churchmen of the Russian Orthodox Church, as well as the clerics and the theologians of the Muslim republics of Russia, the United Arab Emirates, Egypt and other countries. The video contains a collage of all the unfinished buildings where people hoped to live and paid money for this. Among the main participants, there were elderly and young people, low-income residents and women on maternity leave.

After that, a peculiar flash mob began across the country, something like, “Help, God!” The example of Ulyanovsk’s homebuyers was echoed by the residents of Sochi, Rostov-on-Don, Krasnodar, Novosibirsk, Kirov and the Moscow region.

The situation around the defrauded homebuyers remains tense all over Russia. In Volgograd, people are listening to hollow promises for about five years. They are told that all issues are being resolved and the construction of the Dinastia and Admiralteysky residential complexes is about to be completed. But people no longer believe the city authorities. They are tired of waiting and living in rented apartments. If the situation does not start improving this summer, they are ready to start a hunger strike. “You see, summer is over soon. And then 2021 will begin. They will start telling us stories about rain, snow, strong wind, swarms of midges or the second wave of the coronavirus infection. It feels like this is just money laundering right in front of our eyes,” people said commenting on their decision.

There is the similar situation with a possible hunger strike in Balakovo in the Saratov region. The defrauded homebuyers put up single-person pickets in front of the building of the regional government. They explained that they are trying to attract the attention of the regional Governor, Valery Radayev, as only his signature is necessary to provide them with the apartments they aspired to so much.

“We are constantly being deceived,” one of the participants in the protest action says desperately. “All the papers are on Radayev’s table but he can't find time to sign the investment project. I've been waiting for my apartment for six years. We'll be standing here even if the hunger strike is necessary.”

A paradoxical situation unfolded around a long-suffering multistory building at Piskunov street in Irkutsk where people lived for several years in a house built illegally. It is not included in the register of residential buildings, remaining a shared-equity construction project. This spring, the regional court ruled that since the building had been built illegally, the residents would have to demolish it at their own expenses. The court did not specify where they should live after that, and who should return the money invested to the house.

The Unified Register of Problem Objects, which includes the residential buildings where developers delayed construction or gave the keys to people with a delay for more than six months, includes 3,061 houses with a floor space of 18.1 mln m². The register of problem dwellings includes 1,071 developers in 76 territorial entities. Mostly, problem houses are located in the Moscow region (755 houses or 24.7%,) the Krasnodar territory (261 houses) and the Leningrad region. According to the Accounts Chamber, at present there is no accurate information on the total number of defrauded homebuyers. According to various expert estimates, their total number currently ranges from 180,000 to 200,000 people. At the same time, the report contains the data of the Foundation for Protection of Rights of Defrauded Homebuyers, according to which the total number of victims in early March was 194,795. It is planned to solve the issues of homebuyers in most regions from 2020 till 2022, in 11 regions in 2023 and in the Novosibirsk region, in 2025.

Although in recent years a lot of efforts have been made to protect people from unscrupulous developers, the situation remains complicated. The problem has also been aggravated by the fact that the production of building materials was halted during the self-isolation period. As all regions lifted the restrictions differently, problems broke out in the field of logistics after the factories resumed their operation.

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