As of January 1, 2019, the register of ‘defrauded homebuyers’ in Russia included about 40,000 people in 68 regions. A total of 898 new buildings that are considered problematic account for about 17 million square meters of housing. Contrary to expectations of the legislative changes, which came into force on July 1, the problem remained unresolved and, on top of that, was exacerbated.
Surprisingly, the most difficult situation is in the Moscow and Leningrad regions, the Krasnodar territory, as well as in the Rostov, Novosibirsk and Samara regions. According to the Ministry of Construction Industry, Housing and Utilities Sector (Minstroy), there are 260 problem objects in Moscow alone.
Moscow and the Moscow Region
According to the official information from Marat Khusnullin, a deputy mayor of Moscow, 4,500 defrauded homebuyers are registered in the capital of Russia. At the same time he does not mention the objects that were unaccounted and forgotten.
For example, the real estate developer Energostroykomplekt-M that worked in the Moscow district of Yuzhnoye Tushino left 500 people homeless and off the list due to the fraud with their documents.
The situation in Shcherbinka, a part of the federal city of Moscow, is very similar: Moscow authorities offered the buyers of the objects that have been 70 percent ready, to move to the Ryazanovskoye village without any urban infrastructure and access to the railway.
The Tsaritsyno Residential Complex, the history of which began thirteen (!) years ago, is widely known far beyond the Moscow region. The debtors, who bought apartments in 16 houses of this complex, organized dozens of pickets and actions of protest. According to Elena Godlevskaya, coordinator of the action group of defrauded homebuyers, their active position forced the authorities to adopt the notorious amendments to Federal Law No. 214-FZ on the Participation in Shared Construction of Apartment Houses and Other Immovable Property Entities (214-FZ), which came into force in the summer of 2019. But it was not of much help. Today the money of homebuyers and investors does not come directly to developers, but to the so-called “escrow accounts”, and developers cannot use it if the construction deadlines are missed. But in some situations, delays exceed ten years, and works cannot be restarted.
Godlevskaya is outraged by the fact that on October 10, despite an unprecedented case of blatant fraud, the court changed the pre-trial restrictions for Igor Pinkevich, the head of the project developer, from detention in a pretrial custody to home arrest: “This is a slap in our faces. Almost every weekend we go out to protest. There have been already suicides among the homebuyers, families have split, and lives have been ruined. But so far the new law has made matters worse.”
Among two other main unfinished construction projects in Moscow there are Terletsky Park and Akadem-Palas.
And this is barely a complete list. Take the Tomilino Residential Complex. An unfinished building, too. The day with its commissioning exceeds 950 days. The object was not identified as problematic. Although, in accordance with the law, if the commissioning is delayed for more than nine months, the object should automatically be identified as a problematic one.
The Pyatirechiye Residential Complex. Dmitrovsky district of the Moscow region. This is a yet another long-delayed construction project. The delay is two and a half years long. Construction was put on hold since autumn 2018 until today. The authorities have been renewing the construction license, while the developer has been showing progress in construction works to supervisory authorities. And the affected customers are deprived of the opportunity to get on the register of defrauded homebuyers.
Add here the dozens of buildings that have been never completed as an inheritance of the ill-fated SU-155 group.
Anastasia Pyatova, the сhair of the Moscow City Committee for Implementation of Investment Projects in Construction and Control of Shared-Equity Construction, said that the official and real figures on defrauded buyers in Moscow differ by a factor of two. The underlying cause is that Moscow and the Moscow region customers cannot provide the documents to get into the register of affected clients. According to the road map that was prepared by the Moscow Fund of defrauded homebuyers, the commissioning of buildings is scheduled for the end of the year but is unlikely to be completed.
St. Petersburg and the Leningrad Region
Last December, the situation with regional homebuyers reached out to the President. During Vladimir Putin’s annual question-time show, a homebuyer of the Gorod Group of Companies from St. Petersburg said that the situation was more serious than what the officials reported. The President promised her a personal meeting with Alexander Beglov, acting governor of St. Petersburg, and put the situation under special control.
Officially, the list of problem buildings includes 36 uncompleted construction projects where 15 thousand defrauded homebuyers bought apartments. Within next three years, two billion rubles will be allocated from the regional budget to complete the construction. The same sum is to be allocated from the Defrauded Homebuyers Fund. The federal budget intends to invest 10 bln rubles in the project.
The most problematic developer is Normann, which began bankruptcy proceedings in April 2019. One of its construction objects is the Desyatkino 2.0 residential complex
--1,629 buyers, more than 1 bln rubles needed to complete the construction. Other projects are the Yarky complex with 3,642 flats and 4.7 billion rubles to commission them, and the Mororshkino complex with 2,991 apartments and 2.6 billion rubles needed. Desyatkino-2 with 328 buyers and 152 million rubles needed is on that list too. In total, there are 8.5 bln rubles and 3,448 shareholders.
Mikhail Moskvin, the deputy chair of the Leningrad region government said that the roadmap of the regional fund of defrauded homebuyers will include the Leningradskaya Perspektiva Residential Complex of the LenspetsStroy company, the Raduzhny and Galaktika complexes of Glavstroykompleks, the complexes Italyansky Kvartal, Tridevyatkino Tsarstvo, Anninsky Park and Chudesa Sveta of the company group Unisto-Petrostal, the complexes Ryabinovy Sad and Yaninsky Kaskad-4 of the company Stroitelnoye Upravlenie. In addition, the Leningrad region is planning to invest one billion of rubles in the residential complex Sily Prirody and housing construction co-operative Okhtinsky.
According to the activist Maria Shilo, who addressed to the president on behalf of the defrauded buyers of the Leningrad region, almost all the problem objects have all the indications of fraud. But none of unscrupulous developers was put to justice. “Some of the executives have been prosecuted, but none of them has been punished. Norman's buyers have been already notified by banks that their homes are allegedly ready. It is just a deception. These are come-offs, and in reality we still have no place to live,” Maria says.
The Krasnodar Territory
The Krasnodar Territory takes second place in the country in terms of the number of problematic shared construction projects. According to the governor of the Krasnodar territory, Veniamin Kondratyev, about six billion rubles are needed to complete the unfinished buildings. The fastest growth of problem objects in 2018 happened in the Krasnodar Territory of problems of the company Restavratsiya. A total of 1,500 customers were deceived by the company.
The regional fund for the protection of homebuyers’ rights has been allocated 1 bln rubles to finish the construction of problem objects. Another 4 bln rubles are to come from the federal budget. Officially, 64 objects have been declared problematic. Eleven ones will receive funding on a first-priority basis. Also, changes have been made to the regional legislation: now investors completing the construction will get additional land plots. Law enforcement agencies have also engaged with the issue: only in 2018 more than 40 unfair developers were convicted in the region, 31 of whom were sentenced.
However, despite all efforts, a lot of homebuyers still are on the streets and ready to fight for their rights. For instance, in the spring of 2019, the defrauded buyers of Multiplex Kino residential development tried to organize a motor rally to Moscow with a request to complete their apartment block. In total, there are about 6,000 homebyuers involved in that project.
The buyers of the residential complex Rechnoy Brig say that despite the meetings with regional authorities, their building is still unconnected to facilities, and the developer is continuing to delay commissioning. The house should have been built back in 2016.
Escrow Accounts, or However Much You Change Positions...
Amendments to the federal law No. 214, that regulates shared construction in Russia, primarily imply changes in the funding system. Since July 1, developers have lost the opportunity to attract funds directly from individuals. Now the money of homebuyers will be accumulated on special escrow accounts, and the developer will be expected to take loans or attract money from investors for a precisely specified housing development project. He will be able to take the buyers’ money only after completion of the construction project.
According to a study by the Stolypin Institute for Growth Economics, until 2022, these shifts may lead to the increasing number of defrauded buyers by 176-340 thousand people.
Dmitry Kotrovsky, a member of the Opora Rossii movement presidium, claims that only 774 of 3,850 developers currently building about 120 million square meters of housing got the approval by banks for project financing. They account for 19.2 million square meters. m. Another 2,439 companies building about 71 mln square meters of housing were allowed to continue construction and to use the funds of people. However, 637 developers have not yet received approval for the allocation of funds and, as a consequence, may leave the market. “We assume that the register of defrauded buyers will get at least twice as more entries and will embrace up to 400,000 people,” Kotrovsky said.