ALMATY, KAZAKHSTAN — Again in 2013, Bakhyt Nurmuhambetova, a businesswoman from Kazakhstan’s largest metropolis, Almaty, believed that she was investing in one thing akin to the Kazakh Dream.
Not solely was she placing her hard-earned revenue into prime actual property within the nation’s capital, Astana, she was doing so in time to reap the benefits of the anticipated scrum of vacationers on the worldwide Expo that Astana was going to host 4 years down the road.
Nurmuhambetova’s 350 sq. meter plot within the Expo Metropolis mission stared straight out on the website slated for the principle pavilion. She meant to construct a store.
The plot price her almost 95 million tenge, or simply over $600,000 on the time.
However Nurmuhambetova’s dream become a decade-long nightmare, due to a sample of occasions which have repeated repeatedly in Kazakhstan’s property market, spotlighting weak protections for consumers and predatory and opportunistic conduct on the a part of each state- and privately-owned builders.
Work on the mission stalled in 2014, with the privately-owned developer Azbuka Zhilya apparently in monetary misery and unable to proceed the mission. Building solely recommenced in 2020 – three years after the Expo befell and 4 years after Azbuka Zhilya’s founder, one-time lawmaker Erkanat Taizhanov, skipped the nation.
In 2016, Taizhanov was detained by police in Austria after Kazakhstan issued an arrest warrant, however after a interval underneath home arrest, he was let go.
The next yr, the Kazakh Prosecutor-Common’s workplace acknowledged that Austrian authorities have been nonetheless ready for the complete handover of a case that accused Taizhanov of defrauding over 2,000 property traders at Expo Metropolis and several other different developments to the tune of greater than $100 million.
It isn’t clear how actively authorities are pursuing his extradition.
By this level, Nurmuhambetova had joined a cooperative of Expo Metropolis traders that reached an settlement with a government-backed building firm, Elorda Kurylys Kompaniyasi (EKK), to finish the mission.
Nurmuhambetova’s authorized consultant within the cooperative, a relative, was persuaded to signal an settlement on her behalf stating that she agreed that adjustments within the design of the mission have been potential. The settlement additionally acknowledged that she could be ready to extend her cost if her premises have been expanded consequently.
Quick ahead to the current, and Nurmuhambetova is in courtroom with EKK.
Slightly than the Expo-facing property that she paid for, the state-owned developer has provided her three separate premises set again from the road, supplied she will be able to cough up an additional 39 million tenge, or $88,000.
Her different possibility? Take a cost of simply over $200,000 and quit her pursuits within the mission.
On the identical time, the front-facing plots of the complicated have been reallocated to different consumers by a personal developer with whom EKK concluded an unexplained partnership settlement.
And whereas the traders in Azbuka Zhilya’s preliminary mission have been compelled to simply accept inferior plots, the front-facing properties are being offered by the non-public developer for round $750,000.
“I’ve misplaced 11 years of my life ready for the development to be accomplished,” Nurmuhambetova mentioned in an interview with The Diplomat.
“Is it honest that I’ll now need to lose no less than $300,000 as effectively?”
Like Mushrooms After Rain
If a profitable entrepreneur like Nurmuhambetova can lose massive in an funding within the heart of the capital, then it’s hardly shocking that poorer Kazakhs and first-time consumers are additionally susceptible.
For provincial information web sites, tales of building scams and petitioning “dolshiki” – the Russian phrase for shareholders in property initiatives – are common fare.
However, as Kazakhstan’s largest cities and facilities of wealth, it’s logical that Almaty and Astana have witnessed a few of the nation’s largest building scandals. The truth that these tales of woe have occurred proper underneath the authorities’ noses has inevitably given rise to the suspicion that unscrupulous officers are by some means in on the act.
Powered by rising vitality costs, Kazakhstan started experiencing huge financial development across the flip of the century, with a knock-on impact for the housing market. From one yr to the subsequent, costs for actual property rose massively.
In 2005 the most costly actual property in Almaty was round $2,000 per sq. meter – a sequence of cottages near an upscale wellness membership managed by then-President Nursultan Nazarbayev’s daughter, Alia Nazarbayeva. By the next yr, that top-end determine had grown to round $6,000-$7,000.
By the primary half of 2007, the premium determine was nearer to $10,000, at a time when prices in non-elite areas had soared to between $2,000-$3,000.
The reckoning was not lengthy in coming.
Within the second half of 2007, the ripples of a brutal international monetary disaster originating in the US reached Kazakhstan, popping the native actual property bubble.
Kazakh banks ceased lending for unsecured mortgages nearly immediately, depriving builders of gross sales and scaring off consumers. As building firms misplaced their lengthy strains of credit score and went bankrupt, the federal government fashioned commissions.
Authorities acknowledged that tens of hundreds of consumers had been affected, and spent a number of hundred million {dollars} on help for banks and a few firms within the sector.
Consumers, usually within the type of cooperatives, succeeded in profitable courtroom judgments that allowed them to imagine possession of half-built initiatives, however they bought no compensation for the misplaced time and – in some circumstances – lacked various dwelling house within the interim.
However they nonetheless needed to discover any person to complete the job. Because of this, a few of those that invested in 2006-2007 needed to wait as much as a decade to obtain their housing, whereas a brand new increase – this time centered on the capital – started in round 2012-13.
Authorities’ Neglect or Collusion?
The Legislation “On Shared Participation (Shareholding) in Building,” handed in 2016 was supposed to enhance purchaser protections. It set strict stipulations for personal builders, who, in line with its provisions, ought to solely be capable to appeal to advance capital from would-be consumers if these stipulations are met.
Builders ought to be capable to present that they personal a land plot to construct on, have a constructing allow from authorities businesses, and possess a assure from a financial institution that building will probably be accomplished.
However the regulation hasn’t achieved what it got down to do.
In an interview with the Atameken Business news outlet on the finish of 2016, a member of the Astana metropolis council’s authorities fee on issues associated to housing developments mentioned that 5 fraud circumstances involving builders had impacted as many as 10,000 consumers in Astana alone.
The fee member, Tatiana Chursina, cited for example the case of Bakytzhan Toimbetov, a developer who was jailed after his firm took shareholder cash for six housing developments with names like “Praga” and “Tokyo” however didn’t progress any of them.
“The investigation discovered that Toimbetov invested the shareholders’ cash within the restaurant enterprise in Almaty. As he defined in courtroom, because the restaurant enterprise may be very worthwhile, he deliberate to make use of the income for the development of the housing growth. As well as, he additionally invested in a manufacturing unit,” Chursina instructed the outlet.
But what of the authorities? In any case, the regulation stipulates that builders should exhibit possession of the land for his or her proposed mission, have the related permits from authorities businesses, and financial institution ensures earlier than attracting consumers. How did the authorities not know a housing growth marketed on large billboards lacked compliance with these provisions?
At what level does neglect turn into complicity?
One factor is obvious – each state-owned building firms and the non-public firms that they subcontract to make loads of cash within the technique of finishing housing developments.
In lots of circumstances, cooperatives just like the one Nurmuhambetova joined are compelled to make peace with design adjustments that make the mission extra worthwhile and the event much less snug for dwelling or enterprise.
Business sources furthermore point out that the development firms charged with finishing initiatives even have a file for getting cash from the funds for parts already accomplished by the primary developer – in different phrases, stealing.
Since EKK stepped in, together with its accomplice from the non-public sector, Qazaq Make investments Construct, constructing prices on the growth previously referred to as Expo Metropolis have soared. This truth is mirrored in two paperwork – one titled Contract No. 47 and the opposite an addendum to that contract – reviewed by this writer and signed by Qazaq Make investments Construct and the housing cooperative.
The paperwork present that building prices over the span of simply over two years (between February 2020 and Might 2022) elevated by 76 p.c in native forex and by greater than 50 p.c in actual phrases. Fundamental prices for the completion of the professionalject now complete greater than 300,000 tenge per sq. meter, which don’t embody the price of landscaping and connection to infrastructure.
Non-public building firms that this writer interviewed this yr mentioned that it could be potential to construct a housing growth of this sort from scratch and make a revenue if prices have been pegged at 180,000-190,000 tenge per sq. meter.
Furthermore, the 2022 addendum consists of an allocation of the equal of round $6 million for underground parking, even though underground parking was already constructed.
EKK final yr refused to supply an interview to this writer on the subject of the Expo Metropolis mission. In a written response, the corporate cited the refusal as being because of a busy schedule. The corporate furthermore pledged that building could be accomplished by the primary half of this yr. That has seemingly not occurred.
The writer has additionally contacted Qazaq Make investments Construct, whose final beneficiary, Salamat Akhmetov, is a counselor within the Astana metropolis council and a consultant of Kazakhstan’s ruling social gathering, Amanat. As of publication there was no response.
