Construction “Pyramids”: How to Protect the Rights of Shareholders

Tuesday, June 10, 2025, 11:59 Fraudsters and unscrupulous developers actively exploit them. Shared-equity construction is widely used in Kyrgyzstan. It promotes the development of the construction sector and enables the construction of residential multi-story buildings even when companies do not have the full amount of financing. On the other hand, there are many cases where construction companies fail to fulfill their obligations, leaving citizens without housing and suffering financial losses. “If we didn’t have a shared-equity construction market, there would be no construction at all in our country. The method was invented in the U.S. and widely developed in South American countries. Shared construction became a lifeline for our citizens,” said economist Iskender Sharsheev in an interview with Vesti.kg. The expert acknowledged that the associated risks are significant. “Some people have saved for an apartment their whole lives. They worked for 30–40 years, saved money, invested as equity holders, and the construction remained unfinished. People end up stressed. There have been cases where people died from the emotional strain. Many were deeply disappointed. We can see a similar example in Russia before they adopted the new construction law. That law required companies to have escrow accounts and sufficient funds to complete the construction before starting the project. The shareholder deposits funds into the escrow account, and the construction company receives the money only after it completes the building at its own expense. There was protection, insurance, and compensation,” Sharsheev explained. A firm legislative decision at the time saved thousands of future lives. “In 2017–2019, Kyrgyzstan tried to follow the Russian path. But construction companies resisted. They showed results. I conducted a study and identified certain trends. It turned out that most companies were conscientious contractors, while some behaved inappropriately. There were suspicions of fraud schemes or lack of experience. In shared-equity construction, a network structure would emerge, resembling a ‘financial pyramid’. New shareholders financed the construction of apartments for older ones. The more people got involved, the more money appeared. Many companies participated in such schemes,” the economist continued. He believes the solution lies in organizing the construction industry. “Even if only 20–40 major companies remain in the market doing project-based construction, it would be better. The market will correct itself. People would go to those offering project-based housing. Yes, it’s more expensive, but the chances of being deceived are lower. The probability of actually getting your apartment is higher. We will likely move toward this. Project-based construction is common worldwide. It’s the norm. CIS and South American countries mostly use shared construction. As the economy grows, project-based construction will dominate,” Sharsheev concluded. It is worth noting that Kyrgyzstan has proposed amendments to several property-related laws, including those regulating shared-equity construction. Deceived equity holders of “Rayan Building” and “UKS Selen” have appealed to President Sadyr Japarov and GKNB head Kamchybek Tashiev. They held a rally in Bishkek. The Sverdlov District Department of Internal Affairs stated that a criminal case had already been opened back in April. https://vesti.kg/zxc/item/139755-stroitelnye-piramidy-kak-zashchitit-prava-dolshchikov.html real estate, equity construction, housing rights, Kyrgyzstan, construction scams, escrow account, Iskender Sharsheev, legal reform, building sector, investment risks