ALMATY, KAZAKHSTAN — Back in 2013, Bakhyt Nurmuhambetova, a businesswoman from Kazakhstan’s largest city, Almaty, believed that she was investing in something akin to the Kazakh Dream.
Not only was she putting her hard-earned income into prime real estate in the country’s capital, Astana, she was doing so in time to take advantage of the predicted scrum of tourists at the international Expo that Astana was going to host four years down the line.
Nurmuhambetova’s 350 square meter plot in the Expo City project stared straight out at the site slated for the main pavilion. She intended to build a shop.
The plot cost her nearly 95 million tenge, or just over $600,000 at the time.
But Nurmuhambetova’s dream turned into a decade-long nightmare, thanks to a pattern of events that have repeated time and again in Kazakhstan’s property market, spotlighting weak protections for buyers and predatory and opportunistic behavior on the part of both state- and privately-owned developers.
Work on the project stalled in 2014, with the privately-owned developer Azbuka Zhilya apparently in financial distress and unable to continue the project. Construction only recommenced in 2020 – three years after the Expo took place and four years after Azbuka Zhilya’s founder, one-time lawmaker Erkanat Taizhanov, skipped the country.
In 2016, Taizhanov was detained by police in Austria after Kazakhstan issued an arrest warrant, but after a period under house arrest, he was let go.
The following year, the Kazakh Prosecutor-General’s office acknowledged that Austrian authorities were still waiting for the full handover of a case that accused Taizhanov of defrauding over 2,000 property investors at Expo City and several other developments to the tune of more than $100 million.
It is not clear how actively authorities are pursuing his extradition.
By this point, Nurmuhambetova had joined a cooperative of Expo City investors that reached an agreement with a government-backed construction company, Elorda Kurylys Kompaniyasi (EKK), to complete the project.
Nurmuhambetova’s legal representative in the cooperative, a relative, was persuaded to sign an agreement on her behalf stating that she agreed that changes in the design of the project were possible. The agreement also stated that she would be prepared to increase her payment if her premises were expanded as a result.
Fast forward to the present, and Nurmuhambetova is in court with EKK.
Rather than the Expo-facing property that she paid for, the state-owned developer has offered her three separate premises set back from the street, provided she can cough up an extra 39 million tenge, or $88,000.
Her other option? Take a payment of just over $200,000 and give up her interests in the project.
At the same time, the front-facing plots of the complex have been reallocated to other buyers by a private developer with whom EKK concluded an unexplained partnership agreement.
And while the investors in Azbuka Zhilya’s initial project have been forced to accept inferior plots, the front-facing properties are being sold by the private developer for around $750,000.
“I have lost 11 years of my life waiting for the construction to be completed,” Nurmuhambetova said in an interview with The Diplomat.
“Is it fair that I will now have to lose at least $300,000 as well?”
Like Mushrooms After Rain
If a successful entrepreneur like Nurmuhambetova can lose big in an investment in the center of the capital, then it is hardly surprising that poorer Kazakhs and first-time buyers are also vulnerable.
For provincial news websites, stories of construction scams and petitioning “dolshiki” – the Russian word for shareholders in property projects – are regular fare.
Nevertheless, as Kazakhstan’s biggest cities and centers of wealth, it is logical that Almaty and Astana have witnessed some of the country’s biggest construction scandals. The fact that these tales of woe have occurred right under the authorities’ noses has inevitably given rise to the suspicion that unscrupulous officials are somehow in on the act.
Powered by rising energy prices, Kazakhstan began experiencing massive economic growth around the turn of the century, with a knock-on effect for the housing market. From one year to the next, prices for real estate rose massively.
In 2005 the most expensive real estate in Almaty was around $2,000 per square meter – a series of cottages close to an upscale wellness club controlled by then-President Nursultan Nazarbayev’s daughter, Alia Nazarbayeva. By the following year, that top-end figure had grown to around $6,000-$7,000.
By the first half of 2007, the premium figure was closer to $10,000, at a time when costs in non-elite regions had soared to between $2,000-$3,000.
The reckoning was not long in coming.
In the second half of 2007, the ripples of a brutal global financial crisis originating in the United States reached Kazakhstan, popping the local real estate bubble.
Kazakh banks ceased lending for unsecured mortgages almost instantly, depriving developers of sales and scaring off buyers. As construction companies lost their long lines of credit and went bankrupt, the government formed commissions.
Authorities acknowledged that tens of thousands of buyers had been affected, and spent several hundred million dollars on support for banks and some companies in the sector.
Buyers, typically in the form of cooperatives, succeeded in winning court judgments that allowed them to assume ownership of half-built projects, but they got no compensation for the lost time and – in some cases – lacked alternative living space in the interim.
But they still had to find somebody to finish the job. As a result, some of those who invested in 2006-2007 had to wait up to a decade to receive their housing, while a new boom – this time focused on the capital – began in around 2012-13.
Authorities’ Neglect or Collusion?
The Law “On Shared Participation (Shareholding) in Construction,” passed in 2016 was supposed to improve buyer protections. It set strict stipulations for private developers, who, according to its provisions, should only be able to attract advance capital from would-be buyers if those stipulations are met.
Developers should be able to show that they own a land plot to build on, have a building permit from government agencies, and possess a guarantee from a bank that construction will be completed.
But the law hasn’t achieved what it set out to do.
In an interview with the Atameken Business news outlet at the end of 2016, a member of the Astana city council’s government commission on problems related to housing developments said that five fraud cases involving developers had impacted as many as 10,000 buyers in Astana alone.
The commission member, Tatiana Chursina, cited as an example the case of Bakytzhan Toimbetov, a developer who was jailed after his company took shareholder money for six housing developments with names like “Praga” and “Tokyo” but failed to progress any of them.
“The investigation found that Toimbetov invested the shareholders’ money in the restaurant business in Almaty. As he explained in court, since the restaurant business is very profitable, he planned to use the profits for the construction of the housing development. In addition, he also invested in a factory,” Chursina told the outlet.
Yet what of the authorities? After all, the law stipulates that developers must demonstrate ownership of the land for their proposed project, have the relevant permits from government agencies, and bank guarantees before attracting buyers. How did the authorities not know a housing development advertised on giant billboards lacked compliance with these provisions?
At what point does neglect become complicity?
One thing is clear – both state-owned construction companies and the private companies that they subcontract to make plenty of money in the process of completing housing developments.
In many cases, cooperatives like the one Nurmuhambetova joined are forced to make peace with design changes that make the project more profitable and the development less comfortable for living or business.
Industry sources moreover indicate that the construction companies charged with completing projects also have a record for getting money from the budget for elements already completed by the first developer – in other words, stealing.
Since EKK stepped in, along with its partner from the private sector, Qazaq Invest Build, building costs at the development formerly known as Expo City have soared. This fact is reflected in two documents – one titled Contract No. 47 and the other an addendum to that contract – reviewed by this author and signed by Qazaq Invest Build and the housing cooperative.
The documents show that construction costs over the span of just over two years (between February 2020 and May 2022) increased by 76 percent in local currency and by more than 50 percent in real terms. Basic costs for the completion of the project now total more than 300,000 tenge per square meter, which do not include the cost of landscaping and connection to infrastructure.
Private construction companies that this author interviewed this year said that it would be possible to build a housing development of this type from scratch and make a profit if costs were pegged at 180,000-190,000 tenge per square meter.
Moreover, the 2022 addendum includes an allocation of the equivalent of around $6 million for underground parking, despite the fact that underground parking was already built.
EKK last year refused to provide an interview to this author on the topic of the Expo City project. In a written response, the company cited the refusal as being due to a busy schedule. The company moreover pledged that construction would be completed by the first half of this year. That has seemingly not happened.
The author has also contacted Qazaq Invest Build, whose ultimate beneficiary, Salamat Akhmetov, is a counselor in the Astana city council and a representative of Kazakhstan’s ruling party, Amanat. As of publication there has been no response.