Market Know-how: How to Get a Slice of the Motherland

Today many developers and investors, especially foreign, have a precise conception that there is no free land in the primary market in the Moscow region. Having made several attempts to receive land of the municipal authorities of this or that area, they are compelled to go to the secondary market where prices in the last few years have grown several times. For example, agricultural purpose land on the first line of Kievskoye shosse, 30 km from the MKAD already costs $10,000 per sotka.

If you consider western experience, there it is tradition, that by presenting a sound business plan for the construction of a factory or to create agricultural production, the state is ready to allocate land on favorable terms or provide favorable installments. In the Moscow region such practice will not arrive soon. Although, as the head of the committee for industry, construction and high technology of the State Duma, Martin Shakkum, notes, there is a lot of free, non-private land in the Moscow region, for example, at numerous State Unitary Enterprises, military enterprises, etc.

"Currently in the whole of the Moscow region there are tens of thousands of hectares of unused state land. Considering the deficit of housing it should be involved in turn through free tenders, but this does not happen.

Land is given either by preliminary approval of the location of the site, i.e. by choosing a land plot for construction for which tenders are not held, or by rent," says Shakkum.

According to the law and in practice

The Land Code of the Russian Federation is the main law regulating the granting of land plots, which are state or municipal property. In several clauses this procedure is described in detail. The main point is that there are only two main ways of granting land plots: either by tenders (competitions, auctions) for the sale or rights to rent the land plot, or by preliminary approval of the location of the premises.

Auctions, which according to the law should be the main way of allocating land, are practically never conducted. "Such a low level of tenders is caused by the authorities’ absence of money for land surveying, maintenance including its engineering infrastructure and other measures for pre-sale preparation," Shakkum comments.

As statistics testify, the total amount of sale transactions of land plots by tender is only 6 per cent. In the Moscow region this figure may be even less. The great bulk of land plots sold by auction are located in settlements and are mainly for the purposes of individual housing and cottage construction.

There have only ever been four open auctions for the sale of land in the Moscow region, they were carried out by the property fund of the Moscow region. However besides these tenders in the Moscow region local auctions arranged by municipal authorities have also been held. As a rule, they are not widely spoken about as the majority of them are of a closed, unofficial character. With such auctions the land from so-called “stores” or repartitioned funds is usually exhibited. Such land plots are those refused by their former owners of the rights of possession, and also land which has been withdrawn from its proprietors in connection with its use in a non-purpose designated way. Less often, land plots that have not been used are in local tenders.

As a rule, at all auctions the land is put forward for rent. «According to statistics, the proportion of land plots given for rent is 86 per cent of the total transactions and 98 per cent of the total land involved in economic circulation," Shakkum notes.

Such data is characteristic of the developed market situation as according to the law in several years a diligent tenant can redeem the rented land. In the Moscow region many buyers of large volumes of land work by this rule.

"The scheme of concluding a preliminary rental contract is very often used. In these cases the land plot is not sold, but given for long-term or short-term rent. Sometimes the conditions of rent are even extremely unprofitable. Then a contract allowing the landlord to the right of priority of the redemption of the plot, is concluded,” says vice president of the Russian Land Union Anton Belyakov.

The specificity of the work of local auctions is rather simple. "Interested businessmen enter into an arrangement with the corresponding officials, but more often the officials themselves are the buyers of these plots and then their sale is more expensive. In such auctions either false structures take part, or the auction takes place on paper. In other words, they try not to let real competitors be involved," says Belyakov. “If you come “off the street,” you will probably be offered a land plot for rent or a land plot with a price close to the market sale price in an unattractive location under natural characteristics," continues general director of Geo Development Maxim Leshchev.

As a result, to get a piece of land in the primary market, i.е. legally from the government, in the Moscow region today is practically impossible. For operations with land in the primary market serious lobbyists able of organizing participation in an auction, are necessary. "As a rule, the average lobbyist is affiliated with the administration. If it is a question of a very large and liquid plot, politicians will be connected. For example, some time ago a land plot (several hundred hectares) was sold on Rublevskoye shosse in the area of the Chesnokovsky center, lobbyists were from very high-ranking national structures. The decision on such plots is made at the top," says Belyakov.

There is a chance

Despite this, it is possible to get a slice of state land in the Moscow region for more or less a modest price, even without resorting to direct mutual relations with authorities. There are currently several ways of purchasing land plots without participating in an auction. The first is to purchase land shares, as a rule from village farmers, with the subsequent allocation of land plots on account of such land plot shares. However, here there is always the risk that in purchasing the shares, in the future it will be impossible to register them. "There was a case when the owner of a land share in a farm announced in a newspaper his intention to allocate a land plot on account of this share, chose the place at his own discretion, ordered the plan and market off his plot. But the federal registration service refused to register it, as according to the law, a decision to allocate a land plot should be made only by a general meeting of the proprietors of the land shares. This verdict was also confirmed in court," says Alla Lyagina, director of the legal department at IntermarkSavills. However, according to her, in exactly the same cases in other regions the local body of state registration has registered such land plots.

Besides "many agricultural enterprises have been almost completely bought up by large land owners, and in connection to this some shares are allocated, for example, in a ravine, or on lowland or will be extruded into a narrow rectangle," warns Maxim Leshchev. "But in that case, if there is an opportunity to allocate a share and receive a certificate of ownership, this should not be neglected.”

The second way is the possibility of assigning the rights of earlier concluded contracts of rent of land plots, which are state or municipal property. But here there are also several nuances. "In the near future the interdiction on assigning the rights of rent concerning the land given to a unitary enterprise will come into force. Currently in concluding rental contracts it is necessary to pay special attention to that," Shakkum says.

The second wave of raid

In pursuit of liquid, inexpensive state land in the Moscow region, businessmen recently began to involve raid structures, which were left in the shadows some time ago. Actually now there is a redistribution of lawfully received land. The mechanism in the legislation, in particular in the Federal Law "On the use of agricultural purpose land," is rather strictly regulated. For example, priority in purchasing agricultural purpose land plots is given to subjects of the Russian Federation or municipal formations, and the maximum area of agricultural land that can be owned by one citizen or one company is limited.

Even the law was passed, in the last 20 years, and especially since 2000, purchasers of shares in every possible way try to get more land, without thinking about registration. The law was brought into force to precisely regulate that all documents on shares are in order. Those who didn’t do it in time are taking the punishment.

"Raiders prefer not to buy a share as in that case they should be registered, which is expensive and a long process, but prefer to make a power of attorney on the right of the share’s management. And this is a risk, because the power of attorney can always be withdrawn, and has already been a subject of numerous court cases. And also from the moment of death of the principal it stops the action, and then it is necessary to solve the problems of inheritance, etc," says Lyagina. "Non-observance of requirements of the law, for example, wrong registration, excess volumes of registered land by one company, entails the necessity of alienating land plots which were acquired through the infringement of the law," adds Shakkum.

As Belyakov notes, actually now there are raider attacks on raiders. "The structures that try to take away earlier half-legally allocated land, as a rule, are legally well grounded, have an administrative resource and access to authoritative structures.

Such companies find opportunities to analyze concluded earlier transactions, find legal nuances in them, and provide a basis to recognize the transaction insignificant," he says. According to him, in such cases a contract with one of the former owners of shares (if it is agricultural land) is concluded, the owner gets told that it has carried out an unprofitable transaction and has received less and there is an opportunity to return part of the funds. "It start to get financed by the structure, it acts as the claimant in court of a corresponding level, the transaction admits insignificant, and there is a redistribution of the land plots: first the land goes in the redistribution fund, and then goes to those who are interested in it," ascertains Belyakov. According to him, it is not excluded that in the case with Vasily Boiko this scheme was used - an attack of one raider on another.

As a result, it is possible to buy land from the government at the moment, but the risks and consequences of it are unpredictable. In the pursuit of low prices it is possible to acquire a huge quantity of problems, which would need to be solved through the courts. For investors and developers, who do not possess the necessary lobbyist force, the only comprehensible variant left is to get other areas or go to the secondary market. However, the secondary market also has a shadowy side, therefore in carrying out transactions, some employ several lawyers at the same time and the transaction is conducted, if it is a large plot, sometimes over a year.

The practice of auctions has shown that they actually don’t work, as the state rarely organizes them - ostensibly because of a deficit of funds. Somehow to increase a turn of the lands and to leave the shadow, in spring session of the State Duma consideration of the next bill, called to solve the given problem, is planned.

The developers of the document, one of whom is Shakkum, explain that this bill establishes a list of cases in which land plots are given for construction without tenders. In addition, it establishes the possibility of preparing the documentation on the layout of the land and land surveying documents for interested people and eliminates unreasonable restrictions with land plots.