1. Agricultural land is not used for the intended purposes and is part of semi-legal turnover (shares in land), uncontrolled buy-in. Agricultural land makes 97.0% (128.9 mln ha) of the total privately owned land in Russia, and 83.2% of it is distributed among individuals as shares in land. About 1/5 of officially registered privately owned land is actually the unclaimed shares in land (25.5 mln ha). As of January 1, 2009, agricultural producers were actually using 2,096.2 thousand ha of state-owned and municipally-owned land without any formalization in the appropriate documents.
At the same time it is selling agricultural land that provides for sustainable overall growth of state and municipal land sales. During 2004-2008 the area of agricultural land sold annually by the state grew 46 times (from 8.5 thousand ha up to 391.2 thousand ha).
Such extensive development of private property in land sector mainly at the expense of the most valuable land and continuing weakening of government control in the sphere of agricultural land use has a very strong negative impact due to the following:
- Agricultural land in Russia has limited area and strategic value;
- Agricultural land has a very high share in the total private property of citizens, allowing for high turnover of such land between private owners if supported by efficient legal regulation;
- Gray non-transparent turnover of shares in land and delineation of land plots.
2. Poor level of government regulation and control in the sphere of land resources: agricultural producers in bankruptcy not excluded from official registers (1.5 mln); uncontrolled use and turnover of land from the Re-Distribution Fund (46.6 mln ha or 11.5% of agricultural land as of January 1, 2008); slow progress in land delineation (average annual growth rate was 1.6% in 2006-2008).
3. Land policy is implemented without account of land resources and prospects of their inclusion in land turnover. Thus, only 1/3 of land resources in Russia are favorable for human vital function. Only 13% of land area is used in agriculture (plough land, gardens, hay fields, grass land). As for the most valuable land share – only about 7.7% is plough land, and more than half per cent are in the black soil area. And problems are the biggest in this particular area.
4. Poor level of registration of land titles, the error of State Register data about land transactions makes 20%, this means practically 342 mln ha of land is not registered – more than the territory of Finland (338 mln ha) or Italy (301 mln ha) or Great Britain (244 mln ha).
5. Lack of transparent data about land property and land turnover within the segment of land plots acquired by individuals “for other purposes”. This segment of turnover demonstrates different mechanism of sales-and-purchase transactions, however, the trend is same – more and more agricultural land is bough by legal entities. Thus, 3 times more land plots were purchased “for other purposes” in 2008 than in 2007 (23.8 thousand transactions in 2007;
Institutional Problems 69.4 thousand transactions in 2008). The area of land plots purchased within this category grew 2 times: 106.6 thousand ha in 2007 and 246.3 thousand ha in 2008).
This category and the structure of land titles require details in this part. It is quite possible that legal entities are thus buying-in land, including agricultural land – in such cases when it is not desirable to legalize the beneficial owner.
Today the level of institutional development, including government institutions, providing for use, turnover and protection of privately owned land excludes the possibility of highquality services in the segment of big size real property.
At the same time, the level of state land property management is also very low.
In relation to all the above, the optimal scenario looks as follows: in privately owned land segment – using land resources as leverage for resolving the most acute social and economic problems; and in the state-owned land segment – improving government management and control of land allotment and registration, including the unused land into turnover.
With the purposes to improve government policy in the sphere of land privatization the priority measures should be targeted at defining the strategic areas for private land ownership development.
Up till now we could define privatization either as a large-scale change of real property ownership profile, or as a way to increase budget revenues (mainly for regional budgets), or as a way to consolidate real estate. In all of such cases what is sold and to whom practically did not matter. The summarized results are unclear and do not allow for talking about some quality change in the situation or about the improvement of land use efficiency.
It seems that the objective for land privatization should be defined differently. Privatization should be used as an instrument for resolving a specific social and/or economic task. For example, increasing the number of middle class may be selected as an objective – and based in this various methods for its efficient achievement may be defined, the key parameters of the process may be specified, as well the required legal, financial and other tools and the potential costs. Besides, the control over such policy implementation may become more efficient and the required adjustments may be introduced. Given this example, the key areas for privatization could be in individual homes construction and farming development.
The criteria for program implementation efficiency could be: increased provision of housing at the expense of individual construction (maybe – collectively funded), increased revenues from farming sector.
Private farms play a very important role within the privately owned land segment (15.mln ha of land); as well as personal subsidiary plots (7.2 mln ha of land) and dacha owners associations (1.2 mln ha of land).
Private title holders are 16 mln families having got their individual subsidiary plots; mln families in gardeningсадоводством; 7 mln families currently building their individual homes; 3 mln families engaged in small farming and 137.7 thousand dacha owners.
Such high engagement of citizens into the process of acquisition of land titles requires the following from the state (if only it has interest in expanding the privatization process):
- create favorable conditions for maintaining and increasing the demand for land plots (provision of utilities under fair and acceptable price at private initiative of citizens; provision of loans for such purposes; simplification of mechanisms for transparency of issuing loans);
- improve the quality of government services in the land sphere;
RUSSIAN ECONOMY IN trends and outlooks - develop a set of government actions to enhance each of the mentioned land market segments;
- consider increasing the norms of land allotment in the regions with sufficient lands and expand privately owned land plots;
- create efficient mechanisms for managing the processes of allotment, development and construction on such land plots – both by the state institutions and by self-regulating organizations.
It is quite obvious that such segments of land market as land plots for building individual homes and dacha owners associations are underdeveloped.
The main impediments here are the following:
A) Inefficient and overcomplicated mechanisms of such land plots allotment;
B) Underdeveloped infrastructure, high cost of utilities connections, of obtaining construction permits and of commissioning;
C) Regional land policy in the sphere of building individual homes and setting up dacha owners associations (created only in 56 RF entities);
D) No right for registration in dacha homes as permanent residency;
E) Limitations for buildings established for small farms and gardening associations, other unjustified prohibitions for using land plots.
Land privatization for the purpose of building individual homes is a huge factor capable of activating the citizens’ demand for land plots. However, land development in this segment is really in embryo state. The share of privately owned land used for this purpose does not exceed 0.05% of total land area (i.e., 0.8 mln ha).
The following factors can provide for significant growth of activity at the land market:
substantial household incomes’ growth in 2000-s, the amount of loans issued to individuals, high housing deficit (circa 1.6 bln sq. m) and incapability of the government (at least in the mid-term perspective) to resolve this issue (estimated period required is no less than 35 years if the pre-crisis construction growth rate is preserved).
The following will be required for promotion of land privatization with the purposes of building individual homes:
1. Assure creation and development of the system of land plots allotment and acquisition with the purpose of building individual homes, expand opportunities for access to such systems;
2. Assure efficient mechanisms of challenging the results of land auctions and land plots valuation; assure control on behalf of the RF Ministry for Economic Development, RF Ministry of Regional Development, Prosecutor’s Office over legal acts adopted at the regional level in the sphere of such land lots allotment;
3. Develop the system of incentives for acquisition of land by citizens beyond the boroughs of residential areas including land in undeveloped territories (e.g., lower interest rate for loans issued to finance construction and utilities connections, longer pay-back period for such loans, reduced / socially acceptable costs for utilities connections, etc.);
4. Develop programs providing for quicker utilities connection (gas, electricity, water, communications, roads) at socially acceptable price for the land plots bought out by citizens for building individual homes. This program should stipulate for provision of services by certain government agencies under public contract terms, the format and terms of which should be defined by the state (best of all – in a federal law), for performing certain work when allocating land plots subject to requests from the title holdSection 6.
Institutional Problems ers. The number of owners requesting such work should be set at the level providing for the contractor’s profitability, on one hand; and excluding the possibility to delay the construction and assure socially acceptable price, on the other hand. Payment by installment and delay in payment under such contracts, as well as the possibility to challenge the cost of services provided under such contracts should also be provided for. In addition, the possibility for selecting contractors via tenders in segments with high competition should be provided for;
5. Consider transformation of certain categories of land plots (except for agricultural land) into land plots designated for building individual homes in cases when increase of their size is possible.
In addition, it is necessary to consider the possibility for increasing the size of land plots allocated to citizens, especially in the regions with vast land resources. The norms of land plots allocated to citizens (6–12 pieces of one hundred square meters, which is a traditional Russian measurement of land) were acceptable in early 1990-ies, however, by the end of 2000-ies they do not match with the level of income and the level of demand on behalf of individual citizens, with medium-level income and higher. Establish an effective system of managerial control and monitoring of activities in the regions with regards to legal framework regulating allotment privatization and mechanisms of land – to exclude the facts of massive violations of citizens’ rights, facts of abusing official powers (currently often found in this sphere).
Initially land plots may be leased for building individual homes with the right of further buy-out.
Investment aspect of land privatization should also be revisited, specifically – privatization of land occupied by enterprises. The purpose of such privatization should not be consolidation of real property as one single asset, which in practice often turns into buying a land plot with high market value at the underestimated price, which does not have any impact neither on the enterprise growth (micro level), not on the macro-economic development. Privatization of land occupied by enterprises should provide for future development of manufacturing.
Land plots should be allocated for buy-out at discounted price to major, medium-size and small enterprises capable of implementing investment projects resulting in their competitiveness growth, cost reduction, growing yields, sales market expansion, etc. (today this practically means shrinking the segment of land plots occupied by enterprises subject to privatization). Otherwise privatization will be senseless for the state.
Besides, land plots designated for gardening private subsidiary farms, etc. may have quite good potential for being in high demand.
Amending legal framework currently providing for intermediaries acquiring land including agricultural land and plots under enterprises is extremely important for efficient land privatization.
The issue of land property rights (titles) re-registration is of special importance. Actually we deal here with the already formalized by out-dated rights which will cease to exist in future: permanent (unlimited) use and lifetime ownership with hereditary possession.
It is important that the government policy is targeted at expanding the private property segment, but not by introducing common efficient rules “top down”, but rather by creating the conditions at the ground level (“bottom up”). The costs of such approach are pretty high: for individuals – substantial expenses on land surveying and stock-taking, long period, etc.; for RUSSIAN ECONOMY IN trends and outlooks the government – several years of transition (deregulation) period in the private real property segment.
Poor efficiency of such approach we are now witnessing in the process of re-registration under the “dacha amnesty” process, when registering agencies cannot handle the high demand, the established timeline is unjustifiably long, the prices for land survey services are monopolistically high and not affordable to many citizens, which provokes for growing bribery and abuse.
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