Market Know-how: Undemanded Riversides

The supply of land on the market in the Moscow region for recreational purpose near lakes is extremely low at about 0.2 per cent. Meanwhile the direct affinity to water makes these sites the most expensive and most demanded on the market. "The land on the shores of the Klyazminskoye and Pestovskoye lake now sometimes exceeds 50,000 euros per 100 sq.m, if all documentation is in order. In other places the price is lower, but still exceeds the cost of a usual site some distance from a river or shore side. The asking price on Verkhnyaya Volga per 100 sq.m is sometimes up to 20,000 euros," the general director of Geo Development, Maxim Leshchev, says.

Riverside economics

The main potential use of a waterside zone is recreational as the construction of residential and other premises here is forbidden or seriously limited. Western experience of the development of lake and riversides in cities and the suburbs shows that they can be used economically effectively when providing infrastructure: the construction of quays, entertainment complexes, etc.

But in the Moscow and surrounding regions the high cost has made riversides practically closed for investors, and the authorities are not interested in their development at all. There are practically no new projects on lakes near Moscow, including the Ivankovskoye lake (the so-called Moscow Sea). "We have not seen any offers for the registration of ownership or rent of recreational land on the primary market for about three years," says Leshchev.

According to experts of development companies, the present particulars in receiving land for recreational purposes is reminiscent of the middle of the 1990s - without the participation of market relations. The land market for yacht clubs and holiday homes in the Moscow region, in their opinion, is non-existent; practically all premises operating now have been created on the basis of old premises from Soviet time.

Another aspect is that land and water in Russia were previously considered as a common property, the private ownership of which is impossible. The western approach whereby you occupy a piece of land and a piece of water and you use it yourself, is perceived negatively. Authorities understand this and therefore when someone tries to get an ownership document, a refusal or very long process often follows.

Recreation in Russian

Such a situation, in the opinion of experts, is natural: On the one hand, the authorities are afraid to neglect it, which may lead to the complete privatization of riversides, and on the other – they make the entry ticket for investors too expensive. "Registration of the land for yacht clubs and a hotel in Tver at a river station has been going on for 2.5 years. I advise many firms on the construction of recreational centers - there are some remarkable projects, but the land has still not yet been received. If a company decides to do everything legally, there are a lot of obstacles and registration might be stretched over a significant period of time - from three to seven years," says Alexei Ushakov, director of development at Ridel group.

Besides not everyone will risk their own funds to develop the documentation without a guaranteed result. "The preparation of the full list of documents, excluding approvals, costs $100,000-$200,000 (the concept, feasibility report, market research, business plan, design, blue print, research), and all of this prior to approvals. You could say the project is a gift to officials," Ushakov adds.

The yacht clubs and other recreational zones that nevertheless appear, as a rule, are under construction together with a cottage settlement. "If the yacht club is with a settlement, hotel or business center it pays for itself the moment it appears on the land plot. The presence of such a premises raises the price of the real estate on which it is located by a minimum of 30 per cent," approves Ushakov.

No-one constructs yacht clubs on their own now, it’s unprofitable. "If you build modern technology yacht clubs with floating pontoons to world standards its recoupment will take at least 10 years. Just one 25-meter pontoon will cost about 30,000 euros. If you are putting yachts with their stern to the pontoon, then if each yacht has a width of 4 meters it is possible to place only six boats. Therefore to recoup the costs of only the pontoon, excluding electricity, and other expenses for the club, from each yacht owner it would be necessary to get 5,000 euros. Only very well-off people can pay such sums," says Dmitry Solovev, an expert in the design and construction of yacht clubs.

As a result today on the river and watersides of the Moscow region and nearby regions there are mainly only expensive yacht clubs, created on the basis of old Soviet premises, and holiday homes with the same history. The optimal base for the creation of such premises, as always, is old boarding houses and scout camps on the shores of lakes that are now used for other agendas. It’s easier to get approval for the recreational use of premises on such sites.

Legislative confusion

For those who own land on the shore of a lake or river, which is suitable for the creation of a recreational zone, the registration of sanctions can take an uncertain period of time.

First of all problems arise concerning the transfer of land to a different category whereby the main obstacle is the confusion surrounding the legislation. There are two meanings of the concept of "land for recreational purpose" in the law, in particular the Land code. According to Alla Lyagina, head of the legal department at IntermarkSavills, recreational zones can be allocated from both the category of land in settlements, and from the category of land of especially protected territories. "Such duality results in complexities in transferring the land of other categories into recreational purpose land," she says.

As far as land in settlements and recreational zones within them are concerned, the laws of land tenure and construction form the town-planning regulations for each territorial zone individually, taking into account the features of its location and development, and also the possibility of combining land of various purpose (residential, social-business, industrial, recreational and other kinds of use of land).

According to clause 98 of the Land Code of the Russian Federation the land of especially protected territories and recreational purpose land allocated within these territories is land intended and used for relaxation, tourism, fitness, health and sports activities. It would seem that the construction of yacht clubs is most suitable for the latter category, however the construction of permanent moorings complicates the process.

"The optimal lay out for a yacht club would be for the arrangement on its territory of a portable tent for a restaurant, without the construction of buildings, and holding corporate events there. This is also welcomed by ecologists. The restaurant recoups its costs in just half a season, but there are also the moorings to be taken care of and they are a different matter," says Solovev.

To allocate a land plot for recreational purpose from the category of especially protected land, a design project of the lay out of the whole territory is required. This concerns both Moscow and the Moscow region. "We have faced a problem with Moskvoretsky park (covers a fifth of Moscow) on the territory of which we have created premises, that there was no lay out design, and consequently when we tried to design and create specific buildings and premises, we were told that it’s impossible. The lay-out design assumes the clear division of land into zones: where it’s possible to build, where it is not, which part will be used for recreation, which won’t, where will the borders of the protected water zones be made, etc.

And to do all that costs a serious amount of money which nobody wants to pay. As a rule, this procedure is financed by investors who build residential complexes and apartment areas," says Solovev.

Besides this, all investment activity in Moscow, including the granting of land plots, is on a competitive basis. The development of the initial-permittance documentation costs a considerable amount of money which investors are not ready to pay without a guarantee that it will get the land plot. As a result the allocation of land plots for any recreational purpose has sharply fallen. "There is the impression that in Moscow they want to remove all existing infrastructural premises on the rivers and not create new ones. In the Moscow region the situation is also not simple," says Solovev.

Another serious obstacle in the realization of recreational projects is the new Water code. Before it came into force it was forbidden to build in a protected water zone. The new code allows for the possibility of construction, but there are some paradoxes. The code assumes the sale or tenancy of land next to a river or lake on a competitive basis. But if the owner of a land plot wants to buy a coastal zone or rent one but loses the tender the land can be given to someone else. These questions have no precise answers.

Moreover, the Water code has not been thoroughly studied by either officials or investors. For an ordinary person and businessman, unlike the Civil and even the Land codes the new Water code is something exotic. The allocation of land for recreational needs, and also the transfer of land for these purposes are practically never conducted.

As a result, as developers and players of the land market ascertain, the development of riverside land and water space in Russia today lags behind the development of all other spheres by 15 years. There are isolated projects appearing which are intended only for a limited contingent. As a rule, it is expensive elite yacht clubs or relaxation zones.

Meanwhile world experience shows that it is possible to create infrastructure even on small water spaces in countries that do not have a sea coast that brings much more economic benefit than individual expensive premises.