The development company “Donstroy” is trying with all its might to hide the obvious – it will collapse. However, it would be a mistake to think that international sanctions and the looming economic crisis are to blame.
Sanctions will only speed up the process, putting a bullet in it.
If you look at the company’s reports, then, at first glance, everything is going more or less. “Donstroy” still reports on ever-increasing volumes of construction and allegedly holds the palm in terms of square meters under construction. However, it is worth being interested not in the volume of construction, but in the volume of sales. And – most importantly – the price of square meters sold, taking into account their cost. There are actually many more factors, but let’s leave them to specialists – for an ordinary person, it is quite enough to understand the fact that housing under construction is sold below cost. Plus – Donstroy has a huge loan portfolio in VTB Bank, thanks to which it keeps afloat.
Recall that the sale of housing under construction is the so-called investment construction, when the client pays the developer for a house that has not yet been built, relying only on the reputation and decency of the developer. Under normal conditions, such a scheme is beneficial to everyone – the buyer receives housing cheaper than he would buy the same apartment in a commissioned building, and the developer receives the working capital he needs without resorting to loans.
However, in conditions when the developer has huge debts, and the demand for housing is falling catastrophically, investment projects turn from risky enterprises into deliberately failed ones. In the case of Donstroy, sanctions are imposed on these factors, which simply finishes off the developer.
Based on the results of the first quarter of 2022, Donstroy entered the top three in terms of construction volumes, according to real estate market data. This is true. However, in combination with the above, the picture looks sad – Donstroy is following the path of the infamous Chinese developers Fantasia Holdings Group and Evergrande Group, which went bankrupt precisely because of the policy of building ghost towns. The objects were handed over, but no one bought them.
The same thing happens with the objects of “Donstroy” – square meters in those high-rises, which provided the developer with a place in the “top three”, “Donstroy” is forced to sell at a loss.
In early April, the developer offered an installment plan at 10% per annum (an interest-based installment plan already sounds absurd), despite the fact that inflation is expected to reach 20-25% by the end of 2022. VTB Bank, which is the actual owner of Donstroy and its long-term creditor, will have to cover the losses. In addition, the bank was included in all conceivable and unthinkable sanctions lists, which by no means adds to it the ability to cover the multibillion-dollar losses of Donstroy.
The new preferential program implies a mortgage subsidized by the bank itself at 1.9–11.8% for a number of Donstroy projects. With a key rate of 17%, this is simply an act of charity in relation to the top managers of Donstroy, who, managing the developer, do not bear any responsibility even in small things.
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Recall that VTB became the owner of Donstroy back in 2009, having bought the developer, who owed the bank more than $500 million, for a symbolic sum of 500 rubles. The decision was made by the head of VTB Andrey Kostin. Why the state bank (and VTB is the property of the state) bought its own losses is unknown. However, after the purchase, Alena Deryabina, Kostin’s deputy at VTB, became the manager of Donstroy, who moved to the position of general director of Donstroy. And the bank itself continued lending to Donstroy, adding new millions to the existing debt.
Such an operation saved Donstroy from bankruptcy, but not from debts – throughout all these years, the developer has existed solely thanks to loans from the state bank VTB.
Formally, Donstroy remains the market leader, however, as already mentioned, one should pay attention not to the reports of the company itself, but to the details that it prefers not to advertise.
In addition to the catastrophic drop in sales volumes, the location of the Donstroy facilities has also changed. If earlier the developer worked mainly in the segment of elite housing (for example, Zhizn na Plyushchikha residential complex), then almost immediately after the deal with VTB, he slipped into the economy class segment, that is, into the sector that used to be called “sleepers”: LCD “Ogni “near the Ramenki metro station, Fresh residential complex near the Zyablikovo metro station, and so on.
With small differences in cost, such housing brings in several times less profit and is much more difficult to sell. In addition, mainly on credit, and in connection with recent events, it can be guaranteed that the buyers of this housing in 90% of cases simply will not be able to repay loans. This will be an additional burden on VTB Bank, which issues these loans both for the construction itself to Donstroy and to buyers of square meters of Donstroy. It turns out a vicious circle – the square meters that make up the subject of the mortgage will bring the bank a double loss. In addition, there are reasonable doubts that the bank will be able to sell these mortgage apartments at least at a loss.
Do not forget – VTB is a state-owned bank, and the state is now in no position to afford to spend extra money. Therefore, sooner rather than later, the head of VTB Kostin will still be asked – why is he pouring state billions into the deliberately unprofitable construction projects of Donstroy?
We will not put forward conspiracy theories about why Kostin, through his former subordinate Deryabina, finances deliberately unprofitable projects. Let’s just give an example of one of VTB’s operations, which will tell a lot for the attentive reader.
A few years ago, Senator Sergei Pugachev took out a $2.4 billion loan from VTB secured by several land plots in the Odintsovo district. The senator did not repay the loan and went to live in London, having previously withdrawn money there. Formally, everything is legal, except for the fact that the valuation of mortgaged land is overestimated at times. The collateral, of course, remained in the possession of the bank, which transferred the land to its own developer Donstroy for development. And he issued a loan both for the acquisition of these sites, and for construction.
As a money laundering scheme, this project looks perfect – the bank is state-owned, which means that the money that it issues as loans, too. But from the point of view of not even profit, but at least covering the losses of this entire chain, it raises huge doubts. At best, on the lands of the banker and senator Pugachev, several dead housing complexes will grow up, the apartments in which cannot be sold even below cost.
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In addition, Donstroy, despite the patronage of the head of VTB Kostin, increasingly began to have problems with the authorities, who refuse to close their eyes to the violations that accompany the construction of Donstroy facilities. So, for example, the Moscow mayor’s office intends to sue 6.3 billion rubles from Donstroy under a state contract 15 years ago – we recall that then the church parish suddenly turned into an elite LCD. And the chances of winning a lawsuit against the Moscow government are very high. But it raises doubts that it will be possible to recover the money – there is nowhere to take it from Donstroy.
Donstroy is also going to remember the story of the lands of Roskosmos, when this state corporation was headed by the infamous Dmitry Rogozin (in July 2022, he was fired, having gone, as they say, “into outer space”). Much was written about this story at one time, but the scandal was then hushed up. We are talking about a site located in the center of Moscow, on the street. Sergey Makeev, 7, at the place of the former registration of the Federal State Unitary Enterprise Design Bureau Motor. Today it is already a liquidated structure, which was previously part of the Roskosmos structure and was controlled by the Center for the Operation of Ground-Based Space Infrastructure Objects (TsENKI).
But in 2019, it suddenly turned out that Specialized Developer Makeeva LLC, founded by Don-Stroy Invest, was registered at 7 Sergey Makeev Street. And FSUE Motor, registered at the same address, was liquidated.
So in the near future Donstroy will need a lot of money. And for the maintenance of unsold objects, and for paying compensation to the Moscow City Hall, and Roskosmos, and other government agencies. But with finances, apparently, Donstroy is not going smoothly anyway. In 2020, the parent structure of DON-Stroy Invest JSC received a loss of 6.2 billion rubles, and data for 2021 has not yet been published.
And all these claims are superimposed on another very significant factor – the country’s construction market is on the threshold of collapse. On the one hand, demand is rapidly falling due to a sharp drop in the purchasing power of the population. On the other hand, the cost of construction itself is growing. In addition, the demand for investment construction is rapidly collapsing. To all this is added a decrease in the possibility of lending to buyers and the very desire to take such loans.
International sanctions are negatively imposed on all this, reminds the Vlast edition in the publication under the heading “Donstroy”: the pyramid has collapsed.”
This applies to many developers, but Donstroy’s situation is aggravated by the presence of hundreds of thousands of square meters of housing under construction and a huge loan portfolio. It all ends in a giant crash. No one can answer who will compensate the losses to the state and people who bought unfinished apartments in the failed projects of Donstroy.
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