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Integrated approach to land policy, development of land administration institutions and land market in the Russian Federation - A.L. Overchuk

Deputy Chief, Federal Land Cadastre Service of Russia; Deputy Chairman,
UN ECE Working Party on Land Administration

The Russian Federation has undertaken a land-reform programme through the introduction of private land ownership and the launch of land market mechanisms. Legislation developed in 2000 - 2002 established a conceptual basis for this implementation aimed at improving standards of living. A flow of investment into agriculture creates an opportunity to develop the farming sector. Recent legislative changes are expected to result in an increase in private land ownership in urban areas. A new taxation policy will provide municipal authorities with control over collection of land tax, which should also stimulate land privatization. A land market infrastructure is in place and land markets are demonstrating growth. Further development of the land market is hampered by: (1) the current distribution of land shares that have yet to be transferred into legally registered land parcels; (2) the possibility that redistribution of land could raise poverty in rural areas; (3) bureaucratic barriers and a duplication of administration functions between different agencies; (4) the absence of a strong, decision-making land administration authority, creating uncertainty in the market.

INTRODUCTION

Political and economic reforms in the Russian Federation have affected the relationship between people and the land. The main government policy was targeted towards the introduction of a private ownership institution through the transfer of land from the state into the hands of individuals and legal entities. The process was heavily influenced by political debate with different sides arguing for and against the very concept of private land ownership. While critics argued that land privatization merely represents a goal in itself, or at the very least promotes land speculation, supporters insisted that land as capital creates national wealth.

The poor performance of Soviet agriculture, and its perpetual inability to meet domestic demand for farm products, made the rural sector an immediate target for economic reforms. Large-scale state and collective farms were the main cause of this low productivity. When it came to production of vegetables, potatoes, meat and milk, these large farms failed to compete against small, subsidiary land plots that were privately operated by workers of state and collective farms after work.

Restructuring the large farms and creating smaller farms that were believed to be more efficient became a priority objective of land reform. Restructuring went along the lines of transferring land from large farms to local authorities for future distribution among the people.

Discussions on land reform in urban areas did not have the same level of urgency as in the agricultural sector. The relationship between production indicators and the type of land ownership in urban areas was not as clear-cut as in agriculture. Only 1.1 percent of the Russian Federation's territory is covered by urban land. In the absence of a central land reform policy for urban land, its development took many different paths that were predominantly influenced by the policies of local authorities. Although in some areas these authorities have opened up the opportunity for land privatization, many have not. Most local authorities in urban areas have taken a more cautious approach towards this issue through the introduction of land-lease mechanisms.

The uncertainty over the prospects of private ownership of land was ended with the introduction of a package of pro-market land legislation. The first experiment in land privatization took place in the 1990s. Together, these developments have not yet had a significant impact on the economy. Although land legislation has been put in place, land market development is still hampered by inadequate institutional structures, characterized by a fragmentation of authority over different segments of the land market infrastructure.

CONCEPTUAL APPROACHES

As in other countries, the Russian Federation started its land reform programme with a discussion of whether land should be transferred into private ownership. The concept of transferring from 100 percent state land ownership to multiple forms of ownership resulted in heated political discussion across all layers of society. The difficulty was worsened by the absence of clear legislation governing transformation procedures and the consequent insecurity of land tenure.

The discussions concentrated around the following issues:

It took ten years or more to answer these questions; some of which are still being debated. In essence the argument over land is an argument about what land really is. Dale (2002) writes:

"land fulfils many functions in society. From a physical perspective it is the space in which we move and create shelter and from which we obtain food and water. From an economic point of view it is one of the foundations on which we build wealth. From a legal standpoint it is an abstract set of property rights while from a social and cultural perspective it is a taproot through which we draw spiritual sustenance. All too often it is the reason why country fights country and neighbor feuds with neighbor, it is the ultimate resource without which no nation can exist."

Soviet Land Law was based on a model that did not permit private land ownership, and consequently limited land's economic potential. Land was treated as a publicly owned natural resource. The only economic value that was recognized was the productivity of the soil. That assumption resulted in development of one of the most accurate and informed soil cadastres the world has ever known. Although farmlanduse boundaries were established, issues of legal ownership were not addressed by the Soviet cadastre. Many of the problems that relate to existing institutional structures for registration of ownership rights in land and improvements, as well as the difference between land administration and management of state-owned land, are a direct result of this attitude.

In 1998 - 2002 the legal situation governing land issues started to improve. Legislators passed a set of federal laws that established the basis for land tenure. Among these laws are the Law on Registration of Rights in Real Estate and Transactions with It (1998), The Law on the State Land Cadastre (2000), The Law on Land Management (2001), The Law on State and Municipal Lands (2001), The Land Code of the Russian Federation (2001), The Law on Enactment of the Land Code (2001) and the Law on Transfer of Agricultural Land (2002). These laws and the government regulations that followed have reflected and secured the existing relationship between individuals and the land, and established the conceptual framework for future development of land tenure.

The conceptual framework reflected in the new Russian legislation clearly identifies the role of land in society. According to the principles of the new Land Code, land is the basis of human life. The regulation of land use and protection of land is based on an assumption that land is a natural resource, is real estate, and is an object of ownership. Legislation established the preservation of land as a vital component of the environment and as a source of production in agriculture and forestry as a priority over the use of land as real estate. The possession, disposal, and use of land parcels by owners can be carried out freely unless it brings damage to the environment. The Land Code is built upon the principle of observing the rights of society and the individual; regulation of the use and protection of land is performed in the interests of society in general while ensuring security of tenure of every citizen freely to possess, use and dispose of land parcels on their property.

The Land Code has put an end to the separation of land from the buildings that are located on it. One of its basic principles states that all objects permanently attached to land follow the destiny of the land parcels upon which they stand. This means that the traditional Soviet model where the economic significance of land was neglected has given way to a traditional market concept of real estate that combines land and improvements in a single ownership unit. The definition of land cadastre provided in the Land Code includes land and buildings as data components of the unified registration system.

From an institutional and structural point of view, the single property unit was implemented in the Federal Purpose Programme "Development of the automated system for maintenance of the state land cadastre and state registration of real estate units for 2002 - 2007". The Russian Government approved the Programme in October 2001. The Programme identifies key priorities for the government's land policy:

The Land Code did not specifically address turnover of agricultural land, as the legislators decided that issues pertaining to the agricultural land market should be addressed by special legislation. A liberal Law on Turnover of Agricultural Land was quickly developed and passed by the State Duma in summer 2002. The law came into force at the beginning of 2003 giving the opportunity for analysis of its operation.

With land legislation in place, it became evident that the land market was not driving the economy. With land ownership mostly concentrated in the hands of the poor, most are still not able to use this resource as a development tool.

Imperfections in land market institutional structures are a conspicuous obstacle to development. Williamson (2002) refers to diverse issues pertaining to people's relationship with land that need to be addressed during the institutional development of land administration systems. This relationship can be formal or informal, based on private leasehold, customary or traditional, and corporate, or between public and state. These relationships are complex and dynamic. They reflect the constantly changing status of land and society as well as the level of development and abilities of specific countries. As societies develop and become more complex, governments increasingly interfere in land tenure by making these relationships more formal. Institutional structures that exist in the Russian Federation do not reflect legislative changes that have taken place over recent years.

LAND REFORM AND LAND PRIVATIZATION

No country has experienced the extent of changes to land tenure patterns as did Russia in the 1990s. This change affected land privatization, the development of agricultural and urban land markets as well as the evolution of a whole new system in agriculture.

The policy pursued by the government has led to a wide distribution of land. By 1998 some 129 million hectares of land (7.6 percent of the country's total area) had been transferred into what was declared to be ownership of individuals and legal entities. This figure has remained stable since then with indications of some decline in the share of privately held lands. The size of this area is comparable to the size of continental Western Europe.

Rural land reform

About 97.3 percent of privatized land is agricultural and is located in areas with the best climate and soil conditions. Most private agricultural land is locked in land shares. In many instances, land reform and agricultural reform were treated as identical. During the first half of the 1990s, the government actively interfered in the process applying all the might of Sovietstyle bureaucracy. The goal was to create a new class of landowners and to increase the efficiency of farm production by breaking up large state and collective farms into smaller privately operated farms. By the end of the 1990s, it became evident that such a policy does not yield immediate results.

The pure economics of the optimal farm size became a vigorously debated political issue. In practice this often translated into a determination of how many farms have changed their names from old-fashioned state and collective farms to names that reflect partnerships, cooperatives and corporations as a proxy for change. The amount of land that was legally withdrawn from these farms and transferred to whoever happened to live there at the time was unprecedented. Some 12 million people suddenly became legal owners of 119 million hectares of prime agricultural land. Most of these people never planned or anticipated that one day they would have to bear the burden associated with land ownership and, in fact, a significant number had neither worked in the farm sector nor planned to. Early reformers have seen the institution of land shares as a transitional tool that will allow transfer of land from the state to private individuals while respecting principles of fairness and social justice. It was believed that following distribution, land shares would start to be traded among their holders and eventually find their way to more efficient owners. In 1996 a special Presidential Executive Order was passed to address the rights of individuals to dispose of their land shares.

Most land-shares owners have preferred to lease their property to large farms. This can be explained by a desire to hold on to a traditional way of life. A large farm has been regarded not only as an enterprise but as a basis for community life. Even in areas where large farms are no longer involved in farm production, local villagers often try to maintain them as legal entities where local historic records are held (job records, pensions, debts, etc.).

People also believe that leasing a land share to a large farm or a private farmer may provide guaranteed income on an annual basis, while once a share is sold it does not. With almost no alternative investment for the money that could be collected from a land sale, along with a high inflation rate and no means to compare land market prices, people have preferred to hold on to their land. Less than 5 percent of landowners have decided to transform their land into real estate parcels and become independent private farmers.

No land parcel boundary plans were made for owners of land shares, as those shares were almost never demarcated in the field. It was believed that identification of land shares in the field would result in the fragmentation of land and a further need to conduct costly land consolidation. Examples from former Soviet Republics, where the demarcation has physically taken place in the field, have proven this to be the case (e.g. United Nations Economic Commission for Europe (UNECE) Land Administration Review for Armenia, 2001). Thus there is general agreement that any physical demarcation of land should be avoided or done with great caution. A delicate balance between private and public interests needs to be found in order to maintain the security of private ownership rights and public utility of agricultural land without driving the state into costly land consolidation procedures.

Although the Law on Turnover of Agricultural Lands has made an attempt to solve the issue of land shares, it is recognized that this cannot be done in one step. It could benefit landowners to identify the boundaries of fields of cultivated land that is legally theirs. The role of government would be critical in support of survey procedures in rural areas. Only this procedure will allow the owners of land shares to become genuine co-owners with legally registered rights.

Land was mostly granted without any charge according to quotas that were established by local authorities. The only types of farms exempt from privatization concentrated on livestock breeding, seed producing and training. It is estimated that only about 10 percent of large farms remain in state hands.

Farm restructuring took place against a backdrop of a major economic crisis that did not allow new farm structures to adapt and take advantage of the benefits of free enterprise. Another major factor contributing to the ineffective way land reform and farm restructuring was handled was its disregard for proper land management procedures and land-use planning. Very little thought was given to creating economically and environmentally sustainable farms - the main reason for the dramatic fall in production that Russian agriculture has experienced. Volkov's studies indicate that in farms where restructuring was made on the basis of land management projects, there is up to 40 percent higher labour productivity compared with farms where command and administrative decisions were made (Âîëêîâ, 1999).

As a result of restructuring, three types of farm remain in production: large, private family and subsidiary farms. Large farms are not as homogeneous as they were before the reforms. Agricultural cooperatives are a dominant form (41 percent); there are also limited partnerships (10 percent), closed partnerships (14 percent), open partnerships (4 percent), associations of private family farms (1.7 percent) and trust partnerships (1 percent).

Large farms constitute 79 percent of agricultural land in the country. In about 70 percent of cases the land they are using is leased from owners of land shares. This demonstrates the instability of land use that comes with the right of any owner of a land share at any given point in time to take their hypothetical land share and transform it into a real estate parcel with identified boundaries. Land users spend enormous amounts of effort gathering enough land shares into one piece of land, and trying to secure an agreement from owners that they do not, at least for some time, claim their right to separate land parcels. These arrangements are mostly based on goodwill rather then formal legal procedures. Large tracts of land that correspond to the total area of land shares collected in such a manner are almost never legally identified as separate land parcels. This means that if a tenant did not gain approval from all owners of land shares (which is informal) there is always a danger of an owner claiming his right to land and breaking up a functioning, if not legal, land parcel. Large farms with large numbers of farm animals are especially vulnerable: they are not able to plan ahead and maintain stable and sustainable production because of land-use instability. In 2002 the production share of large farms had fallen: from 88.2 to 86.9 percent for cereal crops; 81.9 to 78.9 percent for sunflowers; and 93.6 to 92.1 percent for sugar beet. Private individual farms have picked up most of that loss of production share.

At the start of the reforms, private family farms were expected to become the main type of business in the agricultural sector. By 2002 they occupied approximately 9 percent of agricultural land. Their landuse patterns suffer from the same types of uncertainty as large farms. They only own 40 percent of the land they occupy and experience the same types of problems associated with multiple owners of land shares.

Unlike large farms, private individual farms are increasing their land use. According to the Association of Peasant Farms and Agricultural Cooperatives of Russia (AKKOR), private family farms are increasing by 1 - 1.5 million hectares annually on a lease basis. Farmers are treating land as a production asset that, like any other asset, has to justify the investments made in it. However, the problem with leasing again lies with the registration of lease agreements, which often requires an unrealistic amount of effort. Farms where 90 percent of the land has no formal arrangement are common. This may indicate that land-shares owners have growing trust in this type of farm. In many instances, private individual farmers are becoming informal leaders of rural communities. It should be noted that a private farmer today prefers to rent land rather than own it. They believe that it is more important to maintain ownership rights to the land's produce than the land itself. They also realize that investment in land does not yield the same results as investments in other farm assets.

Between 1996 and 2002, the number of family farms shrank. Every year more land was used to produce crops. Between 1991 and 2001 the average size of a private family farm increased from 41.1 to 62.2 ha. In 2002 the number of private individual farms started to grow again, perhaps an indication of increased confidence in the farming sector. In 2002 private individual farms increased their share of production of cereals to 12.2 percent, sunflowers to 19.6 percent and sugar beet to 7 percent.

The third type of farm in the Russian Federation is a private subsidiary farm. In 2002 they produced 93 percent of potatoes and 81.6 percent of vegetables. About 50 percent of land used in private subsidiary plots is held privately. Private subsidiary land plots represent a type of smallholding largely based on the physical labour of family members. Operators of subsidiary landholdings were never fully employed in this activity. Although operated by inefficient physical labour, in the absence of an efficient food distribution system typical of the Soviet economy during the economic collapse and beginning of economic and political reforms in the 1990s, private subsidiary land plots played an important role in stabilizing food supply to floating markets in towns and cities.

Between 1999 and 2001 the share of total farm product value increased to the greatest extent in large farms, less in private individual farms, and decreased in private subsidiary farms. Growth in agricultural production only started to emerge in the late 1990s, triggered by the 1998 economic crisis that allowed Russian agriculture to become more competitive in domestic markets. The agricultural sector became an attractive option for investors. The bulk of investments into agriculture are performed on the basis of back flow vertical integration. They are directed from retail stores to distribution centres, to the processing industry, and finally into agriculture. In their desire to develop and control the supply base, investors are gradually becoming owners of significant landholdings. Newly established large farms are managed and operated by hired personnel. In the Law on Turnover of Agricultural Land, the government has acknowledged its concern about the possibility that large tracts of agricultural land could become concentrated under single ownership. It states that one person or a company or a group of affiliated companies cannot own more than one-third of an area of arable land located within administrative boundaries of a district.

With the development of market mechanisms and funnelling of investments into professional farming, large farms and private family farms are starting to play an increasingly important role in the structure of the agricultural sector. Available threeyear data (Ñîñòîÿíèå, 2002) indicate that large farms are starting to increase in value at a faster rate than that of private individual farms. This can probably be explained by the fact that large farms have better access to professional expertise in farming, as well as to the marketing and supply sides of agribusiness. Private individual farms lack this organization. Investors also demonstrate more interest in purchasing large farms than getting involved in multiple legal arrangements with a large number of small farmers.

Professionally operated farms, large or small, are slowly pushing subsidiary farming out of the market. The agricultural market, with no interference from the state, is becoming the regulator of farm size.

Although the Law on Turnover of Agricultural Land has not yet started to demonstrate an effect, it is clear that a concentration of the ownership of agricultural land will increase in the future. This may result in negative social consequences, reflected by growing poverty in rural areas. Policy mechanisms need to be developed to ensure sustainable income levels for current landowners. Annuity rents need to be introduced for retirees and the elderly.

One of the reasons that small businesses are not demonstrating the same growth as large businesses is that they lack access to finance. Commercial banks prefer to work with large borrowers, while family farms and individuals are unable to obtain development loans from either commercial or state lenders.

The introduction of mortgage mechanisms remains unresolved in agriculture. Without proper legislative support, and with uncertainty over an owner's ability to dispose of agricultural land, lending institutions are not confident enough to accept land as collateral. However, given the status of the economy, agricultural land does not have a sufficient market value to support farm production development.

The growth trend in the individual farming sector, and the growing efficiency of large farms combined with almost unrestricted access to land and a freemarket environment characterized by an almost complete absence of farm subsidies, places emphasis on the need for professional farm management. With the privatization of agricultural land, the state is no longer able to interfere in the business activities of farms nor control the process of farm restructuring through administration. In the long run, market forces will drive farm restructuring.

Urban land reform

In towns and cities privatization primarily affected lands occupied by private family dwellings and to a lesser extent by private business. In reality, the privatization of land located within city limits is subject to political decisions entrusted to municipal authorities. Two basic reasons can be identified to explain why these authorities are reluctant to accept the idea of transferring land into the hands of individuals and legal entities. State and municipal land ownership has not been divided between federal, regional and local authorities. The latter act as de facto owners of all non-private land located within the areas under their jurisdiction. Local authorities make decisions on how these lands should be managed or disposed of for development purposes. In a context in which land tax systems fall under federal jurisdiction and the setting of lease payments is the right of an owner, local authorities exercise better control of revenue collected from land-lease payments than land taxes.

In 2004 the country is expected to introduce a new land tax system whereby taxable land values will be calculated based on mass valuation and local authorities will have control over the establishment of tax rates, providing they do not exceed an upper limit that will be set by federal legislation. On the one hand, the introduction of this mechanism will provide local authorities with better control over land tax revenue, on the other, a marketbased land tax economy will put private businesses in a situation where they will be paying less if they become legal owners of the land they occupy.

Massive privatization of land occupied by private businesses was expected in 2003. According to the Land Code (2001) and the Law on the Enactment of the Land Code (2001), there are incentives for owners of privately held business and individuals with private homes to acquire private ownership of the land parcels they occupy. Individuals who are currently using land parcels on the basis of perpetual useright, with the right to inherit this right, can freely acquire their land parcels. The law also states that private legal entities have the right to acquire the land parcels they occupy for a nominal price, or change their type of tenure to a lease arrangement. For businesses, 2004 has been set as a decision-making deadline.

The government has been trying to introduce private land ownership as soon as possible, whatever the cost. Although private property in land has been declared in a range of laws, and transferring land from the state to individuals has been a policy priority, later developments have proven that the declaration of a private property institution does not in itself solve the problems that necessitated the reforms. Efficient use of assets is subject to the availability of redistribution mechanisms that allow the further transformation of property rights into the hands of more effective owners. The introduction of land market mechanisms has proven to be a longer task than the declaration of private property. Without market tools being readily available to those who want to use them, privately held land continues to play as much of an economic role in society as it did before the reforms.

Land reform and traditional land use

The constitution of the Russian Federation declares the right of people and legal entities in all parts of the country to hold land in private ownership. In practice, private land ownership is not found in a number of regions and republics located in the far north and the southern mountainous areas of the Russian Federation. These parts of the country can be characterized by a set of common features.

National minority groups that are native to northern areas do not have a tradition that could have supported the introduction of private land property as a concept. They have no history of the western concept that land can be treated like any other commodity. Land represents an integral part of their way of life that can easily be damaged if outsiders are allowed to take land away from native communities. The spread of western civilization provides many examples of how native cultures have been lost forever when land was acquired by settlers.

In the south, the situation is also complicated by lack of productive land in densely populated mountainous areas. Even before the 1917 Revolution, native people used a type of community land tenure in order to avoid potential land disputes. It is interesting to note that similar cultures and traditions can be found across the border in neighbouring Georgia, where the same problems associated with the introduction of private land ownership can be found.

The risk of losing ethnic diversity through the introduction of a private property mechanism are high because most of these lands are rich with vitally important mineral recourses. Oil and mineral companies are pushing for ownership of the land they currently occupy. With the new Land Code coming into effect there is not much to keep them from doing this. Under these circumstances the government needs to concentrate on recording and defending traditional community land-use rights of natives in the land cadastre and registry of rights in real estate.

LAND MARKET DEVELOPMENT AND INFRASTRUCTURE

To support its reforms, the government has concentrated on developing the infrastructure of land market mechanisms. By the end of the 1990s, the land cadastre system and the system for the registration of rights in real estate became operational throughout the country. It was expected that the introduction of these mechanisms would foster the development of a land market. It was also expected that this infrastructure would support the development of mortgage mechanisms that would attract investment into the economy.

Land markets are thought to be the best mechanism for the redistribution of lands into the hands of more effective owners. Land privatization is the necessary prerequisite for this process to start. It was perceived that once all these mechanisms were put in place the market would be characterized by a significant volume of buying and selling. However, this did not happen.

The structure of land markets is influenced by the social, economic, cultural and legal customs and traditions of a country. The idea that land can be sold is still very much alien to the minds of Russian people, who for centuries were denied access to land. On the other hand, legal uncertainty and poor economic performance made landowners hold on to their property rather than dispose of it.

Data (Ãîñóäàðñòâåííûé, 2000) collected over the last six years suggest that the Russian Federation has formed a stable land market structure. In 2001, 5 556 327 transactions involved an area of 69 955 514 ha. Most of these were leases. To a large extent this reflects the land ownership structure of a country in which 92 percent of land is still held by the state at one level or another. In an agricultural sector where absentee ownership is becoming increasingly dominant, leasing is often the preferred legal arrangement. A significant number of leasing transactions between individuals in the rural sector are not captured in official statistics.

Land transactions that involve individuals are often not registered. This is especially true of informal leasing of agricultural land between individuals. Under the present system, the formal registration of a lease agreement on a field that is co-owned by owners of individual plots requires formal consent from all owners and a legal description of field boundaries. With the number of potential co-owners often reaching hundreds of people, some of whom have been absent or have not claimed their land rights, the whole issue becomes too bureaucratic to be carried out according to law. Both sides have a vested interest in resolving this situation: the owners of land are insecure about their income and tenants are not able to develop their longterm interests, both of which impact on sustainability of farming in general.

Considering that, unlike some other countries, the Russian Federation is not traditionally characterized by a high degree of labour mobility, and taking into account the bureaucratic barriers that still hamper market development, with an estimated 50 million landowners in the country the land market is fairly active.

The introduction of new legislation aimed at facilitating the transfer of land parcels occupied by privately held businesses into the hands of occupants will mostly influence the industrial sector of the economy and will not have a significant effect on the overall land market structure.

The effectiveness of land use does not depend on the type of transaction through which certain rights are transferred. Sustainability of land use depends on the security of legal status of a land user who can be either a landowner or a tenant. In the course of its development the land market itself will regulate its own structure and any administrative interference in this process will only add an element of uncertainty and instability.

The introduction of land markets cannot be seen as the final goal. The goal of the reforms is to improve living standards. According to De Soto (2001), the generation of wealth occurs only when people are able to involve their property in the process of market turnover. The Russian Federation has only recently introduced the infrastructure to facilitate this process. It is rather early to draw conclusions about what impact these systems may have on the development of the economy in general. That stated, outdated bureaucratic structures continue to act as barriers to the development of land markets.

An analysis of the activities designed to remove these barriers gives us reason to believe that within the next few years the country will have a "unified" cadastre system closely linked to the system of registration of property rights. The number of agencies involved in formation of real estate units will also be reduced. These measures will undoubtedly create a better market environment.

With all these positive changes there remains a danger that the agricultural land market will not reach its expected potential. As land surveying will remain a costly exercise for landowners, large tracts of land will continue to be farmed without the establishment of any formal relations between owners and tenants. Unless there are specific government programmes in place that concentrate on the surveying and registration of agricultural land, agriculture will remain an unstable and insecure sector of the economy.

Discussions on the privatization of land and development of land markets always involve the issue of foreign land ownership. Although the limits on foreign land ownership were removed in 1993, without solid legislation international investors have been wary and in no hurry to invest. The new approach to the foreign ownership as described by the Land Code envisages that it should only be limited in areas close to national boundaries. The list of such areas has to be approved by the President of the Russian Federation. The approach that was taken in respect of agricultural land only allows foreign individuals and companies to lease agricultural land.

Agricultural land market development

In the absence of agricultural land market mechanisms, and with uncertainty about the prospects of the rural land markets, land has mostly remained in the hands of the same people to whom it was granted at the start of the reforms. Transfer of land into the hands of more efficient owners could not have taken place. This effectively counteracts the original design of increasing farming efficiency.

There was an absence of legislation regulating the agricultural land market while actual land sales were still taking place. Different factors influence the modest development of the rural land market. Even though the infrastructure that supports land markets is in place in the form of land cadastre and registry of rights in real estate, there remains heavy opposition to the idea of the sale of agricultural land. A recent opinion poll, taken by government agencies in January 2002 among farm managers and agricultural experts has revealed that only 20 percent of them support the idea of a free rural land market; only twothirds favour the sale of agricultural land, provided that certain restrictions on such transactions are implemented. Prices for land vary according to supply and demand, location and the purpose of land use. It is, however, extremely difficult to calculate the true market price of land. As property transfers are subject to taxation, contracting parties prefer to declare normative land prices that bear no relation to the actual value. This also contributes to land market insecurity.

The most active segment of the land market in the Russian Federation is undeveloped land sold for the construction of individual homes. The average price of land for this purpose within city boundaries lies in the range Rb 3 - 130 per square metre. There are clear distinctions in land prices between rural areas and settlements and towns and cities.

An indication of agricultural land price dynamics is provided by the data (Ãîñóäàðñòâåííûé, 2000) on the sale of state and municipal lands to individuals and legal entities. In 2001 there were 90 recorded cases of state and municipal land having been sold to farmers. Local governments are practising auctions and tenders to sell land. Although this number of transactions cannot be considered to be representative nationwide, it may give at least an indication of developments in the agricultural land market. Market land prices remain at a very low level. Agricultural inefficiency, a lack of farm support infrastructure, the low level of development in rural areas, legal uncertainty over the sale of agricultural land, and bureaucratic barriers all contribute to low prices for agricultural land. Some of these obstacles could be removed by implementing certain administrative measures, but some will only disappear as the economy continues to grow. To some extent the positive dynamics of 2001 may be explained by a growth in farm production and an increased interest in agricultural land.

The introduction of the Law on Turnover of Agricultural Land will give a clear message that, apart from being a valuable natural resource of immense public value, agricultural land is also a tradable commodity. This has been intentionally avoided for many years. The passing of the Land Code in 2001 was possible because of compromise: the agricultural land market will be regulated by special legislation. This decision was based on the assumption that because of agricultural land's unique characteristics society should have the right to impose restrictions on its transfer.

LAND ADMINISTRATION INSTITUTIONS

Changes in people's relationship with the land should be reflected in new land administration structures. Areas that have to be covered are so wide that in most countries it is common to find many government agencies trying to solve different land-related issues rather than a single agency with the responsibility to address these issues comprehensively. The Russian Federation is no exception.

The complexity and diversity of different issues related to land requires the participation of a wide range of experts in the decision-making process. This can result in many agencies dealing with oftenidentical issues and duplicating each other's functions. Experts in different fields can dismiss each other's opposing points of view. As society reconsiders its attitudes towards land and tries to identify new land administration functions or make changes in existing ones, these arguments intensify.

The lack of a comprehensive approach to land leads to instability of land tenure and uncertainty in the land market. Potential land market participants prefer to wait for the government to develop a clear policy supported by a functional institutional structure. The government's land policy is conceptually formulated in its legislation and other documents with the new concept of land in mind. However, institutional structures are still tailored to reflect the old attitude to land. With land policy concepts in place and the existence of private property and land markets, the absence of a clear institutional structure essentially makes privately held land dead capital.

The existing institutional structure of land administration is characterized by a wide and often overlapping distribution of responsibilities. To a great extent agencies' functions still reflect the economic, administrative and legal environment that was typical of the pre-reform era. Decisionmaking in land markets is greatly slowed by the necessity to involve different agencies, often with conflicting interests.

In practice on a local, municipal level the system of registration of real estate in the Russian Federation consists of three subsystems.

1. Physical description of a real estate unit is carried out by cadastral chambers of the Federal Land Cadastre Service and municipally owned Bureaus of Technical Inventory (BTI).

2. While cadastral chambers uniquely identify and register land parcels in the cadastre, the BTI are responsible for description of buildings and structures.

3. Legal registration of rights in real estate is performed by agencies of justice.

All three registering authorities directly or indirectly belong to different government agencies. Agencies of justice collect information from both sources but cadastral chambers and BTIs almost never share data with one another. Anyone who wants to register his land rights with permanent improvements has to visit all three agencies and pay related fees.

These are not the only bureaucratic barriers that a person has to overcome in order to secure land rights and improvements. If a person applies to a local municipal government with a claim for a new parcel, a long bureaucratic procedure awaits. The procedure includes gaining approval of land surveying documents from a list of local agencies: land committee, architectural and town planning authority, the authority in charge of mineral deposits, water protection authorities, nature protection authorities, sanitary and epidemic control authorities, natural parks and reserves protection authorities, fire control authorities, emergency situation authorities, foresters and historic and cultural monument protection authorities. The list of approving agencies may differ in different jurisdictions. In construction, a developer may have to visit the same agencies, or different agencies, for similar approvals a number of times depending on the stage of the project. In almost every case a developer will also have to obtain resolutions from local authorities that correspond to a particular stage of a project.

The passing of the new Law on Land Management and the Land Code has allowed the development of new approaches and has begun to reduce the number of bureaucratic barriers. According to new legislation, local municipalities will only have to request approvals that are required by federal legislation but there are many regulations still in place that need to be reviewed and changed for this legislation to become effective. When this regulation comes into force the list may be reduced to just three authorities.

Land policies are developed at the federal level. Federal agencies that are directly involved in this process are: the Federal Land Cadastre Service, the Ministry of State Property, the Federal Geodesy and Mapping Service, the State Committee of the Russian Federation on Construction, Architectural and Housing Policy, the Ministry of Justice, the Ministry of Natural Resources, the Ministry of Economy and Trade and the Ministry of Agriculture.

Analysis (Îâåð÷óê, 2002) of land administration functions performed by different federal authorities suggests two types of flaw that have to be addressed in order to improve land administration and empower it with a role that will reflect its dynamic and changing role in the modern society.

1. Multiple overlapping functions and unclear responsibilities. Improvement of land administration will require: combining functions of physical description of land and real estate within one agency; the merger of cadastral mapping with geodesy and mapping authorities; the concentration of all authorities involved in mass appraisal and real-estate valuation functions in one agency; reducing the number of agencies involved in land policy development to perhaps two agencies, a land administration authority and an agency responsible for overall coordination of the country's economic development.

2. A leftover from Soviet law: land administration and management of state-owned lands were considered to be inseparable because the owner was the same as the policy-maker. In a free market, combining these two functions in one agency can be an indication of favouring state ownership over other forms.

The changes that have taken place in society have identified new functions for the government. There are issues the government has to face not as an owner but as a supreme authority empowered to secure equality of rights for all owners and organize and maintain fair market rules. This legal power should have higher authority than the government exercises as the titleholder of 92 percent of the country's land.

The Russian constitution identifies state and municipal land ownership as being equal to ownership by individuals and legal entities. There are three levels of government in the Russian Federation and until now land property has not been divided between them. With rare exceptions, no level of government has clear title to the land it possesses.

The Federal Law on State and Municipal Land that became effective in January 2002 presents an opportunity to divide land ownership at federal, regional and municipal levels. According to government plans, this must be completed by 2007. An understanding of the amount of work that has to be done in such a short time frame has simplified demarcation and registration procedures, which are viewed by the authorities responsible for management of state lands as a way to solve the problem. There is a danger, however, that the rights of neighbours might be neglected in the process, as individuals and legal entities potentially find themselves involved in court cases over boundary disputes with the state. The decisions that might bring all these forces into play are within the purview of the Ministry of State Property, whose highest priority is to collect revenue for the government rather than protect the interests of landowners.

The government acknowledges the existence of this conflict of interests in the Programme of Social and Economic Development of the Russian Federation for 2002 - 2004. The programme identifies that it is necessary to develop legislation that will separate these two functions of governments on every level. The programme also envisages a greater role for the public in making decisions over territorial zoning, and for self-regulating professional associations made up of land market participants. The creation of a strong land administration authority with an overall responsibility for land policy decision-making, and empowered to act as a securer of equal rights for all land market participants, will help to form a better economic environment in the Russian Federation.

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