Source: Novoye vremya. Biznes
More than 800 unfinished construction projects. 4.5 million square meters without owners. 78 square meters – an average apartment size according to the statistics of new builds delivered in 2016. At a minimum – 58,000 defrauded families, who have invested own funds in construction and have every chance not to ever get a desired and hard fought house and home.
At the beginning of 2015, there were 2118 unfinished apartment buildings in Ukraine (according to the State Statistics Service that hasn’t collected the information about unfinished construction projects since 2015). 864 buildings covering about 4.5 million square meters have been no longer built. They are suspended. These figures are official and partly confirmed by the market experts.
The official statistics takes into account the legal construction that is the one carried out on a legally registered land plot under all the rules and regulations. But unofficially – there are much more unfinished construction projects, which have a chance to never become residential buildings. Just one example of the Ukrainian experience: the Ukogrup real estate developer (“Voitsekhovsky’s fraud scheme”) has constructed 40 accommodation facilities in Kyiv without permits. Therefore, 800 unfinished buildings is a very rough figure.
The Elita-Center’s fraud set Ukraine in turmoil 10 years ago. 1443 defrauded investor filed complaints on frauds. This is the first big fraud publicly recognized. Experts estimated damage from this fraud in almost 400 million hryvnas (80 million dollars).
Over 9 years, only 267 defrauded investors received apartments (as of mid-2015). According to preliminary estimates of experts, as of 2015, it is needed to build 2.2 million square meters of housing and allocate more than 100 hectares of valuable capital’s land just in Kyiv in order to provide all victims of unscrupulous market participants.
Taking into account the fact that less than 1.4 million square meters of housing were brought into use in Kyiv in 2015, it is necessary to give defrauded investors everything that is built to provide them with apartments… And in fact – even 100 years won’t be enough for this. However, examples of fraud schemes with newly constructed residential buildings can be found almost in every corner of Ukraine – in Dnieper, Lviv, Odesa, Berezhany in the Ternopil region…
A snowball of the unresolved issue regarding the protection of investors’ property rights gradually covers more victims. Those who not interested in this issue (for various reasons) came up with the statement that this is a matter of entirely private contractual relationships between clients and contractors. However, the state plays a key role in this scheme: it acts as a regulator and sets the rules.
The state “invents” and “gives its blessing” for schemes, in which real estate developers can attract private funds of citizens in construction projects. If these schemes are tricky and unclear and don’t protect investors – the state is fully responsible for these funds of the Ukrainians, and so – for discreditable practices with them performed by real estate fraudsters.
Therefore, this problem has no longer been a matter of just contractual relationships between investors and real estate developers. Hundreds of thousands defrauded families are the basis for a social explosion. Actually, we are talking about one of the fundamental principles of the Ukrainian mentality – the family housing.
After the scandal with Elita-Center, in 2006, the Parliament amended the Law “On investment activity”, which prohibits construction companies to attract funds directly through the conclusion of various investment agreements. Today, investing and financing the housing construction projects with the use of private funds raised from individuals and legal entities is carried out entirely through the construction financing funds (CFF), real estate funds and collective investment institutions by issuing targeted bonds of enterprises (part 3 of Art.4 of the Law of Ukraine “On Investment Activity”).
Investments in construction through the creation of CFF seem to be safer for investors on the one hand, but on the other – it leads to growing prices of construction projects, because there should be a fee paid to a director of such a fund. Investing through targeted bonds and collective investment institutions are also very specific tools, the maintenance of which requires special knowledge and additional costs.
Moreover, the Ukrainians investing their hard-earned money into residential buildings may still face with a number of risks: dishonest real estate developers can change the specifications of construction projects, resell the same facility or challenge the future apartment ownership. In this case, an average citizen can’t understand and keep track of ll details without a lawyer.
Therefore, legislative changes of 2006 don’t address the problem of unscrupulous real estate developers-fraudsters in an holistic manner and can’t fully protect Ukrainian families.
The legislator must realize that just the “Voitsekhovsky’s fraud scheme” increased the “army of defrauded investors”, by estimate, by 25,000 “new angry bayonets”. So, this issue should be addressed immediately and in a holistic manner. This is because its further neglect will cause the “snow avalanche” effect: the indignation based on the legislators’ indifference to the interests of defrauded investors will just crush the ineffective regulation of relations in the sphere of housing construction.