For years, thousands of Russians have been paying mortgages on homes that remain alarmingly unfinished. The ‘defrauded co-investors’ have found a voice – but will the Kremlin listen?

Among the red banners and copies of Trudovaya Rossiya (Working Russia) being passed around at a Communist party rally in Moscow, you could see a new kind of uniform: orange shirts bearing the slogan “Defrauded Co-Investor”.

“We’ve lost all hope,” says Valery Ryabkov, who is wearing one of the shirts. “We’ve gone to the Kremlin. We’ve gone to the mayor. Nothing happens. We get the same run-around everywhere.”

In Russia there are anything between 40,000 and 120,000 “defrauded co-investors” – people who paid money for new apartments but were unable to move in because construction never finished. The problem has persisted for more than a decade.

In 2012, Ryabkov took out a mortgage on a two-bedroom unit in the Tsaritsyno residential complex, which had been under construction for six years. Another six years on, his family still live in a rented apartment while Rybakov pays the mortgage on an unfinished home.

Nobody wants to fight with the police, take it to court, file a report. We had one suicide, and two families broke up

“Nobody can force the developer to finish building the house – the developer has gone bankrupt,” he says. “Now we’ve got three children, a co-investment contract, we’ve won seven lawsuits and we’re registered formally as defrauded co-investors. And nothing. We bought this apartment ourselves. The government didn’t give it to us. We didn’t receive it for our three children, like it used to be in Soviet times. I’d gladly support the Communists!”

The head of the Nastyushka conglomerate that owns Tsaritsyno is awaiting trial on fraud charges after the developer went bankrupt before finishing the job. After co-investors complained to the district attorney, the construction ministry, the Kremlin and the courts, a new developer was eventually appointed. The latest promise is to finish the building by late 2021 – a full 15 years after the project began.

Facebook Twitter Pinterest Unfinished Tsaritsyno residential complex in Moscow Photograph: Sergei Bobylev/TASS

Last year, Vladimir Putin issued an executive order giving the country three years to abandon shared-equity construction (also known as buyer-funded development). Even if that happens – and it is a big if – it will be too late for Ryabkov and tens of thousands like him.

Q&A What is buyer-funded development? Show Hide It is an increasingly popular model of financing property developments by using deposits from many individual buyers. Apartments are sold off-plan to buyers, often overseas, who pay substantial deposits of up to 80% upfront. Their money is used to fund the entire project, from marketing fees to construction costs. The model has become more commonplace since the financial crisis of 2008, after which it became harder for developers to borrow from banks and institutional lenders to fund their schemes. It is seen as a risky form of investment as construction often begins without the commitment of funding to complete it, and there is no safety net if costs balloon beyond projections and funds run out. The Solicitors’ Regulation Authority has warned of "substantial risks” of misappropriation of money the developer failing to deliver on the proposal or becoming insolvent, with buyers “unwittingly financing high risk or fraudulent property development.”



‘People have died before getting their apartments’



Shared-equity construction arrived in Russia in the wake of the 1989 fall of communism, a time when private construction companies were springing up like weeds. The model came from struggling mid-1980s Argentina, where it helped ordinary people get their foot on the housing ladder; the number of property owners in Argentina rose almost tenfold.



Russia’s first defrauded co-investors started appearing in the 90s. “There weren’t really any organised protests back then,” says Nadezhda Kosareva, the president of the Urban Economics Institute, which helped develop the federal law that now regulates shared-equity construction in Russia. “It was more local associations of people. There wasn’t a political [component], but the problem was visible.”

The legislation emerged, she says, in response to the country’s defrauded co-investors eventually forming a mass movement in the early 00s. In 2003 and 2004, a whole series of laws were adopted on affordable housing that included new town-planning and housing codes, as well as regulations on shared-equity construction.

As of the start of this year there are 836 “problem sites” in 69 regions across Russia, according to the construction ministry. Mikhail Men, the head of the ministry, estimates 38,000 people had bought homes at these sites – although a working group in United Russia’s general council put the country’s defrauded co-investor population at over three times that.

Facebook Twitter Pinterest Mikhail Men. Photograph: Kommersant Photo Agency/REX/Shutterstock

In the southern city of Krasnodar, Vitaly Kiselyov, head of the local co-investors’ union, says his family is one of 15,000 still waiting on their apartments. In 2016, his mother bought an apartment that had supposedly been on the rental market for four years. The building remains uninhabitable. “Nobody does anything. I can’t even look at it. The whole thing just kills me,” says Kiselyov.

His grandmother also bought an apartment in a new complex. “The paperwork says the building is finished, and she was issued a deed and all the necessary documents,” he says. “But in reality, it’s just an empty field. There’s no construction whatsoever. Now she has to live in a tent. There are people who have died before getting their apartments.”

In the Siberian city of Novosibirsk, the lawyer Alexander Bakaev joined the defrauded co-investors’ movement after buying a home that was never finished. He says both the public and the government thought of co-investors as “losers at a casino” who “willingly handed over their money to scammers”.

In the city of Saratov, Alexey Abasov and his construction company, Grad-S, sold apartments in the unfinished Breeze housing complex and another 13 high-rise buildings at various stages of completion. Today, Abasov is in a jail, and his wife, Galina Chernova, is under house arrest. They deny the charges. The case is so notorious that their victims wrote a poem:

Абасов сидит,

ЖК «Астраханский» стоит!

Дольщики маются,

А власти не парятся! They’ve put Abasov in jail,

But his apartments still retail!

We’re worn to the bone,

And the state’s left us alone.

When activists tried to organise a series of pickets along central roads in major cities last May, local officials around the country staged outdoor festivals to crowd them out. The conflicts are not always gentle. In Yoshkar-Ola, anti-extremism police investigated a picket by defrauded co-investors; in Ryazan, the authorities used tractors to disperse a crowd; and in November 2017, the attorney general’s office banned a website operated by co-investor activists in Gelendzhik.

In St Petersburg Alexander Golovko, who heads the Homeless Co-Investor movement, says he was defrauded by the construction company Lenspetsstroi. In 2014, he signed a co-investment agreement on a new home in a housing complex on Leningrad Prospect. The building was supposed to have 18 floors, but so far only nine have been finished.



Golovko first sensed something was wrong when they demanded a tour of the construction site in 2015. He says they were shown an empty field with a foundation pit and several piles of earth. “Then, in order to imitate some kind of activity, Lenspetsstroi started hiring workers according to this strange scheme,” Golovko claims, recounting what he says he heard from one of these labourers. “A construction worker shows up and works for two or three weeks, and then asks for his pay cheque. He finds out that instead of paying him, they’re going to offer him square footage in the housing complex that still isn’t finished. He asks them, ‘Guys, have you gone fucking insane?’ and walks out.” In March 2018, police opened a fraud investigation against the company.

Facebook Twitter Pinterest Protesters at a rally of defrauded real estate investors in Moscow. Photograph: Maxim Shemetov/Reuters

Golovko believes the state should monitor construction projects at every stage and respond quickly to any reported delays. He’s not optimistic about the protests: “Everybody is decisive online, but nobody wants to freeze their butts off at rallies, fight with the police, take it to court, and file a report with the district attorney. They pay the mortgage for their unfinished homes and they rent apartments. Some people drop everything and leave St Petersburg altogether. We had one suicide, and two families broke up. The elderly aren’t living this one out.”



Golovko claims Lenspetsstroi even created fake social media communities where accounts imitate dialogues in which people visit construction sites and discuss improvements being made to the buildings’ grounds. These groups publish videos showing workers moving pillars and concrete blocks at unfinished construction sites. Sometimes they lift something with a crane. He alleges that almost all apparently feature the same four workers.

Desperate defrauded co-investors often appeal directly to Putin. Late last year a message reading “Putin SOS” appeared atop one of the high-rise buildings in the Tsaritsyno complex. A few days later, representatives from 35 other troubled housing complexes made a joint appeal to the president.

Sometimes Putin answers – in November 2016 he phoned the leader of a civic action group in Chelyabinsk – but the effectiveness of these calls is unclear. “We wrote to Putin. We sent a messenger to the president’s administration. To be honest, we were disappointed,” says Irina Denisova, the head of a co-investors’ civic action group in Saratov. “It was just the typical clerical stuff. They recorded our statement, stamped a receipt and that was about it.”

“Appealing to Putin helped,” says Vitaly Kiselyov, a Krasnodar activist, “but not for long. At first, Moscow was calling the management companies that were supposed to connect our communication lines. They called me and started asking how things were going, but nothing more happened.”

Facebook Twitter Pinterest ‘Putin help! Waiting since 2007’ – graffiti adorns unfinished buildings in Kaliningrad. Photograph: Artem Kilkin/Kommersant Photo/REX/Shutterstock

Following Putin’s call for Russia to abandon shared-equity construction projects, the construction minister says the state intends to switch to a procedure where banks allocate money for specific sites and the people buying homes transfer the money to escrow accounts, only to be released on completion.

Nadezhda Kostyreva, president of the Institute for Urban Economics, says the proposed scheme would merely mean that banks, not developers, assume the construction risks. “The funds on the escrow accounts wouldn’t be protected completely because the cost of apartments exceeds the maximum deposit insurance,” she explains. “We’re still a long way from times without shared-equity agreements in housing, when everything is just a straightforward contract of sale.”

Edgy urban apartments, lavish promos – and a trail of angry investors Read more

The construction ministry says it has received government blueprints for resolving Russia’s problems with defrauded co-investors, and lieutenant governors around the country have been tasked with implementing the plans. Last year, regional governments finished 140 stalled housing projects, and officials say they will oversee the completion of another 360 this year.

The government has also created a special registry: in theory, any homeowner can apply to be added once their housing is nine months overdue. In practice, however, co-investors say the authorities limit the number of people on the list in order to conceal the true size of the problem.

Translation by Kevin Rothrock. A version of this article originally appeared at Meduza. More on life inside Russian cities hosting the World Cup can be found here, or follow Guardian Cities on Twitter, Facebook and Instagram.