Association for the Protection of Landowners' Rights, Tbilisi, Georgia
Georgia is a post-Soviet republic of the South Caucasus and has limited land resources. Land reform is considered to be one of the most successful of the reforms that have taken place in the country. Agricultural land reform has involved: (1) privatization of land to rural households, and (2) leasing of lands to private individuals. In 1997 the Civil Code first declared that land parcels under housings were under the private ownership of residents. The second phase involved privatization of industrial lands. Non-agricultural lands are privatized through public tender. Land-related legislation provides a sound base for secure land tenure in Georgia. Nevertheless, land legislation involving urban lands still contains a number of legal deficiencies. The land-related institutional framework also underwent reform, the core of this involving the establishment of the State Department for Land Management. Some of the main concerns are as follows. Institutional reform has failed to prevent duplication and overlapping of some activities and functions. Technical, financial and personnel capacities are highly limited. The donor community has provided substantial support for land reform. Subsequently, the land market began to make impressive progress. Nevertheless, this progress did not impact upon the lease market. Although significant improvements are still needed, Georgia has achieved success in the establishment of a legislative and regulatory environment for a weak but still operating market.
BACKGROUND
Georgia is a former Soviet republic situated in the South Caucasus region. It occupies an area of 69 700 km2. Georgia shares borders with Russia, Armenia, Azerbaijan and Turkey. Its western coastline lies on the Black Sea. As of January 2002, the population of Georgia was estimated to be 4.4 million (preliminary data of the National Census, State Department for Statistics [SDS]). The climate in western Georgia is subtropical but is more arid in eastern Georgia.
After acquiring independence in 1991, the Georgian economy experienced devastating deterioration. Freezing of trading links with other former Soviet republics, civil unrest and ethnic problems created severe economic and social difficulties in the country. As a result of economic reforms and achievements in regard to stabilizing civil conflicts, Georgia's economy gradually began to recover beginning in 1995. This economic growth became more evident during 1996 and 1997. Economic growth continued more slowly in the following years (1 - 3% of gross domestic product [GDP] growth per annum; SDS Statistical Yearbook of Georgia 2001). At present, 58 percent of all employed individuals in Georgia are involved in agricultural activities, representing approximately 20 percent of the GDP (SDS Social - Economic Indicators of Georgia 2001).
Georgia was the first country of the southern Caucasus region to become a full member of the Council of Europe in April 1999. The World Trade Organization decided to admit it as a member in October 1999. By 2001, Georgia's major trading partners were Turkey, Russia and Azerbaijan. Endemic corruption and a failure to collect tax revenues remain as important problems for the economy. By 2001, total tax revenues equalled 14.5 percent of the GDP (SDS Statistical Yearbook of Georgia 2001), a figure that is significantly lower than for other countries in the region.
LAND FUND
The data reported here come from the State Department of Land Management, Land Balance for April 2002. Agricultural lands make up about 3.02 million ha in Georgia, or 43.4 percent of the total area of the country. Georgia also has substantial forest reserves: roughly 43 percent of the country's territory is under forest cover. Other types of lands (settlements, water bodies, undeveloped, etc.) constitute 13.6 percent.
Nearly 0.8 million ha of arable lands (11.5 percent) and 0.33 million ha of perennial crops (4.3 percent) together comprise nearly 16 percent of all land areas in the country. Pasturelands (1.8 million ha or 25.8 percent), and meadows (0.14 million ha or 2.01 percent) make up the remainder of the agricultural lands.
LAND REFORM AND PRIVATIZATION
Land privatization has generally been regarded as a highly important and successful reform in Georgia. Acknowledgement of private ownership rights to land was an important step in building a democratic state and developing a liberal economy.
Although many improvements are still needed, Georgia has achieved significant success in the establishment of a sufficient legislative and regulatory environment and a (though less active) still operating land market.
Agricultural land
In Soviet times collective and state-owned large-scale farms were the only commercial farms in Georgia and these were subject to centralized management and control. Families in rural areas received 0.25 ha of land for family production. Nevertheless, these lands and other lands remained in state ownership.
The process of land reform in Georgia began when the Government of Georgia (GoG) issued Decree No. 48 in 1992. This decree is generally known as "the Land Privatization Decree", although it should be noted that under this Decree agricultural lands were distributed to the population free of charge. A "privatization fund" of 0.8 million ha of land was established covering roughly 30 percent of all agricultural lands and approximately 60 percent of all lands defined as being "arable" and "perennial" (State Department of Land Management).
Lands qualifying for the Privatization Fund were distributed free of charge to rural households. The maximum area of agricultural land to be transferred into ownership in lowlands was 1.25 ha and up to 5 ha was distributed to the eligible households in the highlands. Land reform committees elected by the village managed the land distribution process.
Lands were distributed in the lowlands according to three categories:
farmers - up to 1.25 ha per household;
other rural dwellers - up to 0.75 ha per household;
urban dwellers - up to 0.25 ha per household.
In Georgia, the privatization process involved two forms of agricultural land management (and ownership): the first envisaged allotment of land up to 1.25 ha per farmer households, whereas the other envisaged leasing of the remaining stateowned agricultural lands. This process was intended to create two main agricultural sectors in Georgia: (1) a self-subsistence sector for small farmers and (2) a marketoriented sector controlled by large leaseholders.
The agricultural land reform process has involved a number of agencies at the national and local government levels. At the national level, a special committee was established to deal with all aspects of land reform and to manage the land reform in the collective and state farms. This committee was later merged with the Ministry of Agriculture and Food Industry, and was granted responsibility to plan and implement land reform, and to propose land legislation to be passed by the Parliament.
In September 1992, the land privatization decree (Resolution No. 48) was followed by a GoG resolution on the reorganization of collective and state farms. As a result, the former Soviet large-scale farms were disintegrated, although they still exist (in some instances) as joint stock cooperatives leasing state lands.
The allotment of agricultural land began somewhat spontaneously and lacked required legal guarantees. On 28 June 1993, the Georgian Cabinet of Ministers passed Decree No. 503 in order to rectify this situation. This Decree authorizes local land reform committees to issue the Receive - Delivery Acts, that to this date are considered as the main document for granting ownership of agricultural land to households.
In March 1996, the Parliament of Georgia legitimized the acts issued by the GoG and issued the "Law on Private Ownership of Agricultural Land". According to this law, all governmental resolutions granting agricultural land ownership rights to the citizens of Georgia were considered legitimate.
By 1996, nearly 4 million land parcels totalling of 930 000 ha had been allocated to 1.4 million households (Department of Statistics, State Department for Land Management [SDLM]). However, the majority of new owners did not obtain Receive - Delivery acts, because they were unwilling or unable to pay for their cost (Lr26 per parcel) [US$1 = Lr1.3 at that time]. In addition, the government was unable to finance the survey activities and preparation of other legal documents necessary for registration of ownership to the land.
In 1996 the Parliament of Georgia issued the "Law on Land (Immovable Property) Registration". The problem was that since 1992, when agricultural land was first privatized, the transfer of ownership rights to land was not being properly registered. The existing system only recorded initial owners, and this was not sufficient for recording subsequent transactions. In addition, the existing system failed to meet the requirements of the new laws adopted during 1996 - 1999.
In order to accelerate the initial registration process of land ownership rights and issuance of registration certificates to Georgian citizens, and to help create a sound system of land cadastre and registration, a number of international organizations provided technical, financial, methodological and consultation support.
On 16 May 1999 Presidential Decree No. 327 was issued on "Urgent Measures for the Initial Registration of Agricultural Land Ownership Rights and Issuance of Registration Certificates to Georgian citizens". In order to ensure that the process of initial registration was transparent and less time-consuming, the decision was made to minimize the number of documents required for land privatization and initial registration. Beginning in 1999 to the present (late 2003) more than 1.7 million agricultural land parcels have been registered.
The Decree allowed the registration of the ownership of land parcels free of charge even if the area of land allocated to each household was 15 percent more than that set by the norms. In reality, because allocation took place based on outdated and often incomplete land survey records, the area of the allocated land parcels often did not correspond precisely to the norms set by the Resolution of 1992. Figure 1 shows the cumulative increase in privatized land parcels from 1999 to 2001.
Non-agricultural land
Private ownership of non-agricultural land did not exist prior to November 1997. Land parcels possessed by private persons were deemed as state owned.
Housing privatization was carried out without privatization of the land on which the property stood nor of the land adjacent to the property. Urban land was generally state-owned. The Civil Code, which became effective on 25 November 1997, declared that non-agricultural land parcels under individual houses and apartment buildings were under private ownership. Also, almost 100 percent of the housing assets were transferred into private ownership.
FIGURE 1
Information on enterprise land
privatization
The second phase of privatization covered industrial lands. In 1998 the Parliament of Georgia passed a special law "on Declaration of Private Ownership of Nonagricultural Land in Use by Physical and Private Legal Persons", which declared non-agricultural lands possessed by entrepreneurs as privately owned. The law did establish a one-off symbolic payment to obtain ownership rights and this was equal to the annual land tax.
Initial registration accompanied the process of privatizing industrial lands. Enterprises were required to submit certain documents to Registrars in order to have the land privatized.
The Law on the Administration and Disposal of State-owned Nonagricultural Land of 1998 established that urban land has to be privatized through public tender. The Law on the Privatization of Urban Land of 1999 is the most recent regulation on the privatization of property in urban areas.
Privatization of urban lands and property is the responsibility of three governmental bodies: the SDLM, the Ministry of Urban Development and Construction, and the Ministry of State Property. The municipalities do not own land, but they are directly involved in the ongoing privatization of state-owned land within their jurisdictions.
The above measures allowed successful implementation of the land reform throughout large urban areas of Georgia. However, the privatization policy did not include a comprehensive vision of urban development and/or housing policy.
LEGAL FRAMEWORKS
Private ownership rights to property are acknowledged and protected by the Georgian Constitution. Property is considered inviolable. Article 21 of the Constitution states: "The right to inherit and own property is recognized and guaranteed. The abrogation of the universal right of property, its acquisition, transfer and inheritance is prohibited."
The Civil Code also contains regulations applying to ownership and ownership rights. These regulations concern legal rights on acquisition, transfer and inheritance of real estate. According to the Civil Code, property is any object and nonmaterial asset, physical and legal entities can own, use, dispose and acquire if the transaction does not violate law and does not oppose moral principles. The Civil Code ensures the freedom of trades involving property rights in compliance with the rule established by the law. Chapter 3 of the Georgian Civil Code envisages inheritance of ownership rights.
The Law on Privatization of Stateowned Property of 1997 determines legal, economic, organizational and social principles of privatization of the stateowned property, as well as basic terms of privatization and allows physical and legal individuals or their unions to purchase state-owned property. The objective of the law is to ensure formation of the ownership relations that will promote an efficient and socially oriented market economy. This law does not regulate privatization of land and state housing funds.
The Law on Agricultural Land Ownership passed in 1996 regulates relations with regard to ownership of agricultural land. The purpose of the law is (a) to ensure legally that farms are organized based on rational use of land and improve agrarian structure, and (b) to prevent fragmentation and irrational use of land parcels. The law determines: (a) the rule for acquisition and alienation of agricultural land parcels and local estate farms, and (b) participation of the state in regulation of relations regarding agricultural land parcels. The law states that agricultural land is transferred into ownership only to citizens of Georgia. A person not having Georgian citizenship and citizens of a foreign country shall receive agricultural land only under lease.
The Law on Land Registration passed in 1996 regulates rules and terms for registration of creation, transfer, restriction or suspension of rights to a plot of land and the immovable property associated with land.
The Law on Declaration of Private Ownership of Nonagricultural Land in Use of Physical and Private Legal Persons passed in 1998 recognizes ownership rights of these persons to non-agricultural land existing in their use.
Ownership of real estate also envisages certain obligations such as the payment of property taxes, the observance of building and zoning codes and environmental protection laws, and the avoidance of unreasonable interference with the rights of neighbouring owners.
The Georgian legislation (The Constitution of Georgia, Article 21 and the Law on Expropriation Procedures of Ownership for Public Necessity of 1999) envisages the possibility of taking back ownership through expropriation for social necessity against fair compensation. Expropriation is achieved on the basis of Presidential Decree and an accompanying court decision.
INSTITUTIONAL FRAMEWORKS
The governmental bodies dealing with land issues in Georgia are detailed below.
The SDLM is a key agency in land administration matters. The functions of the SDLM as declared in its charter include: (a) land registration and cadastre (its main activities at present); (b) land valuation; (c) land reform, land arrangement and disputes over property; (d) state control over land use and protection, as well as over natural resources; (e) and land statistics.
The central office of the SDLM is responsible for developing state land management policies, designing and implementing programmes, and assisting in the preparation of legislation on land management issues. Decentralized regional offices and 65 local offices carry out land registration and cadastre operations. The SDLM does not currently carry out land-use planning. Currently, one of the SDLM's institutional strengths is that it is responsible for both land registration and cadastre activities.
The Ministry of Agriculture and Food is responsible for agrarian reform. It is responsible for formulating agrarian reform policies to be implemented by the SDLM as part of its land reform.
The Ministry of State Property Management auctions land parcels existing in state ownership and controls state shares in private companies.
The Ministry of Urbanization and Construction shares responsibility with the SDLM for land-use planning and policy formulation. The Bureau of Technical Inventory (BTI) is subordinate to this ministry and keeps records on real estate in urban areas.
The State Department of Geodesy and Cartography regulates surveying and mapping activities conducted by state agencies and the private sector.
One of the major shortcomings of the land-related institutional reforms was that while creating the SDLM (in 1996) the issue of BTIs of the Soviet period was not dealt with adequately. This was because land and land-related institutional reforms had largely focused on agricultural areas and lands. Consequently, as the BTI offices are located in urban areas, they were not addressed despite the fact that they manage highly valuable archives of the land and building records over several decades. Part of the problem was that customers in the urban areas were used to the BTI services. The result has been overlapping of tasks and duplication of activities. In particular, the registration of real estate is frequently conducted not in the Public Registries (in the registration office of the SDLM), but in the BTIs. Information regarding land is recorded and registered in registration offices, but the information on building construction is recorded and registered in BTIs. In many cases, mutually exclusive information on the same property is available in both these agencies.
Furthermore, the SDLM implements the whole range of functions, such as management, control, administration and public services. The SDLM is not an autonomous agency. The specific functions of the SDLM, to administer and dispose of state property on the one hand, and to register real estate on the other hand, are not separated: local registrars are at the same time deputy heads of the SDLM's land management offices, and as a result they are often unable to make independent decisions. Furthermore, until recently, the SDLM local offices were under double subordination, being an integrated part of the SDLM and at the same time under the authority of local governments. In last few years, the land management regional offices have been established. Their managers are appointed and lobbied by regional proxies of the President, and consequently local land management agencies have a further body to whom they are accountable (a three-tier structure of responsibility - national, regional and rayon [a small territorial division]). As a result of this overly complicated bureaucratic structure, decisions involving serious problems related to land management, disposition and registration are often delayed, biased and appear to have been made in a nontransparent manner.
Technical, financial and personnel capabilities
Creation of cadastral and registration systems is still being accomplished in a fragmentary fashion. The problems related to technical and financial needs still remain unsolved and hinder any substantial progress. Incoming donor grants finance only a small part of the required activities. The SDLM does not receive sufficient funds from the state budget. The income level generated through the cadastre and registration system is not related to funding of the SDLM. With these facts in mind, it makes little sense for the SDLM to carry out more elaborate fee policies as the incomes generated would be eaten up in the general state budget. On the other hand, the SDLM could potentially have become a costefficient, self-financing and even profitable public entity.
The SDLM cannot offer its personnel competitive salaries. Some are not well versed in land-related legislation and this has hindered the development of an appropriate land market and also complicated transactions owners. Within the framework of the Land Market Development Project, the Association for the Protection of Landowners' Rights is closely cooperating with the registration offices of the SDLM. Based on experience gained through this cooperation and through analysis of complaints and problems citizens and owners share, the Association estimates that nearly 40 percent of the registrars are poorly qualified.
Corruption is the most critical problem hampering successful implementation of the economic reforms. This makes it difficult for landowners, entrepreneurs, farmers and other interested parties to overcome the artificial barriers created by bureaucrats. Public agencies usually urge customers to pay unofficial fees and taxes that are several times higher than those actually required by law.
SUPPORT FROM THE DONOR COMMUNITY
The donor community has made an enormous contribution to the progress Georgia has achieved in land privatization, in creating and developing an infrastructure for the registration of rights to immovable property, and for the emerging land market. Georgia receives support from the international donor organizations and countries in respect of six large-scale projects:
Agricultural Development Project of the World Bank and the International Fund for Agricultural Development (IFAD) (1997 - 2002, possibly extended to 2004). The funding of base aerial photographing, mapping, cadastral surveying and registration, and the refurbishment of offices in two rayons. The second phase of the project envisages establishment of regional cadastre centres.
Land Market Development Project of the US Agency for International Development (USAID) (1997 - 2004). The privatized agricultural land mapping, surveys, registration and support for issuance of ownership certificates in 51 rayons. The support for land ownership enhancement and increased public awareness in Georgia.
Land Management Project (1998 - 2002, possibly extended to 2004) by the United Nations Development Programme (UNDP) and the European Union (EU). The funding of ortho-photo development, cadastral surveying and registration in one district, software development and the refurbishment of 11 rayon offices. The EU was covering the government's contribution under its Food Security Programme until 2000.
Cadastre and Land Register Project of Kreditanstalt für Wiederaufbau (KfW) (2000 - 2006). The funding of base aerial photographing, ortho-photo development, mapping, cadastral surveys and the establishment of six regional centres on the developed territories of Georgia.
Urban Land Management Project of the German Technical Cooperation (Deutsche Gesellschaft für Technische Zusammenarbeit, GTZ) (2001 - 2002, possibly extended to 2004). Funding of cadastral surveying and registration activities in Tbilisi.
Swedish International Development Cooperation Agency (SIDA) (2000 - 2002). The funding of capacity building by establishing a training centre for SDLM employees on land legislation, land registration, land information system (LIS), cadastral surveys, valuation and taxation, credit marketing and office management.
The coordination of these donor projects is the responsibility of the SDLM. It is carried out on the basis of regular meetings of the donor representatives. The projects have strictly determined geographical and thematic spheres of activity.
However, a unified cadastral and registration concept and system does not yet exist, although each project is attempting to contribute to the development of this system.
Unfortunately, there are still items of the registration and cadastral system that cannot be accomplished by the SDLM independently in the future. More efficient coordination together with modifications of the projects' plans and objectives are needed to establish a unified cadastral and registration system.
GENERAL OVERVIEW OF THE LAND MARKET
Land sales market
The transfer of land and related real estate from state possession into private ownership, the legal declaration of the rights and obligations of private ownership, and establishment of a system of simple land title registration has facilitated the process of formation of Georgia's land/real estate market.
The land market is developing more actively in urban areas. Generally, its formation varies across regions or rayons, being more rapid in those rayons where tourism/resort development is under way, as well as in regions where it is possible to establish agricultural activities that are based on the cultivation (and processing) of high-value agricultural crops.
As of 25 January 2002, land sales have increased by 70 percent compared with the previous year. Transactions on non-agricultural land have increased by 68 percent, whereas transactions completed on agricultural land parcels have increased by 71 percent.
FIGURE 2
Data on hypothetical land
transactions. State Department of Land Management. Statistical information on
land use, registration and land market
Land hypothetical market
As a result of land reform, banks and credit associations have become more actively involved in the land market. Land and related real estate constitute a significant part of the credit portfolios of Georgia's main banks and is now the main guarantee for loans.
The percentage share of hypothetical loans issued in Tbilisi by year is: 1999, 90 - 90.8 percent; January 2000, 91.3 percent; January 2001, 70.56 percent; January 2002, 67.81 percent. Despite the fact that the larger share of financial capital issued on the real-estate market as hypothetical loans is concentrated in Tbilisi, other regions of the country are also becoming more active in this regard. In 1999 the total number of hypothetical loans issued in the regions equalled 44, but by 25 January 2002 this number had increased to 3 315. Figure 2 shows the cumulative trend for number of transactions. Banks are more interested in non-agricultural lands. Oneyear credits with an 18 percent annual interest rate still do not meet the financial needs of most farmers. Agricultural land existing in ownership of farmers and village households are rarely accepted by banks as collateral.
Land lease market
An essential part of the total land fund remains state-owned and is currently leased. This leased land contains a high percentage of the best quality parcels: approximately one-third of the total arable land, one-tenth of that devoted to perennial crops, one-third of pastureland and hay meadows; about 30 percent of the agricultural land in total.
State agricultural land under lease
The following data are taken from the State Department of Land Management, Land Balance for April 2002: arable, 230 570 400 ha; perennials, 26 732 800 ha; hay meadows, 45 859 100 ha; pastureland, 600 595 200 ha; total, 903 057 500 ha.
Georgian legislation allows lease agreements for up to 49 years. In case of lease agreements made for longer than ten years, the Civil Code provides that any party to the agreements can revise and/or even terminate it. The majority of lease agreements involving state lands are of less than ten years' duration (roughly 77 percent). The state is quite flexible in changing its policy towards leases.
Duration of state agricultural land leases
The following data on percentage of total leased area are also taken from the State Department of Land Management, Land Balance for April 2002: duration of 1 year, 4.8 percent; 1 - 5 years, 4.4 percent; 5 - 10 years, 67.5 percent; 10 - 49 years, 23.3 percent.
Legal individuals in land leases total 6 300, leasing a total area of 616 000 ha or 97.7 ha on average; comparative data for natural individuals are 36 600, 431 500 ha and 11.8 ha, respectively.
Leased state lands are not a part of the land/lease market. In most cases leaseholders are wealthy individuals and not farmers. Some do not even cultivate the land they are leasing. Many of these individuals sublease the land to farmers and thereby gain essential profit, because the leasing fee for state lands is quite low, equal to the annual land tax in many cases, much lower than the actual market value of the lease. This is underlined by the fact that one-sixth to one-quarter (40 000 - 70 000 ha) of state leased arable land remains idle (data of the Department of Agro-service, Ministry of Agriculture and Food of Georgia). Substantial areas of the arable land in private ownership are also not under cultivation, but these lands were given to owners with limited choice. Furthermore, arable land parcels in private ownership are highly fragmented, often making farming on them unprofitable. The Georgian market for agricultural products is far from saturated, with a large proportion being exported, and this also cannot explain why much of the land in private ownership remains uncultivated. The largest share of state land is leased not for economic reasons (i.e. farming) but for speculative purposes and for subleasing. At present, if entrepreneurs are interested in maintaining an agribusiness and require further land, it is easier for them to receive land via leasing and paying bribes rather than buying land directly from private owners. In addition, the process of leasing the land and the monitoring process is nontransparent and often corrupt.
Leaseholders in Georgia can be classified into two main groups: (1) private individuals, holding on average 12 ha land; and (2) legal individuals, holding larger areas of lands, roughly 98 ha on average.
There are also some non-leased stateowned agricultural lands that remain outside the market because the Georgian legislation did not envisage additional purchase of lands from the state. There are severe violations of the regulations underpinning the leasing process of agricultural lands, as well as in registration and collection of lease payments. The local agencies responsible for disposition of such agricultural lands condone and even sometimes encourage these legislation violations by lessees.
There is little hope that current administration will or can improve the situation as regards state land leases.
Leases involving privately owned agricultural lands are quite rare. Regardless of the area of land involved, the law requires registration of all transactions even if this is of an informal ('hand-shake') nature.
ACCESSIBILITY OF INFORMATION ON REAL PROPERTY FOR SALE
Private property
The growth of the real-estate market requires accessibility to reliable information on real estate for sale. At present, the most popular way of obtaining information about real estate is to read advertisements placed in the newspapers and from real-estate brokerage companies. At present, realestate brokerage firms can be classified into three main groups:
well-known agencies, with 8 - 10 years of working experience, including Members of the Real Estate Association of Georgia;
independently functioning agencies, of medium size, with few staff (usually 2 - 3 agents), small offices and only 2 - 3 years of experience;
official, unregistered brokers, so-called "black brokers" (who work on the street market but do have some experience) and "newly baked" brokers, who have decided to work in this field because they have not been able to find any other profitable job. Their experience and knowledge are extremely limited.
The most prestigious agencies (category one) having certain professional experience tend to focus on sales of higher value real estate (US$50 000 and over), which yield the highest commissions. However, because the majority of the population cannot afford to purchase such highly priced properties, they are forced to use the services of nonprofessional or street brokers. Owing to a lack of professionalism of mediators and their ignorance of recent changes to land legislation, their information is often inaccurate or incomplete, and may lead to the development of legal disputes among parties involved in a particular real-estate transaction.
Ongoing state land privatization
Under current legislation, agricultural lands cannot be further privatized. Only non-agricultural state land/property can be privatized. State agricultural lands are privatized by the Ministry of State Property Management and its local offices, whereas state non-agricultural lands are privatized by the municipal bodies with participation of the SDLM.
The relevant local government bodies and the respective territorial subdivisions of the Ministry of State Property Management provide information regarding the disposition of state property. Information about any state property, subject to competitive bidding, auction, lease-buyback or direct sale, is published in the official publication of the Ministry of State Property Management, or in the local press (if privatization is accomplished by the territorial body of the Ministry of State Property Management). Other forms of mass media can also be used. Information should be published at least one month before the date set for the privatization of state property. The published information should include the address and land area covered by the premises to be privatized, a thorough description of the buildings located on them, and the terms of sales. Additional information can be delivered to the buyer as required.
The local governance bodies with participation of the SDLM and the local planning offices organize the publishing of information on selling of state land through tender or auction. They obtain and register applications from interested purchasers. During the two weeks after receiving an application, the SDLM office informs the applicant with a written notice that applications have been received. After publishing the information, the SDLM office allows all interested parties to see the land parcel, but at the same time setting more terms and conditions.
Valuation system
Valuation activities in Georgia are regulated in accordance with the Law on Auditory Activities passed in 1998. A Statement of Appraisal becomes a legal document only if the appraiser (either a company or an individual) is officially licensed by the state. The state licensing body is the Council of Audit under the Parliament of Georgia (in particular, under the Committee of Budget and Finance).
The Council issues three types of licences authorizing auditing activities: (1) a General Audit, (2) a Banking Audit and (3) an Insurance Audit. The Licence for General Audit covers various types of audits, such as the audit of businesses' financial activities, and appraisal of real estate or other property. The Georgian legislation does not distinguish between terms "appraisal" and "audit". Many auditors claim that the structure of licensing is far from perfect and needs serious reformation. The problem is aggravated by the absence of recognized appraisal standards. There are currently about 400 licensed individuals and about 200 companies that operate in compliance with authorities granted under the General Audit Licence.
It is estimated that only a small number of all licensed auditors have appropriate professional qualifications and are qualified to perform appraisals against international standards. Auditing companies note that less than 20 percent of their income comes from the fees charged for real-estate appraisals.
The Civil Code of Georgia defines and regulates a number of economic and legal transactions that require appraisal services. A number of problems arise from the absence of appraisal services, or insufficient valuation services. Many of the problems identified below are caused by the failure to implement modern appraisal standards in the country:
Prices understated. In order to minimize the amount of tax payable, the parties engage in unofficial agreement to report reduced agreement prices.
Market value vs book value. There is a very significant difference between market (real) value and the book value of assets. In many cases book values are significantly overstated, and such figures become useless for investors.
Collateral value. All credit transactions involve collateral (real estate is the most common collateral) that is appraised by the credit officers of the banks, even though this involves an inherent conflict of interest. The services of independent evaluator are rarely, if ever, used.
Other activities. There are activities in the country that require highquality appraising, but unfortunately unqualified personnel generally conduct these services. Mass valuation is not conducted in Georgia as a result of insufficient awareness and scarce financial government resources (both national and local).
TAXATION SYSTEM
The Tax Code of Georgia separately establishes land and property taxes.
Property tax is related to possession of ownership. The tax is calculated and established by the Tax Inspection Department. The amount of property tax due is different for individuals and legal entities.
For private (physical) individuals, property tax is calculated based on the 'inventory value' (not the market value) of the property. Criteria for establishing the inventory value are determined by local governments. For determining the value of the property, a value for 1 m2 should be identified and multiplied by the total area of the estate. Tax inspectors evaluate the property based on the criteria set by the local government and they then determine the amount of tax due. The annual amount of property tax is 0.1 percent of the inventory value of the property. Payment is required on 15 June and 15 October for the tax year.
Legal entities pay the property tax on the 'book-value' of the movable and immovable property, as shown on their annual financial accounts. The enterprise property tax amounts to 1 percent of the total balance value of the property. Payment is due once a quarter, in equal parts.
The property tax does not include the land tax, which is paid separately. Land tax rates are determined according to the categories of agricultural land and relevant zoning classifications for non-agricultural land.
Annual land taxes on non-agricultural land vary from Lr0.12 to Lr0.36/m2.
Base rates of the annual tax on agricultural land are differentiated according to administrative units and are determined per hectare in Lr. The land tax is calculated by multiplying the base rate by area of agricultural land in hectares and varies according to land use: e.g. pasture, Lr3; hay meadows, Lr6; the annual tax on arable land is on average Lr36/ha.
Legislation on taxation has been subject to frequent amendments. As a result, there is no longer a set of harmonized legal documents. It is characterized by a confusing and complex language that often leads to legal disputes between the Tax Department and taxpayers. Frequently, the status of land (i.e. whether agricultural or non-agricultural) is defined incorrectly.
The state is losing considerable potential income as a result. During 1995 - 2000, local government bodies, with the consent of the SDLM, transferred tens of thousands of hectares of high-category lands into comparatively low-category lands without any prior laboratory or other scientific research.
LAND ADMINISTRATION AND MANAGEMENT
Among the reforms implemented for Georgia's economic stabilization, land reform is considered to have been the most successful. Nonetheless, several problems exist that impede the creation of a sound system of land management and use.
A broader policy vision targeting creation of a comprehensive land management system still does not exist. As the Chamber of Control concluded in 2001 (Legality and Effectiveness of Usage of Unified Land Fund for 1995 - 2000. Saqartvelos Respublica, No. 310 (4051), December 2000), the elaboration and implementation of a unified state policy of land management has not been achieved.
TABLE 1
Numbers of registered land transactions,
2002
| |
Total balance of agricultural lands |
Privatized |
Leases (excluding (Samachablo and Abkhazia) |
Remaining lands (excluding Samachablo and Abkhazia) |
||||
|
No. |
No. |
% |
No. |
% |
No. |
% |
||
|
Agricultural lands (total) Including: |
3 022 700 |
743 700 |
24.6 |
903 000 |
29.9 |
1 100 800 |
36.4 |
|
| |
Arable crops |
795 300 |
427 300 |
53.7 |
230 500 |
29 |
89 800 |
11.3 |
|
Perennials |
267 900 |
171 400 |
64.0 |
26 700 |
10 |
25 600 |
9.6 |
|
|
Meadows |
142 500 |
41 900 |
29.4 |
45 800 |
32.1 |
44 800 |
31.5 |
|
|
Pastures |
1 797 200 |
83 300 |
4.6 |
600 000 |
33.4 |
940 600 |
52.4 |
|
|
Residential |
19 800 |
19 800 |
100 |
|
|
|
|
|
Land registration and cadastre
Land registration and cadastre systems in Georgia are institutionally unified under the umbrella of the SDLM.
In the absence of a unified state policy of land management, the national land reform programme merely comprises current and planned international donor projects functioning in the sphere of land management.
Mainly as a result, it is possible to see the progress that has been made in recent years towards creation of a cadastral database:
aerial surveys of the major part of the country have been obtained;
legal registration of land and property is proceeding intensively; and
application of cadastral data for the purposes of physical/town planning, real-estate valuation and bank mortgages has started.
Land registration is one of the crucial components of Georgia's land cadastre. The Public Registry should contain all necessary records on the boundaries, as well as the description of the quantitative - qualitative and legal conditions of the land parcel or related immovable property. In accordance with current legislation, legal rights pertaining to the land or related real estate are subject to compulsory registration. State registration in Georgia is accomplished through the unified system of record maintenance determined by the law in the Public Registry.
There is no fee required for initial registration. Since 8 November 2000 the registration fee for secondary registration was reduced to Lr7 from Lr26, because the latter was considered to be too high, taking into account the average low income in Georgia. This has been positively reflected in the growing number of registered transactions (see Table 1). This recorded growth cannot have stemmed from revitalization of the economy, but rather from the better functioning registration system and growing percentage of formal (legalized) versus informal (hand-shake) transactions.
Urban land management
Three state agencies are responsible for the privatization of property and land on urban territories: the SDLM, the Ministry of Urbanization and Construction, and the Ministry of State Property Management.
Municipalities do not own land necessary for the development of public projects, as privatization of state-owned land has not allowed for the transfer of land to municipalities, but they are directly involved in the privatization process of any state-owned land located within the territories under their authority.
As a result of lack of an urban development plan and zoning regulations, urban land privatization is not related to the potential future use of these privatized land parcels. Thus, the privatization price is not linked to the potential of future commercial profit. Nor do the privatization agreements obligate the buyers to contribute financially to the development of infrastructure, which is necessary for supporting future development of privatized land. In this situation, urban land privatization does not take into account the distribution of economic responsibilities and interest between private owner (beneficiaries) and municipalities.
The issue of self-governance in Georgia has not yet been decided, which diminishes the role of municipalities in active land management and spatial development of urban areas. It is important that municipalities are independent with regard to issues of land use within urban territories and can independently approve and control the urban development plans and projects. The state must retain the authority to ensure that locally approved projects do not oppose national interests.
Neither the legal nor the institutional frameworks existing in Georgia today allow for the efficient management of urban lands (Economic Commission for Europe [Committee on Human Settlements, Working Party on Land Administration], Land Administration Review in Georgia, November 2001).
CRITICAL LAND ISSUES AND RECOMMENDATIONS
Land reform
Despite the fact that land privatization has generally been considered as a significant and successful reform, it has had some negative side-effects.
Because restitution of property in Georgia was not possible as a result of underlying historical and political circumstances, agricultural land was distributed in accordance with the principle of equity. Because of this method of allocation the average area of the agricultural land parcel in private ownership does not exceed 0.22 ha (0.8 - 0.9 ha on average), indicating that privatized land is highly fragmented, with low productivity and therefore does not encourage investment from banks. Furthermore, it is estimated that about 15 - 20 percent of productive agricultural land has been lost (Economic Commission for Europe [Committee on Human Settlements, Working Party on Land Administration], Land Administration Review in Georgia, November 2001), as a result of construction of access roads, and the establishment of boundaries and agricultural fences.
It might have proved more equitable to allocate land not to the families, but according to the number of family members.
Despite privatization, 40 percent of arable agricultural land remains in state ownership and is leased out. These lands are excluded from the land market and are not available for market transactions. Their cultivation efficiency is low. More often they are subleased for a profit; the leaseholders are often not real farmers but those of a privileged background who benefit from the subleases under the expectation of future privatization.
Under the current legal framework it is impossible to privatize state agricultural land.
Recommendations
It is essential to be able to privatize agricultural land remaining in state ownership, as this will support further development of farming in the country. Therefore, a land privatization policy has to be developed that will determine: (a) which land can be privatized and which can be left in state and community ownership; (2) procedures that will minimize bureaucracy in this process, simplify the process and ensure just and efficient land transactions; (3) avoid further fragmentation of the land.
It is essential that local self-governance be involved in the privatization process, as this will strengthen the functions and opportunities of self-governance on the one hand and result in the successful implementation of the process on the other. Privatization of land should go beyond transferring ownership rights to private individuals and also take into account the need to develop rural infrastructure.
Land consolidation is an effective means by which to improve agricultural production and rural livelihood. For this purpose, a land consolidation policy needs to be developed that will incorporate: (a) setting up an interministerial task force for land consolidation; (b) drafting of a Land Consolidation Act; (c) initiating a public awareness campaign for the rural population and the decision-makers at various levels to have clear understanding of the potential contribution of land consolidation; (4) key players would have to undergo training in land consolidation and spatial planning; (5) pilot projects should be carried out to gain experience with the different approaches and procedures in land consolidation at community level.
The legislative framework
The successful outcomes of land reform in Georgia have included the formation of a relevant legal framework for the purpose of determining ownership rights on land. The existing legislative framework provides a favourable environment for determining property rights including those rights on land and creates favourable preconditions for the establishment of a viable land market.
Recommendations
With the aim of guaranteed protection of the right of private ownership to property, it is important to update existing legislation, and to simplify and strengthen the transfer and protection of property rights, especially on some sublaws.
Institutional setting
Land registration and cadastre
The specific functions of administering and disposing of particular state properties and of land registration function are not differentiated. The SDLM institutionally combines functions of economic (land management), control (land use, conflict solution) and public service (cadastre and ownership rights registry). There is no autonomous agency for land and real-estate registration. The registrars are subject to political pressure from presidential proxies, representatives of local governments and regional administrations.
There remains considerable confusion, with gaps and overlaps, in the assignment of responsibilities among state and local agencies responsible for land administration, land management and land policy development. Some of the principal problems include conflicts between the Bureau of Technical Inventory (BTI) and the Public Registries, and the need to make land registry independent of political and budgetary pressure, and of other unnecessary constraints. The unified system for the registration of property rights has not been maintained as a result of conflicting responsibilities of the SDLM and BTI. Information on land and related building constructions is dispersed among registration offices and the BTI. There are cases of duplication of information, which lessens the reliability of information about ownership and is potentially dangerous for owners as well.
The creation of cadastral systems is fragmentary, with large regional differences and the country suffers from the lack of a unique system.
Recommendations
An autonomous agency (public legal entity) of land registration and cadastre should be established, free from economic, administrative and control functions, the registrars of which will not be subject to any pressure from national or local governments or economic agents, and will follow only the rule of law.
It is essential to differentiate the areas of responsibility of land registration offices and BTIs, and maintain the collaboration between these two structures, which will support the formation of a reliable and complete registration system and ensure that these two agencies function effectively. The SDLM should decide quickly on the redistribution of responsibilities between local and regional offices.
The ongoing governmental reorganization needs to ensure that the progress made as a result of donors' efforts is not wasted. This in particular concerns the functions of land cadastre and registration, the division and subordination of which to the ministries will not bring about a positive outcome. It is essential that functions of land cadastre and registration are not separated and are accomplished by an autonomous agency that will not be subject to political and executive pressure. The government needs to consider and maximize the role of the private sector and NGOs in an improved institutional context, in cooperation with relevant public agencies.
Land management policy
The state does not have a unified programme of land management. The national strategy of land reform is merely the sum of current and planned international projects. The Poverty Reduction and Economic Growth Programme of Georgia incorporates measures for improved land management as part of agrarian reforms prioritized by the programme, but it is essential that this broad strategy be transferred into specific objectives.
Recommendations
A national policy dialogue on the proper organization and coordination of land cadastre, property title registration, land management and related functions should be encouraged, as a precursor to developing an improved institutional structure.
Responsibility for drafting the strategic plan for the implementation of measures incorporated into the Poverty Reduction and Economic Growth Programme of Georgia should be assigned to the State Department of Land Management with agreement from the Ministry of State Property Management, Ministry of Urbanization and Construction, and Ministry of Food and Agriculture. This can be achieved by setting the time frame for the submission of the plan and organizing the discussion and coordination meetings of the involved parties. It is essential to formulate the land policy, which will provide opportunity for the state to use land efficiently and also to mobilize revenues accrued.
Drafting the strategic plan for improved land administration will require broad interministerial as well as civil society and citizen support, and coordination. Accordingly, the interests of all these parties have to be satisfied. Significant attention has to be paid to the involvement of NGOs in the process.
The strategic plan should:
identify overall political goals and strategies, and spell out priorities;
identify needs and priorities for the legal framework;
identify an appropriate distribution of responsibilities among ministries, public agencies at different levels of government and the private sector, and propose changes to the institutional structure;
propose an implementation plan with timetable and budget.
State policy should consider the decentralization of functions to be carried out for improved land management policy, together with the establishment of NGOs in cities or villages that will play important roles in the development of local infrastructure and assist the local population in problem-solving. This process is already under way and needs to be intensified. NGOs have gained substantial professional experience of working with foreign projects and it is necessary to involve them in reforms and ongoing processes.
Taxation system
The current tax legislation is confusing and complex. Since the adoption of the Tax Code, large numbers of amendments have been made to it each year, such that it is impossible for taxpayers to keep pace with the changes. The system of relevant laws and sublaws is not in harmony.
Recommendations
Business associations should be involved in cooperation with local and international experts in improving the Tax Code and harmonizing registration.
Valuation system
To date, the valuation of real estate is accomplished by different state agencies and auditing companies. Valuation practices are not based on any standards or norms. Land valuation is a function of the SDLM. The BTI establishes the inventory value of buildings, which does not reflect the market value of the property.
Recommendations
A draft Law on Property Appraisal has been prepared and already submitted to the Parliament of Georgia, which if adopted will establish the standards of appraisal and facilitate activities and development of appraisal companies. Through this law, it will be necessary to take the rights on appraisal activities away from state agencies and transfer them to the private licensing sector.
