S. BUNTMAN – This is the program City. Today we’ll be talking about various kinds of housing fraud, mainly cases where people lose their property. Lately, all of this has become more and more alarming. Our guests are Yevgeny Gerasimov, a deputy of the Moscow City Duma and deputy chairman of the commission on social policy. Good afternoon. E. GERASIMOV – Hello. S. BUNTMAN – Konstantin Aprelev, vice president of the Russian Guild of Realtors. Good afternoon. K. APRELEV – Hello. S. BUNTMAN – And Alexei Navalny, executive secretary of the Committee for the Protection of Muscovites. Alexei, good afternoon. A. NAVALNY – Good afternoon. S. BUNTMAN – Alexei Navalny will also appear later in this program in recorded form. Right now we’re live on air. Our Urban Development Chronicle segment will be on at 4:53. But first I’d like to ask you to describe the situation. How do you see it? Konstantin, let’s start with you. How do you assess the situation with fraud, with companies backing out, with authorities halting projects, as is happening in the Moscow region nearby? In Moscow, I’m not sure how often this occurs. I mean cases where, one way or another, people put money into what is supposed to become their property—their real estate, their apartments, their homes—and very often end up with neither the property nor the money. K. APRELEV – As I understand it, we’re talking specifically about new-build housing, first and foremost the problems that are now shaking Moscow and the Moscow region, right? The problem certainly exists on the market, and it’s a complicated one, despite the fact that a law was passed intended to protect the rights of equity holders—shared-construction investors. The law was, in principle, drafted with the participation of experts from the Russian Guild of Realtors, the Institute for Urban Economics, and quite a large number of other experts. Nevertheless, as of today, the law is not working in full, because the following happened: it was introduced in one form and adopted in a somewhat different one. And the measures aimed at protecting consumers ended up working against them, because if any developer today were to comply fully with the measures set out in the law, then in principle tomorrow that developer could quite clearly become bankrupt. That is what makes the law impossible to implement. And that immediately creates a situation in which developers refuse to adapt. In fact, for the moment I’m expressing the developers’ position—they are also members of our organization. And yes, there is a problem here, both bureaucratic and legal. As one of the people who helped draft this law, I absolutely believe urgent amendments are needed so that it can begin to function properly. Because what is happening now is this: developers are not offering citizens an adequate lawful form of contract. And in that situation, citizens—still wanting to buy real estate at the lowest possible price, or at some attractive price—enter into relationships with developers that are not normal or legally sound. Not to mention the fact that there is also, quite apart from the law, plain misconduct and bad faith toward consumers on the market. S. BUNTMAN – I see. Now for another point of view. Yevgeny Gerasimov, from the perspective of a Moscow City Duma deputy and deputy commission chair—how do you see the situation? E. GERASIMOV – First of all, I’d like to intervene a little in what was just said. I believe that this law does need improvement, as do many others relating to the Housing Code as a whole. But if this law were actually enforced—and it should be enforced—then I believe oversight of its implementation would have to be much stricter. What positive thing did this law bring? You mean the 2004 law, right? Federal Law No. 214, which, I believe, began to be implemented on March 31, 2005. As of today, it requires shared-construction investors to sign contracts that must be registered with a state body. That creates a completely different level of responsibility. In that sense, I think it is a major step forward. So thank you for that law. The problem is that, unfortunately, it is not being monitored very well. The situation in Moscow today is more favorable than in the Moscow region, because Moscow assumes responsibility. Of course, it cannot keep track of everything… S. BUNTMAN – In what sense? E. GERASIMOV – I’ll explain. The Moscow government assumes responsibility toward those people who become these very equity holders. It answers for violations committed by many construction companies. In Moscow, nobody just builds at random. Companies that construct large apartment buildings are supposed to meet certain standards and be vetted. I’ll even mention one case—you probably know it—from the 1990s, I think, Unistroy. Moscow assumed responsibility because they took the money and deceived not only ordinary citizens but legal entities as well. There were 254 victims, including companies. As a result, if memory serves, people received 240 apartments. So I believe the authorities are obliged to bear responsibility for who is allowed to operate and under what conditions. The other issue is that our people are trusting. And that’s why this program is important—thank you for doing it today—because our citizens, our residents, need to have it explained to them: friends, there really are legitimate, official realtors, there are vetted companies—work with them. But so far we’ve only touched on this one issue. I mean large-scale apartment construction. Yet we also have major problems with the Housing Code in general—you know that, and we’ll talk about it later. Or I can mention it now. S. BUNTMAN – You can outline it now. E. GERASIMOV – I want to say that today—and it’s very good that we’re having this meeting and discussion—we have a federal Housing Code that we in the Moscow City Duma reviewed, and we understand that if it is adopted in its current form, it will be impossible to live or work under it, at least in Moscow. In many respects, Muscovites would be left completely unprotected. You know, it’s remarkable how often the least protected people end up in the worst position. I mean residents of communal apartments (shared apartments common in Russia). One example: the federal law says, roughly speaking, that people living in a communal apartment—where previously in Moscow they had the right to move into a unit that became vacant in that communal apartment—under the federal code now… S. BUNTMAN – Into the vacant rooms. E. GERASIMOV – We had a program for dealing with communal apartments. People who had the right to receive a room in a communal apartment were moved into them. The current law prohibits this in Moscow. In other words, that room in that communal apartment must once again be filled with other people. And there are many such examples in this law. Yuri Mikhailovich [Luzhkov, then mayor of Moscow] spoke on this matter, I think, quite constructively and firmly. We appealed—and I did as well—to the Constitutional Court in order to understand how this corresponds to… S. BUNTMAN – So no new law can worsen people’s situation? E. GERASIMOV – Of course. And that is exactly why we appealed: to understand the real possibilities that exist and to be able to defend Muscovites going forward. S. BUNTMAN – All right. We’ll continue. That was Yevgeny Gerasimov. Alexei Navalny, please. A. NAVALNY – Two weeks ago, we all saw the rally near the Bolshoi Theatre. Several hundred people who had lost enormous sums on these apartments were protesting and had gone on hunger strike. Over the past six months, roads in the Moscow region have been blocked at least seven times by these initiative groups. They are active in more than 20 towns in the Moscow region and now in Moscow as well. Overall, several tens of thousands of people have in fact been deprived of their money by the actions of such fraudsters. And we know of many cases where people are literally living in garages. A person who paid $60,000 to $70,000 for an apartment wanted to pay that money, scrape by somewhere for a while, stay with friends, and then have decent housing. He scraped by for a year, and then spent another four years living in a garage, unable in any way to defend his rights. To me, the saddest thing about this situation is that there is no mechanism. It is perfectly obvious that fraud has occurred. In most cases it is either fraud or illegal business activity. And yet, unfortunately, there are no mechanisms of protection—neither judicial nor any other kind. Because naturally, if there were judicial mechanisms for protection, people would simply go to court, get their money back, and certainly would not be going on hunger strike. S. BUNTMAN – What prevents them from going to court? What can be brought as a claim? And why can’t charges be brought, as you say, Alexei, over illegal business activity and fraud, if it can be proven? A. NAVALNY – Unfortunately, we encounter cases where the police start investigating these matters very briskly and energetically, and then at some stage—we can only guess—someone pays someone off or something of that sort, and the cases are dropped. I specifically brought a court ruling with me. It’s unique. In 1999, a woman in the Moscow region paid 200,000 rubles for an apartment, waited several years, and in the end the court ruled that the company had to pay her the market value of a new apartment, return additional money to her, and even compensate her 10,000 rubles for moral damages. But that ruling is unique—there are literally only a handful like it, you can count them on one hand. The courts, unfortunately… E. GERASIMOV – I can’t recall, at least, anyone being sentenced to 15 years in prison. We are, frankly, far too lenient toward swindlers and fraudsters. Though I do remember one case—it was an outrageous one—when there was a trial involving Moscow judges. Misconduct by 110 Moscow judges was documented; they were prosecuted for fraud. Just imagine: if judges were involved in this, not just the police. There were 110 judges, 110 defendants, and three of them received serious prison terms. K. APRELEV – May I jump in? S. BUNTMAN – Of course. No need to ask permission anymore. K. APRELEV – It seems to me that yes, one can hope for the courts. But it also seems to me that the better we explain to people how they can protect themselves, the greater the chance that the courts won’t even be needed. For example, what kind of contract is a citizen being offered for investing money in construction? There is now a huge number of contracts on the market under which, in principle, such funds should not even be raised. For example, insurance contracts, shared-construction contracts with no guarantees that the price won’t change during the construction period, no guarantee that the apartments will be delivered on time, and so on. In other words, citizens themselves, trying to get some advantage, pay no attention at all to the fine points of contractual relations, while those contractual relations are today the basis for any future court proceedings. If the contract itself is vague from the outset and contains only three or four clauses, how can anyone put their life savings into it? Especially if they are selling their own apartment to do so. That situation is completely incomprehensible. S. BUNTMAN – I understand. There is a great deal of truth in that. But Konstantin, we can always say that when someone has been robbed, they should have locked the door better at night. Keep your money closer to your medals, and so on. You can always say that. Fine. But that’s something we can press afterward, once the situation has been resolved. K. APRELEV – Even so, we come back to the imperfection of the laws that exist. Law 214, which I just praised, is very good—but even it is vague and imprecise. If there were a clearly developed set of contract forms that had to be approved, and only those contracts could be used and not any others, then people would understand that this is a contract thought through by state and city lawyers. I believe we are obliged to make sure that municipalities have legal services located close to where people live, services that would definitely help in this regard. Because no matter how literate or educated a person may be, if they are not a lawyer, not a specialist, they can still make a mistake, they can still miss a loophole. And there are a lot of loopholes here. And once again I want to say that the Housing Code proposed by the government contains many such loopholes for swindlers, including, as I already said, with communal apartments. And I see a huge problem there. The day before yesterday I was in a district, and a nice woman came up to me and said: I just don’t know what to do. My husband and I divorced, and we need to move apart somehow—we can’t live together anymore. It’s astonishing, in this sense—I don’t know who wrote this into the law—that today a judge may strike him off the registration, or may not. And how are they supposed to live there then? Again, there is a loophole for fraud, because there are people who know how to set this situation up skillfully and, for money, get someone registered. And how many such fraudsters there are—registering people, deregistering them, making money off it. And those people—single women, for example—who get caught in this can essentially lose their homes. E. GERASIMOV – You know, I would support the position of our Moscow lawmakers, because before this there were no tools at all for resolving these problems. More than that, there were no obligations whatsoever. A person living in an apartment who contributed no money toward maintaining it could still continue living there. Now, on the contrary, the Housing Code has created some kind of instrument. In any case, no framework law can be absolutely perfect. The Housing Code was awaited for nine years. Now it has appeared; yes, there are certainly some nuances, but overall 80% of the legislative field now makes it possible to regulate relations among all residents of an apartment. K. APRELEV – I don’t think it’s 80%. I just gave you one example… E. GERASIMOV – Before, there was no such regulation. And there were fraudsters before too—people buying and selling residence registration, marrying, divorcing—and they existed then as well. Time has passed. Today’s law does not allow enough clarity or precision. And in Moscow we will definitely adopt our own Moscow code, and of course we will take all these issues into account, because we cannot rely solely on whether a judge is good or bad and whether he makes the right decision in a given case—he can make any decision. S. BUNTMAN – A judge should be good, and the law should be precise. Alexei Navalny, we’re recording the flow of the discussion. The news is coming up now. In just three minutes we’ll hear Navalny’s thoughts on the same subject. And I would very much like us now to systematize the situation: what steps need to be taken—social, legal, self-organizational, educational, informational—and what role should be played here by society, the state, and business. It’s now 4:30. News. S. BUNTMAN – We now continue with City. I’ll just say that people solved Ksenia Turkova’s riddle: “Only a crayfish is made red by someone else’s grief” — a grim proverb. Correct answers, good. The winners receive the film Man to Man. They are Natalya (916160), Valentina (689), and Vladimir (345). That’s all. I’m getting these gloomy protests: “citizens serving in an organization” saying, “Not a single question we sent was answered.” I found it. Ms. Semyonova and Ms. Kuznetsova sent us a question. The question was: which party does Yevgeny Gerasimov represent? E. GERASIMOV – I’m not from a party; I am in the United Russia party. S. BUNTMAN – Do you have any more questions, Ms. Semyonova, Ms. Kuznetsova? Please ask them, by all means. If only all questions were solved that easily. Alexei Navalny, executive secretary of the Committee for the Protection of Muscovites, please. A. NAVALNY – Yes, a minute ago you heard an engaging dialogue between representatives of the legislative authorities and an industry lobbyist. I was sitting here enjoying the fact that this is happening in public. Some things are worrying. What is happening now with this law on shared construction, for example. Because representatives of the industry are now trying to rewrite the newly adopted law to suit themselves. What I like best, for example, is this: under the new law, first you have to formalize all property relations, obtain the initial permitting documentation, and only then start collecting money for construction. They really dislike that provision and want to restore the system where you can first collect money from everyone and only afterward start sorting out the paperwork, signing investment contracts, and so on. And we hope that won’t happen. S. BUNTMAN – Let’s go point by point. Konstantin Aprelev, vice president of the Russian Guild of Realtors—your immediate response, please. K. APRELEV – The answer is simple. In fact, when the law was being drafted, I took an even tougher position, and all the participants can confirm this. I believe it should have been forbidden altogether to raise money from the public for construction, so that developers would build using bank financing and then sell completed housing, as is done in most countries. But because many experts said that was impossible—that it would halt all construction, since 90% of financing comes from the public—the drafters decided that, in this package of 28 bills, the law regulating the possibility of raising funds would remain. My view is that amendments need to be adopted that… S. BUNTMAN – In what sequence, as Alexei says: first formalize everything, then raise the money? K. APRELEV – On that point, I absolutely agree. I agree with most of the law’s provisions, since we were involved in writing it. What I do not agree with, for example, are the fourfold penalty sanctions, which create opportunities for citizens who have invested money, with the help of lawyers, to build extortion mechanisms against business. S. BUNTMAN – That can be created not only with the help of lawyers… K. APRELEV – In any case. Next, as for permits: one has to understand that at present a developer must spend about 30% of the funds at the documentation stage. Especially since the current system for formalizing land rights is still not very transparent and involves a great many risks and bureaucratic hurdles. That does not mean developers should be allowed to raise money earlier. No, I am categorically against allowing them to raise funds before that. On the contrary, I believe they must not do so before obtaining the land-use authorization act and project approval, because it must be clear what is being sold. People need to know what is being sold; apartment addresses must be clear, apartment numbers in the building must be clear, and guarantees of receiving those apartments must be clear. Further, the law actually provides a clear procedure for registering rights to the apartment with the registration authorities and justice institutions, which is quite effective. But at the moment, for example, the law effectively contains provisions requiring banks that finance land acquisition and the initial phase of project development to bear subsidiary liability to the consumer. There is a mechanism in the law that makes this impossible to implement in practice. In other words, a bank, knowing it would bear subsidiary liability together with the developer, will not provide credit for project development at this first stage. So where is the developer supposed to get the money? A. NAVALNY – A very important thing was just said: that any developer has to spend 30% of the money already at the paperwork stage. So here’s a question for the lawmakers: where does that 30% go? That is exactly the shadow rent that is simply handed over to officials just to get the paperwork processed. They take 30% of the construction cost. And that is precisely why all these difficulties arise: officials get their money, and then they turn a blind eye to absolutely everything that happens afterward. S. BUNTMAN – Yevgeny Gerasimov, please. E. GERASIMOV – Unfortunately, we do indeed have quite a lot of dishonest people. The law, as you understand, does not prescribe the things we are talking about today. But to the satisfaction of many equity holders, of people who want to buy an apartment and become co-investors, I can say the following: I follow very closely what is happening, first and foremost in my district. And in our district the lending system is developing normally. Practically all major developers first obtain credit. And we monitor very carefully to ensure that all their documents are in order before the contracts are signed by the equity holders. Violations do occur, of course. But that is exactly why I believe violations must be punished severely, however pleasant this conversation with you may be. So this is a very important issue, but it is being addressed. And once again I want to reassure people who are ready to participate in this kind of construction: for 2006, the Moscow government plans to confirm guarantees for many construction projects so that investors can obtain bank financing. This is very important. And it is part of a Moscow city government program. S. BUNTMAN – I have another question. We’ve talked here about the legislative and administrative sides. As for registration, the situation has become much more complicated—not only in my unenlightened view, but in the informed view of many experts as well—after Moscow had spent several years gradually moving toward an optimal system for registration, registration of real estate transactions, or registration in general. And the reform has effectively thrown us back several years. E. GERASIMOV – I just want to clarify that this was an administrative reform. S. BUNTMAN – I agree. The situation is difficult both administratively and legislatively. Now, another important thing for society. Since the Russian Guild of Realtors is represented here by its vice president, Konstantin Aprelev—any guild is also a professional body that should demand compliance with certain rules from both members and non-members and should inform society when those rules are violated. You know, like at the Antwerp diamond exchange, where there hangs the photograph of some formerly respectable person who was expelled from the exchange for one reason or another. K. APRELEV – We absolutely agree with that. I want to say that the guild not only tries to punish those who violate generally accepted standards, norms, and rules of market conduct, but for the past roughly three years most real estate companies have also been providing genuinely free legal consultations on most issues related to legislation. You can go to almost any company—at least a medium-sized or large one that can afford free consultations, because a good lawyer is expensive on the market today—and on any given day, or on one designated day a week, receive advice on anything from how to resolve an intra-family housing problem so people can separate households, to reviewing a contract a developer is offering you. The guild does not unite all professional market participants today, but we do unite about 60% of them. S. BUNTMAN – That’s not a small number, but it still leaves room for… E. GERASIMOV – And unfortunately the real situation is that there are a great many dishonest people, including lawyers and consultants. You know, by the time people come to a deputy, they are already on the brink of catastrophe. They come and say, we don’t know what to do anymore. And I ask, where were you before? They say, well, I got advice here. But that is either ignorance of the law or exactly the topic that brought us together today—fraud. S. BUNTMAN – One second. Just to finish on the guild and its responsibilities. Presumably the guild should inform society broadly and publicly about bad faith actors and not be afraid of accusations of unfair competition or anti-advertising, because these are important things that many other guilds and business associations do—the same RST that appears on our programs (the Russian Union of the Construction Industry). It does this very often and carries out a great deal of work, which we’ll be discussing in the next hour. Alexei Navalny, please. A. NAVALNY – That’s exactly what I wanted to say: self-regulating organizations like the Realtors’ Guild should be doing 90% of this work. A concrete example: I don’t know—Konstantin may correct me—but I don’t know of a single shared-construction project that was completed on time. If you were promised a finished apartment in the first quarter of 2005, I don’t know of a single case where you actually got it in that same quarter. Not one. So the question is: when will you finally give us official blacklists of companies that fail to meet these obligations? The Realtors’ Guild should brand these construction bosses publicly, without fear, and post it on the internet so people can see it all. K. APRELEV – You know, I still believe that in order for us to brand anyone in any way, we need, at a minimum, decisions from the courts before accusing anyone of anything. Second, most developers have their own public association, and at present it does not overlap with the Realtors’ Guild. The problem is deeper than that. As for self-regulation in brokerage activity—that is, services related to the transfer, acquisition, or assignment of rights—we have a very clear system in place, in addition to the consultation block, for consumer protection. It has been created, and representatives of civil society also take part in its work. I would even be ready to send you an invitation to work on such a commission. This commission genuinely resolves disputes. And I can say that based on the outcome of these disputes, we publish the entire problem area, and if a company ultimately does not compensate the consumer for services and it is established that the consumer’s rights in the transaction were indeed violated—I emphasize, in a pre-trial procedure, at no cost to the consumer—then that company may be expelled from the guild. And such cases have occurred. A. NAVALNY – And how many companies have been expelled? K. APRELEV – I can say that three companies on the Moscow real estate market were expelled specifically for that kind of violation. E. GERASIMOV – You know, I regret that this is quite an interesting conversation, but it’s a pity there are no developers here with us. In fact, even in the construction projects underway in my district, I monitor some of these issues, and also some others, because there are families where some relatives live in one district and others in another. But in reality, almost no construction project is completed on time. The difference is that there are objective reasons that in some cases will not lead people to court, as you rightly noted. But there are also cases where many people I know have successfully resolved their claims without going to court. That is right. I urge our residents to be more precise and specific in this regard, and to arm themselves with legal advice. And if things become really difficult and there is no one nearby, contact your deputy—he has a good legal service. I do, at least. Contact us even if you are not in my district. S. BUNTMAN – Once again we return to society itself and to self-organization for protection. Alexei, please. What levers can there be here? And what levers should people themselves have—what can and should they demand? A. NAVALNY – Organizations defending the rights of shared-construction investors are already emerging. According to my information, there are at least three in Moscow already. In fact, they do fairly effective work. Legal support for a shared-investment transaction costs $200. If you are buying an apartment for $50,000 to $60,000, don’t be lazy—spend the $200. These people will go with you, check everything, review the contract, and so on. At most, if it’s some expensive apartment, it will cost $1,000. Please, don’t be lazy. K. APRELEV – The only problem is that they also bear no responsibility in the end, you see—that’s the issue. A. NAVALNY – And that is the second step. That is where the authorities should step in, because there are, for example, respected developers who do fulfill their obligations—DCK-1, for instance. This is not anti-advertising. Go to them, go to buy an apartment, and they will offer you a preliminary contract that has no legal force, and if you don’t like something, they’ll simply throw you out of the office. And most of these major builders, who really do have access to all the government offices and really do decide things on the construction market, often slip people worthless scraps of paper instead of proper contracts. And unfortunately, at present there are no methods of influencing them. S. BUNTMAN – I’ll repeat what Yevgeny Gerasimov just said: it’s a pity there are no developers here now. But we have all heard this, and I think our listeners have too, and we will ask these questions. The situation will continue to develop, and people’s rights have to be protected somehow. What we see now is a kind of emerging configuration of protection: self-organizing realtors, society organizing itself, legislative power in Moscow—in this case, and in other regions as well—and executive power. All of this interaction, without waiting for favors from nature in the form of the state, can organize itself, which is the normal path of development rather than waiting for manna from heaven. K. APRELEV – You know, it’s like in that joke: a plane was flying, there was an авария—an accident—and a man who had refused to fly for many, many years finally got on a plane. And as it’s going down he says: so it’s a catastrophe after all. Fine, me—but why are all the others here? And they tell him: do you think it was easy for me to gather all of you together in one place? In other words, everyone who was supposed to be here was gathered here. S. BUNTMAN – Well then, at least it may become possible to push back against housing fraud, because this bad faith runs through everything. A. NAVALNY – I would say bad faith on the part of developers, because that is really the main issue here. S. BUNTMAN – What I wanted to say is this: if we gather one more participant, it will become “three plus one,” and then… You see, nowadays people very often demonize the helplessness of the police or certain administrative bodies. But if we stop demonizing and instead put all these questions directly, then everyone will be able to ask them—including the developers themselves, with developers taking part. You say, Konstantin, that developers have organizations—then let’s invite representatives of those organizations. We’ll examine their self-regulation plus their responsibility to everyone else. E. GERASIMOV – But at the same time, each of us here—at least I do—does not absolve himself of responsibility for what is happening. S. BUNTMAN – Quite right. We have identified the responsibilities and obligations of the three sides represented here. Now, for the puzzle to come together, we are still missing at least one more element. And the last thing I want to say before Urban Development Chronicle: you say we advertise this, advertise that, this and that, and appeal to Echo of Moscow. Yes, we do advertise, because these are officially registered organizations that advertise their products; they have the right to do so, and we have the right to carry it. But in essence, our other programs as well—consumer programs, social programs, such as City in this case, where we have gathered—and our Urban Development Chronicle segment, all deal with relations involving Moscow construction, architecture, housing, and so on. That is how these things should coexist. Why should we distrust the good faith of one organization or another from the outset? But we are obliged to verify it. Thank you very much. Konstantin Aprelev, vice president of the Russian Guild of Realtors; Yevgeny Gerasimov, deputy of the Moscow City Duma; and Alexei Navalny, executive secretary of the Committee for the Protection of Muscovites. And he will remain with us now in recorded form. Thank you.
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