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Vera Ryabova: ‘Legislators Expected Prices to Decline…’

Amendments in the Land Code will definitely affect the real estate market. Contractors and consultants, land owners and municipal officers will have to restructure their operations. Vera Ryabova, Senior Associate of Rightmark group, reflects on opportunities and challenges produced by the revised Land Code.
Amendments provided by the law No.171 FZ may be considered the most influential reform over the last 15 years. These are to simplify the procedure for land plot provision, reduce administrative barriers and excessive approvals, eliminate conditions for misuse, and facilitate involvement of idle land in civil transactions.

Earlier state and municipal land plots could be provided both with (no bidding) or without (based on bidding results) pre-approval of facility location.

The first procedure is transformed into approval of land provision only on the basis of the approved boundary setting plan, or a land plot general layout on a cadastral plan. A comprehensive list of reasons for refusal is determined, which reduces the ability of public authorities to regulate land allotment ‘at their own discretion’.

It is important that from June 1, 2015 both individuals and legal entities will be able to initiate bidding. The authorities will not be entitled to refuse them, except where provided by law.

New Land Code of the Russian Federation establishes standards to protect interests of bidders. It is prohibited to combine two or more land plots in one lot so that the range of bidders is not limited to major companies. (However, I cannot be ruled out that one will skirt this ban by artificial land consolidation during surveying.) One shall not demand that a winning bidder reimburses for expenses for holding of bidding and performance of cadastral works. It is not an uncommon situation, while the expenses can reach several million roubles. No additional requirements entailing costs for a lessee shall be stipulated in contracts as well.

There are also less favourable amendments. Developers will no longer be able to acquire land for construction from the Government and local government bodies — only to lease them. This would help to monitor compliance with construction deadlines and intended use of land with the exception of IUD projects and plots owned by individuals constructing persons constructing single family dwellings on private housing construction and personal subsidiary plots.

One should keep in mind transitional provisions of the law: a land plot may be allocated without bidding before March 1, 2018, if a decision on pre-approval is made before March 1, 2015.

Constituent entities of the Russian Federation are also entitled to establish additional reasons for refusal to approve a layout, hold bidding, give pre-approval or provide land without bidding before January 1, 2016.

It is expected that as a result of these measures unused land will enter the free market, and prices will decline. We believe, however, that the land prices are more likely to rise: according to the new rules, land plot repurchase value is determined based on its cadastral value which is often higher than the market one (occasionally, by several times).

Law No.171 FZ introduces the land use permit system based on the approval issued by a public authority, without a contract or granting any proprietary rights prescribed by the Civil Code of the Russian Federation.? public land plots may be used to carry out engineering or geological surveys, repair of infrastructure facilities (no construction or reconstruction are allowed).

No land allocation is required for placement of non-stationary retail facilities, advertising structures, linear structures and networks. This does not mean, however, that linear structures may be now constructed without registering rights in land. If the urban development code prescribes to obtain permits for construction of certain projects, the land allocation procedure shall be followed.

Here an ambiguity immediately appears: the issue of payment for a permit to use land is yet unresolved. Effective regulations for issuance of this document do not contain any directions for charging of fees either. Also, the Land Code of the Russian Federation relies upon the principle of paid use of land in the form of land tax and lease payment. However, in case of the land use permit system a land user, on the one hand, is not obliged to pay the land tax, and, on the other hand, is not obliged to make lease payments.

Amendments introduced by the law No.171 FZ should be generally considered positive. Nevertheless, to ensure successful implementation of certain procedures, the relevant by-laws should be adopted, including at the regional level. It will take few years to fully comprehend strengths and weaknesses of the coming changes, taking into account the transitional period for several provisions.

Prepared by Dmitriy Sinochkin 
Source: Nedvizhimost i Stroitelstvo Peterburga (St. Petersburg Real Estate & Construction) newspaper, No.14(853), page 16