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Feature Story June 16, 2006
Moscow Land Grab!
By Jake Rudnitsky Browse author Email

Here's a multiple choice question for you: How far will the authorities go to seize valuable land to build on? They'd...

a. beat up an old Buchenwald survivor

b. force entire families to move from large private houses to crappy one-room apartments

c. move people from choice central apartments on Strastnoi Bulvar to beyond the MKAD

d. all of the above

If you think you've got your finger on the pulse of the Moscow real estate market, you can skip to the end of this article and to the answer. Over the last several months, as Moscow's market has exploded into the stratosphere, the authorities' greed kicked into hyper-speed overdrive along with it.

But how far are they willing to go? They've been resorting to all sorts of extralegal methods to occupy land and displace the rightful owners. It's what they'd call Eminent Domain in the States, except for a couple of things.

In the first place, they're throwing up apartment complexes for the rich instead of building projects even remotely for the public good. Furthermore, in the States, property owners usually get compensated at or above market value for their property, while Muscovites get kopecks on the ruble. But, perhaps most importantly, Americans have courts that might not reverse the decision, but at least will make it take forever to implement. Long legal battles and zillions of lawyers working on spec are a serious disincentive for land grabs. Here, construction continues throughout the appeal, meaning that even if you win, you lose.

Not that a victory's at all likely, according to Mikhail Shubin. He's spent most of the last year fighting to halt SU-155, Moscow's largest construction firm, from building four buildings in his dvor, or backyard. While he's been filing complaints with everyone from the regional prosecutor to Duma deputies, the buildings keep going up. In fact, they're not just going up, they're rising higher than ever. Instead of the 16-story buildings in the original plans, they've grown to 20 stories, a 25 percent increase in size! Shubin, a serious man in his 40s with a Soviet sense of order, keeps fighting, even though the first two buildings will be finished by the first quarter of next year and the others won't be far behind.

SU-155's 'Business Class' abode in Shubin's dvor, starting at just $3500/meter!

Perhaps the most amazing thing about Shubin's struggles is how SU-155 gets away with flaunting the law so blatantly. Shubin lives in Nagatinskaya Embankment 40/1, a giant late Soviet-era panel building near Kolomenskaya metro. His windows look out on the new development and he couldn't ignore it if he tried, as it blocks the sun and his view of the Moskva River. Maybe that's why he's leading the fight against SU-155. He keeps meticulous documents that clearly state that the new buildings were supposed to be built on land reclaimed from six pyatietazhki (notoriously shoddy five-story buildings that were quickly thrown up to alleviate Russia's post-war housing shortage). Mayor Luzhkov declared war on pyatietazhki and has called for replacing all of them by 2020. But the pyatietazhki that SU-155 was supposed to tear down remain inhabited, while SU-155's new "Business Class" residential buildings, with apartments now going for $3500 a square meter, are going up several hundred meters away, on choice riverside parcels. "They simply moved in and started building on top of our playgrounds," Shubin told me.

Remarkably, despite Russia's outward obsession with following rules and bureaucratic procedure, Shubin's complaints that the buildings were much bigger than they were supposed to be and nowhere near where they were zoned for fell on deaf ears.

Jim, one western real estate builder I talked with, was surprised at Shubin's story, claiming that the process has gotten less corrupt with the emergence of a semblance of a middle class in Moscow. "There are public meetings now," he told me. "It used to be that you could announce a meeting that would be held yesterday in some obscure newspaper, but that doesn't cut it anymore." However, the documents Shubin showed me belie the notion that people can assert their rights any more than they used to. While small companies might be forced to deal with inconveniences like public hearings and zoning laws, Moscow's big players still do what they want, where they want. And they've got the militsia to back them up.

Among the multitude of evidence that Shubin's collected relating to his case, he's got videotapes of the protests held against the start of construction of the third tower. In the video, taken last autumn before ground was broken on it, nearly a hundred residents square off against a group of 28 militsia men. Among them were the Buchenwald survivor mentioned above, several mothers and their toddlers, and at least one very pregnant woman. The women's strategy was to occupy the space where several concrete panels were to be set up during the prep work for the foundation, on the assumption they wouldn't touch women and children. Wrong!

The workmen continue construction straight through the protests. For most of the time, a 10 foot long concrete slab is swinging over the protesters heads, where they've positioned themselves so as to not allow them to set it down. It says a lot that the only way to stop a SU-155 project from getting realized is placing yourself under a ton of concrete that'd been strung up by a Tajik gastar-beiter. There's one bit where a pregnant woman is touching the dangling slab over her head. So much for improving demographics.

The protest itself is exactly what you'd imagine a Russian protest to be, made up mostly of women who would occasionally lapse into fits of hysteria. At one point, a woman with a well-insulated baby in hand completely lost it, shrilly yelling at the cops, "I'm the mother of four children! Don't touch me, suki!" The women often used their children as human shields, pushing strollers right into the heart of the scuffle, and right under the slab.

Watching the video, it's hard not to sympathize with the cops a little. They're just doing their jobs. They had no idea that they were called in to protect an illegal construction project, and they tended not to use force except when the motley crew of babushkas and mothers grew too rowdy.

She survived Buchenvald for this!

One instance was when a babushka noticed a young man she didn't recognize filming the protest. The woman (the Buchenwald survivor) started hurling rocks at the thuggish-looking guy until he fled. It didn't take long for the cops to gang up on her and neutralize her throwing arm. But the crowd's reaction was to scream bloody murder, saying, "Let her go! He's from their side. Loser!" But even if their methods were a bit over-the-top, they weren't just a fringe group. Shubin had gathered over 225 signatures from his building (out of some 3000 residents) protesting the construction. But that wasn't enough for even a stay of execution. All his efforts filing suits and petitioning chi-novniki got him was a threat from a Moscow prosecutor that he might open a criminal trial against Shubin. In Russia, apparently, it's ok for prosecutors to threaten people who annoy them with arrest.

"I was accused of breaking the law, while the real criminals operate in plain sight!" he told me.

He's even started meeting with a small group of self-styled "human rights crusaders" in the local LDPR office (which was the only party to agree to let them meet weekly). There, among portraits of Stalin and Zhirinovsky, about 10 people gather weekly to trade stories about doing battle with the authorities. One member, Yuri Padalko, has organized similar citizens' rights groups throughout Moscow and, in a page out of the USSR playbook, has even been locked up in a funny farm for his political activities. Recently, according to an article he gave me from Novye Izvestiya, he was physically attacked by one of first deputy mayor Vladimir Resin's body guards after publicly accusing Resin of taking bribes.

It's hard not to sympathize with the group's gripes mostly illegal land grabs but it's harder still to imagine that they'll ever get anywhere. Shubin's the perfect example; clearly there's no stopping the towers now, yet he still insists on filing complaints regularly. The fact that he actually sought ME out to tell his story only shows how desperate he is.

The reason Shubin and his neighbors are so outraged, of course, isn't simply because SU-155 took over a few play- grounds. While the playground argument might be a good tear-jerker, it's obviously not what motivated them to take on SU-155. In fact, in 1998, they even unsuccessfully lobbied to build a garage where one of the playgrounds was. Ironically, the reason the Moscow Committee on Architecture and City Planning denied the request was the "small capacity of the territory." But at least the playground argument was grounded in reality. In some of Shubin's pleas to courts, politicians and prosecutors, he's grasping at straws. One of his arguments, doubtlessly connected to the fact that he believes that Luzhkov's wife Baturina owns SU-155, is that the new buildings are a hazard because they might collapse a la Transvaal.

Most residents are upset about a more prosaic issue: parking. Their neighborhood is already extremely dense as is, and there's not enough room for another few thousand residents. Each new building will have 10 to 12 apartments per floor, meaning that nearly 1000 apartments are going up within spitting distance of Shubin's apartment building. That means more cars, less parking, worse air quality, bigger rush hour crowds on the metro, and more headaches.

The current residents are mostly middle-class families who received big 3and 4-room apartments in the mid-80s. Density for them isn't a bonus of living in the big city; in the States, these would be the people who move to a subdivision in Las Vegas for "quality of life" reasons.

It helps to understand a bit about the way new construction works in Moscow, where four companies (SU-155, DSK1, Inteko, and PIK) are responsible for over 80 percent of the new sq. meters constructed. Moscow's housing market is unique in that there's no secondary housing market to speak of. That's because almost all the housing stock is substandard.

It goes without saying that the Big Four have some friends in high places. Most obviously, Inteko's owned by Luzhkov's wife Elena Baturina. The others are no less connected. Deputy Mayor Resin owns 25 percent of DSK-1. SU-155 owner and Number 57 on Forbes' Golden 100 Mikhail Balakin was the head of the department in charge of city planning in Moscow until last year.

These mammoth companies inherited a Soviet infrastructure set up to churn out panel housing on a huge scale. In a sense, they're vertically integrated, in that they control the dom-stroitelnye kombinaty that produce the panels that they then use to build apartments. While poured concrete creates better, more flexible housing stock, price-wise it can't compete with panel buildings. According to the real estate company Kondor-R, panelki make up over 50 percent of new construction. Even now that Moscow has started demanding higher quality, these big companies are starting to branch out into the regions, where panelki are more acceptable.

And they still maintain a dominant position in construction. "Since most of the market is equity-based, it's a hard market to break into," Jim told me. In other words, the start-up costs involved in setting up a panel-producing kombinat are too big for it to be a viable business to enter. And, given that some 200,000 Russians have been ripped off by schemes in which construction companies sell apartments to be built to multiple buyers, it's no surprise that raising equity isn't easy.

Since it's much more profitable to sell apartments than prefab panels two-room 60-square meter apartments in the mid-range Nagatinskaya development are going for $200 grand obviously the big four aren't interested in selling building materials to others. Moscow's market is a situation that is naturally dominated by a few huge players.

Widespread corruption also favors big players with good connections. As explained above, public meetings might be an inconvenient reality for small players, but big companies know how to pull the right strings to avoid such obstacles. A company can also save significantly on bribes about five percent of the cost of new construction, according to Jim if the right officials own a piece of the company.

This situation doesn't make economic sense. The market would definitely be able to absorb more construction, if not for the obstacles to breaking into the market. Such glaring inefficiency leads to, among other things, bubbles. And, though I'm not saying that Moscow's market is on the verge of popping, there are other factors that suggest real estate might not be a good long-term investment.

There's a yawning gap between average earnings and the cost of real estate, which has been growing by about 5 percent a month since late last year. There's absolutely no relation between the price of renting and buying. Has anyone's rent gone up 50% in the last year? And, in spite of what you might read in the Moscow Times about the boom in consumer credit, Jim says that consumer loans make up less than one percent of the housing market. That's hardly surprising, considering rates of over 10 percent. There are some mitigating factors, like the fact that everyone in Russia wants Moscow propiska, but when one-bedroom apartments in Zhopsk are selling for $150,000, there's reason to be suspicious.

A couple of stories similar to Shubin's were big enough to make the nightly news last week, which is always a good gauge of how serious a problem has become. While Shubin's trials and tribulations might not be dramatic enough for TV, land grab stories are clearly on people's minds.

The first story, which I saw on Channel Rossiya and was reported on June 8, involves a bunch of peasants living at the very edge of Moscow. Anyone who's ever taken a train out of Moscow probably noticed clusters of "chastnyi sektor" houses clumped near the city line. These miserable huts, which often don't have indoor toilets, are old villages that Moscow eventually grew around. These rundown huts look a lot like dachas, except they're inhabited year-round.

Another bootiful day in Butovo in the house raided by OMON last week.

These particular houses were in on Bogucharskaya ul. in Yuzhnoe Butovo, which is a code-word for the sticks among snooty Muscovites. The resi dents, many of whose roots in the village go back generations, were recently given notice that in 2008 their houses would be bulldozed to make room for high-rise apartments.

It's likely that they wouldn't have minded, if the terms they were offered were a little more generous. But the only compensation they're scheduled to get is a one-room apartment per family. There isn't much up-side to living in a shack in Yuzhnoe Butovo, but one advantage is that families have plenty of space. The idea that they could have their homes seized (ostensibly for health reasons) and then get stuffed into one-room apartments just down the street, while the developer would net revenues in the tens of millions... it just ain't right.

But when they organized a 200-per-son protest, with support from Edward Limonov's NatsBols, the cops showed up in force to shut down the "unsanc-tioned" protest. Some 15 protesters barricaded themselves in one of the houses, which the militsia then stormed. Three people were beaten severely and Yuliya Prokofeva, a resident of the village, was hospitalized in critical condition, just for being at home. Three protesters, presumably NatsBols, were arrested.

On its face, the other story couldn't be more different. This one, reported by IA Regnum June 8, unfolded on Strastnoi Bulvar, just off of Pushkin Square, in the very heart of Moscow. Fifty residents of Strastnoi 12 str. 1 (and 20 journalists) held a meeting after they received notice that their home had been condemned and that they'd be "exiled" to... Butovo! It's one thing to keep someone from Butovo in Butovo that's probably in all our interests but moving intelligencia families from some of the most expensive real estate in Moscow to Butovo sounds like the plot of a TNT reality show.

The NTV report that I watched took the viewers on a tour of the building and one of the apartments. The podyezd looked cleaner than most, and the apartment was evro-remonted. Some modny guy in his mid-20s who worked at an ad agency lived there in his parents' place, while they spent most of their time at the dacha. Their eviction notice said that they were guaranteed the same number of sq.meters, but they'd have to settle for those meters in Butovo.

As added comic twist, the company that would be undertaking the reconstruction of the building was the ZAO "Union of Theater Personalities." While that might not sound like a particularly predatory organization, IA Regnum found out that this private company was registered in the British Virgin Islands.

A few days after the original report, Luzhkov's press secretary Sergei Tsoi issued a statement saying that Moscow residents in condemned buildings would remain in their okrug and that the government didn't have the right to offer other options, much to the relief of Garden Ring snobs everywhere. According to Tsoi, the mayor said that "if any meddling chinovnik offers the apartment residents apartments in Butovo, he'll be quickly fired." While this story ended happily for the residents, it's telling that even Moscow's cultural elite aren't safe from being victimized by land grabs. The Strastnoi Bulvar story was extreme enough to get official notice, probably because these people come from some layer of the Moscow elite, but chinovni-ki are trying to steal from them anyway. All classes of society, except the super- rich and high-up chinovniki, are targeted, from the lowest rungs in Butovo, through the middle class in Kolomenskaya, on up to the artists and intellectuals inside the Garden Ring.

Many Russia watchers still believe the neo-liberal mantra that, with the rise of a middle class, Russians will naturally turn towards a more democratic, representative system. They might even see Shubin's story as proof of this, highlighting his attempt to start a grassroots campaign to fight the government's heavy-handedness and establish rule of law. But there is no silver lining here; the apartments got built, Balakin and the corrupt officials who let it happen will be enriched, and Russia's civil society is just as pathetic and powerless as ever.


The answer to the question above is, and will remain, D.

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