#6036
[Second Issue of the Day]
#10
St. Petersburg Times
January 22, 2002
With the New Land Code, the Time To Buy Land Is Now
By Maxim Popov
CONTRARY to what many people think, the new Land Code adopted in October has not brought about private ownership of land in Russia. The concept of private title to land has already existed for a number of years. A large number of companies and individuals had owned land long before the adoption of the new Land Code, and many of them had acquired the land on the secondary market.
What new, then, has the Land Code brought?
The Land Code has unequivocally provided for the ability to purchase land under newly constructed (as opposed to privatized) buildings. Previously, only a few regions (St. Petersburg included) had read into the old privatization legislation of 1992 to 1994 the right of owners of the newly constructed buildings to buy the land under them. In most of Russia's regions (Leningrad Oblast, for example), the authorities had been selling land only to the owners of privatized enterprises, while denying such a right to new investors.
The provisions of the law "On the Introduction of the Land Code" elaborate the price of land beneath buildings. The price is determined based on the land-tax rate and the population of the municipality in which the land is located.
The law sets upper and lower prices depending on the population, within which the regional authorities may establish their price. The upper price limit for high-population municipalities is 30 annual land-tax rates, while the minimum limit for the less-populated regions is three annual land-tax rates.
Where regional authorities do not establish a price, the respective lower limit applies.
The Russian government is authorized to establish coefficients ranging from 0.7 to 1.3 applicable to the price of the land. Until the respective government regulation is adopted, no coefficient applies.
The procedures for actually buying land are not determined yet in most regions. In practice, the former procedures for sale to privatized enterprises apply.
The procedure of privatization of land under the Land Code involves establishing a cadastre (or land-registry) lay-out of the plot. Obtaining a cadastre lay-out can take a significant amount of time - as much as six months at the state cadastre organizations. However, specialized private companies can significantly expedite the cadastre procedure so that it can take as little as one week.
Many companies should now consider whether to purchase the land under their enterprises, which they have been leasing from the state up to this point.
The pros of land purchase are as follows:
. Purchasing is a one-time expense. You are not subject to fluctuations in rents, which are determined exclusively by the state and can be changed at any time. While the rent amount in many cases is nominal at present, this will not necessarily be the case in the future.
. Land ownership allows additional leverage through the freedom to mortgage the land and the buildings constructed thereon without the consent of the landlord, which would otherwise be required in most cases.
. On disposal of the enterprise, a company owning its land obtains a return of its investment by selling the land, as opposed to rent, which is a cost that can't be recovered.
. With Russia's economic development looking positive for the future, land is liable to appreciate over time, so the company may obtain not only the return of, but also a premium onn its land investment.
. A final factor is the fact that the land prices set by the law "On Introduction of the Land Code" are very modest as compared to those of other developed countries.
Other business considerations aside, now is a good time to buy land in Russia: Land taxes are low, the lower prices set out in the code apply since most regional authorities have yet to set their own prices, and the government has not yet adopted the adjustment coefficients, which will likely be raised when they do get around to doing this.
Now is a good time to consider this opportunity.
Maxim Popov is a senior lawyer with Andersen Legal specializing in real estate transactions. He contributed this piece to the St. Petersburg Times.
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