Land reform and land markets in Eastern Europe

L. Gerber and R. Giovarelli
Laura Gerber, Legal Consultant, International Partners in Development, Seattle, United States of America Renee Giovarelli, Legal Consultant and Principal, International Partners in Development, Seattle, United States of America

This article reviews the status of agricultural land markets in 23 Eastern European countries, with particular emphasis on regional differences.^[35] Three major topics are surveyed as indicators of progress in the development of land markets: (i) the policy and legislative framework for land reform; (ii) landownership options and (iii) land administration, in particular, registration and titling. In general, land markets in Eastern Europe have been very slow to develop. Even though agricultural land is freely transferable in many countries, the emerging markets have been hampered by the slowness of the initial privatization and titling of land. Lease of agricultural land is much more common than purchase and sale, and there are only a few countries where land sales are on par with Western Europe. Overall, however, much systemic progress has been made over the past 15 years in paving the way for functional agricultural land markets, most notably in the privatization of land and the development of land administration systems. These legal and policy changes have laid the groundwork for the continued improvement in land market activity.

INTRODUCTION

This article explores the relative status of land reform and the development of agricultural land markets in Eastern European countries. The article is organized by topic to allow the reader to compare the different regional approaches to land reform and their outcomes.

The countries included in this study have been divided into four groups:

• European Union (EU) accession countries: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia, as well as Slovenia (acceded), and Bulgaria and Romania, which are both expected to join the EU in 2007;

• Western Commonwealth of Independent States (CIS): Belarus, the Republic of Moldova, the Russian Federation and Ukraine;

• CIS Transcaucasus: Armenia, Azerbaijan and Georgia;

• The Balkans: Albania, Bosnia and Herzegovina, Croatia, The former Yugoslav Republic of Macedonia, and Serbia and Montenegro.

Despite the shared history of socialism and a common agricultural structure of large-scale collective and state farms in these countries, there are strong social, economic and political differences. Since the beginning of the transition era in 1989-91, they have applied different approaches to agrarian reform. Generally, the status of their agricultural land markets is a result of these different approaches to land reform and their political differences. Agricultural land markets range from being non-existent in countries that lack the legal and policy framework to support land markets, to being semi-functional and increasingly active in countries where the market infrastructure is in place and the political climate encourages market activities.

The EU accession states are by some standards the furthest advanced in terms of land market development, although several of these countries have resisted change in the agriculture sector and continue to support failing farms in the large, collective style. Furthermore, land fragmentation has generally increased throughout the region as a result of the land reform process.

In the western CIS, two countries (Belarus and the Russian Federation) still lack the legal and policy framework for private ownership of agricultural land and land transactions. The state controls the agricultural land and there is not enough political will to prevail over those who oppose private ownership and sale of agricultural land.

In contrast, the Transcaucasus countries made very different choices at the beginning of the transition and quickly privatized agricultural land and restructured farms into small family units. This initial political will to create change, accompanied by actual privatization, has provided the necessary preconditions for a functioning land market.

Finally, the history of the Balkan countries has had a major impact on their agriculture sector and land market possibilities. Despite a tradition of supporting private farms, the war and ethnic strife have complicated the land transition process.

LAND REFORM POLICY AND LEGISLATIVE FRAMEWORK

Land privatization methods and status

EU accession

All of the EU accession countries, except Hungary and Poland, engaged in some form of restitution of land rights to former owners. Land reform activities in these countries can be divided into three categories:

1. those that re-established the ownership rights of individuals whose land had not been expropriated, and restituted smaller portions of state land (Czech Republic, Poland, Slovakia and Slovenia);

2. those that compensated former owners and provided or sold land to farm workers (Hungary); and

3. those that restituted land to former owners only (Bulgaria, Estonia, Latvia, Lithuania and Romania).

In the Czech Republic, restitution was only applied to state farm land; for collective land, the primacy of ownership rights over users' rights had to be re-established. The restitution process is now nearly complete in the Czech Republic, although there are ongoing legal disputes relating to land that cannot be returned and a lack of title on restituted lands (Travnicek et al., 2002). Slovakia's land restitution process is now more than two-thirds complete, but much land remains in the Slovak Land Fund. As of the beginning of 2005, plans were under way for the sale of 133 000 ha of state-owned Slovak agricultural land (Hudecova and Csókásová, 2004). Although Polish and Slovenian agricultural land was never effectively collectivized, in Slovenia state farms did hold a small share of land and a land restitution process was undertaken to compensate those landowners. As of 2001, just over 49 percent of agricultural land had been restituted (Udovc, 2003).

Hungary's land reform was based on compensating former owners, rather than restituting the land, with landless workers on state farms and cooperatives also receiving small land grants. One outcome of this land reform method was that the people who acquired land were often not engaged in agriculture, so much of the newly acquired land was subsequently leased out.

Bulgaria, Estonia, Latvia, Lithuania and Romania restituted land to former owners. In these countries, land had formally been expropriated from the owners during the collectivization process. Most of the new owners who received land though restitution did not actually farm the restituted land (i.e. work on the collectives farming the land). Each of these countries has faced unique restitution problems. Estonia sought to restitute land to pre-1940 property owners and their heirs. Because of a withdrawal of claims once claimants realized the difficulties of rural life, the land restitution process in Estonia returned only 25 percent of the agricultural land to individual owners. Estonia is now trying to identify and dispose of unclaimed land to bring it into productive use and allow it to be taxed. Latvia restituted landownership rights exclusively to native Latvians on the basis of the old land boundaries from the period 1924-40. As of 2004, landownership rights had been restored to 89.5 percent of applicants, and an area of more than 3.1 million ha of land was legally registered under private ownership (Daugaliene, 2004).

In Romania, the initial restitution law liquidated collective farms and returned their lands to the households that had ceded them during collectivization. Furthermore, in 2000, a law was passed allowing for the restitution of state farm land. While much of the collective farm land was restituted in the 1990s, little progress has been made in disposing of the state farm land. In Bulgaria, agricultural land was divided into two categories for restitution: "real boundary land", i.e. parcels whose original boundaries were preserved; and "land division land", i.e. parcels that the state had amalgamated into large state and collective farms at the time of expropriation. Official sources state that the land restitution was finalized in 2000 (Nedialkov, 2004). However, fewer than 70 percent of former owners or their heirs have a legal document confirming their ownership.

Poland, like the former Yugoslavia, never collectivized the bulk of its land during the communist era, although it still had to privatize the large state farms which occupied one-fifth of the country's arable land (3.7 million ha). Unlike the other EU accession countries, Poland did not provide for restitution, but it did privatize state land through lease, sale, transfer and redistribution of parcels.

Western CIS

Among the western CIS countries, only Belarus restricts private ownership of agricultural land (except for household plots). The other countries (the Republic of Moldova, the Russian Federation and Ukraine) allow for private ownership of land, but the bundle of rights associated with ownership varies. The greatest changes have recently occurred in Ukraine, where a new version of the Land Code was passed in late 2001, permitting private ownership and the transfer of agricultural land (OECD and World Bank, 2004). In the western CIS countries other than Belarus, agricultural land was privatized under a "land share" system, in which a large majority of private owners (former members of the state and collective farm system) still hold their rights in common, with some form of right to partition land in kind. The advantage of this system is that farm members who had been working on the land received a portion of the land together with ownership or ownership-like rights.

This type of land share system does not exist in Belarus and, therefore, members of collective and state farms do not have even a theoretical right to a share of land. Rather, if a farmer wants to create a private peasant farm, the local administration can allocate land from the collective farm enterprise or from the state land reserve. Private farmers have user rights to land but not ownership rights. As of January 2003, 7.5 percent of the territory in Belarus was held in private ownership (Vaskovich, 2005). The situation in Belarus contrasts sharply with that in the Republic of Moldova, which demarcated, titled and registered land plots for individual farm members.

The Russian Federation and Ukraine privatized agricultural land under the land share system, with the exception of household plots, which were fully privatized. Of the 41.9 million ha of agricultural land in Ukraine, 26.7 million ha (64 percent) were transferred to the control of 6.5 million individuals, each of whom received a land share certificate. The certificates do not correspond to demarcated land but represent a portion of land formerly used by the state farm or collective farm. The majority of those who received land share certificates quickly leased them to the collective farm so little changed in terms of their ability to exercise ownership rights.

In 1999, Ukraine began an initiative to convert all land shares into privately owned individual land parcels and to issue title documents to the new landowners. As of January 2004, 3.32 million people, or more than 58 percent of eligible rural residents, had received their land titles (OECD and World Bank, 2004). Although the Russian Federation also distributed land to former collective and state farm members in the form of land shares, problems persist in terms of exercising ownership-like rights to that land. The procedure for converting land shares into demarcated land parcels can be difficult to implement and offers little in the way of a firm guarantee that the resulting land parcel will be of reasonable quality and in a reasonable location.

CIS Transcaucasus

In Armenia, Azerbaijan and Georgia, private ownership of agricultural land is allowed and agricultural land is freely transferable. In all three countries, land from the former collective and state farms was distributed to farm members or rural citizens free of charge or for a very small sum. In Armenia and Azerbaijan, most of the state-owned land was distributed to rural residents, including farm members, and the privatization process is substantially complete. In Georgia, however, a portion of land was distributed to rural households for subsistence farming and a portion remained in state ownership for lease to larger, market-focused farms. As a result, less than 30 percent of the agricultural land in Georgia has been transferred into private ownership. Thirty six percent is leased out by the state and the rest is neither leased nor privatized. Today, these land parcels that remain in state ownership are excluded from the land market (Ebanoidze, 2005). However, there are a number of proposals under consideration to complete the privatization of the remaining state-owned land in Georgia (Stanfield, 2002).

The Balkans

Private ownership of land is a legal reality in all the Balkan countries. However, despite having the legal framework for private landownership in place, war and ethnic strife in Bosnia and Herzegovina and in Croatia have meant that the rights to land are inaccessible in practice. The status of agricultural land privatization varies among these countries, although their general levels of privatization easily exceed those in the western CIS countries. In former Yugoslavia, two million peasants were forced into collective farms in the 1940s, but the programme was cancelled in 1952 because of low output. The private sector dominated in former Yugoslavia, but state farms and cooperatives also existed. Recently, war and ethnic strife, combined with relatively high productivity on state-owned farms, has delayed privatization of the remaining state agricultural land.

In The former Yugoslav Republic of Macedonia, approximately 85 percent of agricultural land is privately owned and farmed, and the average farm size is 2.5 to 2.8 ha. In Bosnia and Herzegovina, about 94 percent of agricultural land is privately owned and about 5 percent of arable land is held by state farms. In Serbia and Montenegro, by 2004, 86 percent of agricultural land was privately owned and farmed, although large parts remain uncultivated or are used part-time (Bozinovic, 2004). In Croatia, by 2000 approximately 83 percent of arable agricultural land was privately owned and used.

In Albania, by 1994, over 94 percent of all land available for distribution had been decollectivized and privatized. The land allocation method was per capita distribution rather than restitution. State-owned land was initially distributed to state farm workers on a "use only" basis in the same fashion as the collectively farmed land. In 2004, a new law was introduced on restitution and compensation of property. Under this law, expropriated owners have a right to their immovable property or to receive adequate compensation for it.

Farm restructuring

EU accession

Despite significant privatization efforts, agriculture is still dominated by large, collective-style farms in most EU accession countries. Farm breakup did not necessarily accompany the restitution process. Many of those who received land were urban dwellers with no interest in farming who immediately leased their land back to the former collectives. In other cases, restored land rights were acknowledged in terms of area but not specified in terms of location, remaining as a "share" of a common landholding utilized by the former collective. Shareholders have entitlements to the land, but these are rarely converted into individualized, private plots. Instead, shareholders either exchange their land entitlement for an equity share in the company (from which they are supposed to receive dividends) or they lease out their land shares. In general, the restitution process in many countries has not resulted in smaller family farms.

Agricultural landholdings in the EU accession countries are characterized by their dualistic nature. Of the 9.2 million farms, 82 percent are cultivated in holdings under 5 ha, but these farms only use 27 percent of the land and the majority of them should be classified as part-time farms (IAMO, 2004). The share of land held in smallholdings ranges from 42 percent in Latvia to 97 percent in Bulgaria. In general, the profitability of agriculture and the availability of off-farm job opportunities have greatly influenced farm structure in the years since transition. However, as noted above, large-scale farming remains a significant feature of agriculture in these countries. The total land cultivated by cooperatives and commercial companies in Slovakia is 76 percent; Bulgaria, 74 percent; the Czech Republic, 72 percent; and Hungary, 50 percent.

Western CIS

The western CIS countries have not broken up the large collective farms to a significant extent. Although the great majority of the collective and state farms were cosmetically reorganized into other legal forms, only 30 percent of the farms reported having a less centralized system of management. By and large, farm managers from the former collective farms managed to capture management control of the former farm assets. In Ukraine, the new farm enterprises generally rent all the land under their control from the land share and land titleholders. Similarly, in the Republic of Moldova, in spite of land demarcation and titling, only 20 percent of former farm members actually separated from the collective farms, while the remaining 80 percent lease their land to successor collectives.

CIS Transcaucasus

Armenia and Azerbaijan have dismantled former collective and state farms, and their agriculture is now based primarily on family farms. The private sector produces almost all of the agricultural goods and the average farm size ranges from 1.99 ha to 2.8 ha. In Georgia, three types of agricultural land tenure have emerged since 1992: families with privately owned land; families and groups with leased land; and legal entities with leased land. For families, the average holding size is 0.72 ha, while for the groups with leased land it is 11.03 ha and for legal entities, 93.27 ha. In Georgia, farm restructuring has been more limited owing to the emphasis on creating large leasehold farms.

The Balkans

Croatia has a dual agricultural structure consisting of small, fragmented family farms and large state farms. Although the transition and privatization processes started over a decade ago, agricultural conglomerates are still under state ownership, are highly indebted and do not possess a clear privatization strategy or future business development (Tanic and Lonc, 2003).

DEVELOPING LAND MARKETS

There are a number of systemic reasons for the slow growth of land markets in Eastern Europe. First, land markets cannot function in areas where the restitution process is incomplete. If the land is either lacking title or subject to dispute, purchase and sale cannot occur. A second reason for the slow growth of land markets relates to basic economic issues of supply and demand. In some instances, the presence of state land fund land has created a surplus of agricultural land on the market, thereby depressing agricultural land prices. When prices are unrealistically low, owners of land withhold it from the market to wait for higher prices. The lack of realistic real estate prices complicates the pricing of mortgage loans and mortgage bonds, and low agricultural profitability and the inability to use immovable property as collateral depresses the value of land assets. The effects of these factors are compounded by uncertainty over ownership security and a high conveyance tax on land transactions.

A further limitation on the development of a private land market is the preferential treatment given to cooperatives under the laws of certain countries. Individuals have few options to use the market to lease or sell land; thus, they settle for placing their land in cooperatives on extremely unfavourable terms. Almost all of the countries surveyed prohibit or limit foreign ownership of agricultural land, although, pursuant to their accession negotiations, this barrier will gradually disappear. A number of the countries have requested transitional periods prior to allowing their agriculture land to be sold to foreigners (Daugaliene, 2004).

Lease

EU accession

Even though agricultural land is freely transferable in all EU accession countries, land markets are generally underfunctioning. Many of the emerging markets are still hampered by the slowness of the initial privatization and titling of land. Lease of agricultural land is much more common than purchase and sale. Slovenia and Romania both have active lease markets that seem to be working because the number of households owning land has decreased while the total area farmed has increased.

Two supply-side factors have had negative effects on the lease market. First, in Estonia, Lithuania and Poland, the state continues to own much agricultural land and its land leasing activities undercut the entire lease market. Second, in Bulgaria, the Czech Republic, Hungary and Slovakia, new landowners often lease their land back to the former collective farms. This too has market-wide impacts.

Another problem that has arisen in the lease market concerns restrictions on lease terms. In Hungary, ten-year lease terms or shorter have encouraged farmers to think in terms of short-term gains, not long-term land stewardship. Nevertheless, the agricultural lease market is very dynamic; for example, 85 percent of the land belongs to individuals, but nearly 45 percent of the land is used by farming organizations, which are not allowed to own land. They therefore have to look for land on the lease market. An overly fragmented ownership structure is reflected by the fact that, on average, one cooperative has contract-based leases with 662 people as lessors, with each lessor owning a plot of 2.6 ha on average. The majority of lessors are unemployed pensioners or absentee landowners. Individual cultivation of these plots is probably not a realistic option because of the age of the landowners, their weak link with agriculture and the small size of their plots (Fulopp, 2002).

A different problem with the lease market occurs in Bulgaria, where the leasing law obstructs transactions by requiring that lease contracts be written, notarized and registered in notary and Land Commission registration books. Few formal leasing transactions take place because of these stringent requirements. When leases do occur, they are typically informal and unrecorded, thereby increasing the costs and decreasing the competitiveness of the market.

Western CIS

Much of the leasing in the western CIS countries occurs between land share owners and the corporate successors to the former collective farms. Most agricultural enterprises underpay (or do not pay at all) the owners of land shares for the use of their land.

CIS Transcaucasus

In the rural areas of Azerbaijan, landowners successfully lease land and often receive payment in the form of harvested crops. Foreigners are also allowed to lease land. Leases can be for short- or long-term use and lease fees may be paid in cash or in kind. In Armenia, many landowners lease land from the state (through the village council) to increase the size of their holdings. Private two-party leasing, on the other hand, is not a common practice.

In Georgia, farmers are permitted to lease land from the state or private owners. Over 1 000 private agricultural land leases have recently been registered. The bulk of these leasing transactions have involved retired farmers leasing their land to those who may be better able to use it. However, this number is far smaller than the estimated 46 000 leases of state-owned land. State land is much more attractive than private land because the only payment is the land tax.

Purchase and sale

EU accession

Of the ten EU accession countries, only Lithuania and Poland have relatively active land markets. Furthermore, the purchase price for land varies widely among different regions. For example, land prices in some areas of rural Romania are €230-270/ha, whereas prices in some areas of Slovenia reach €25 000/ha. Although high land prices positively influence access to credit, they also make land consolidation more difficult. Low prices, in contrast, often prevent land from being used as collateral and lead to fears of land speculation.

The agricultural land market in Poland is active and relatively free. The Agricultural Property Agency estimates that approximately 2-4 percent of farmland is sold each year on the private market -about 500 000 to 1 000 000 ha annually. This is within the range of market activity for agricultural land in Western Europe.

In Lithuania, about 4 percent of all land parcels change ownership annually through market activity. In 2003, the total number of all land transactions was about 3 659 per month. In 2004, land market activity continued to increase as 7 500 natural persons submitted applications to buy over 65 000 ha of state-owned agricultural land and 156 legal entities applied to buy 34 000 ha of land (Daugaliene, 2004).

Land prices in the Czech Republic, Estonia, Hungary and Poland are expected to grow over the next few years, although prices differ significantly among regions. Currently, the Slovakian land market is characterized by the sale of very small land areas to enlarge personal plots or to construct buildings, but not for agricultural reasons. In 2002, 0.6 percent of total agricultural land was sold. In Hungary, the land lease market rents do not correspond to land prices. For example, in some areas, land prices are higher but rents are lower because landowners use their land as unemployment insurance. Legal experts in Romania have noted that the law regarding the legal movement of land does not favour the development of the land market. Furthermore, the low prices and lack of taxation limit extension of the land market. High land transaction fees also discourage land market activity. Leasing could be a way of circumventing this situation, but it is not yet popular in Romania. Bulgaria, too, has low land prices, although they have increased slightly in recent years and the government has now created an agency to stimulate the land market, which could include state purchases of land to decrease supply.

Western CIS

The Republic of Moldova has no structural barriers to land transactions. Despite this fact, there are still very few purchase and sale transactions. Although the Russian Federation and Ukraine legally recognize private agricultural landownership, land sales are restricted both by law and in practice. For example, in Ukraine, the size of agricultural land plots is restricted until 2015 and foreign citizens and legal entities cannot acquire agro-industrial lands - they can only lease land. Furthermore, until 2007, Ukrainian citizens must demonstrate agricultural knowledge or a relevant background to be able to purchase land (Nitsevych, 2005). Belarus does not allow land transactions for agricultural land.

CIS Transcaucasus

In Armenia and Azerbaijan, there are no legal barriers to land transactions, but fewer than 1 percent of the respondents to a nationwide survey in Armenia reported buying or selling land. Purchase and sale in Armenia is constrained by the high cadastral value of land fixed by the government, which is well above current market prices, and the need to pay a substantial tax in cash based on the cadastral value when registering transactions. In Georgia, the law on agricultural landownership has been amended to make it easier for landowners to sell, mortgage and lease, and for leaseholders to engage in transactions relating to agricultural land, even while leasing it from the state or private citizens. In Georgia, at least 3 000 agricultural land sales have taken place since the beginning of 2000, although this figure still represents less than 1 percent of agricultural land holdings and less than 2 percent of all agricultural households. In both Azerbaijan and Georgia, foreigners are excluded from the land market.

The Balkans

Land transactions and land markets in the Balkan countries are infrequent, inefficient and risky. In The former Yugoslav Republic of Macedonia, the land market is dominated by the public sector, particularly with regard to the sale and lease of state-owned land (Dimova and Cenova, 2004). Inheritance is the primary type of transaction for agricultural land, whereas purchase and sale are more common for urban lands. Leases are a third (minor) source of transactions, although in some regions up to 25 percent of all farmers lease in land. Lack of access to credit was cited by farmers as the most frequent constraint to leasing in land. Notably, the price for rural agricultural land is very low. In Serbia too, the land market is only active in urban areas and prices for rural agricultural land are extremely low (Bozinovic, 2004).

In Bosnia and Herzegovina, in addition to the typical constraints seen in transition economies, there are several other reasons why land transactions are rare. First, there was extensive destruction of property during the war - an estimated 10 000 ha of arable land is unusable because of mine infestation and bomb damage. Second, the focus on return of property and the related application, hearing, decision and execution processes makes it difficult to establish title to many parcels. Finally, many displaced property owners would be in minority status if they were to return to their formerly occupied properties and, as such, they are showing no sign of wanting to return.

In Croatia, the agricultural land market was not legal until 1998. However, unclear landownership, poorly functioning leases, incomplete privatization of land used by former state agricultural companies and a lack of clarity in property laws have impeded the process of developing a functional land market. There are also major inconsistencies between the land registry and the cadastre. Continuing ethnic conflict and land disputes have also taken precedence over governmental focus on updating agricultural land law. Furthermore, people who have received land seem to be keeping it as a social safety net.

Albanian land markets have only begun to develop relatively recently owing to earlier restrictions on the sale of land. Between 1998 and late 2004, 30 000 transactions of agricultural land were registered and land sale records seem to indicate rising land prices (Lushaj, 2004). Before 1995, the sale of land was prohibited. However, informal sales were common, which caused titling and registration problems and increased insecurity. Foreign citizens still cannot purchase land, but they may lease cropland. Current obstacles to a viable Albanian land market include public uncertainty as to whether land can be properly bought and sold, and a fear of divesting the family of land.

Mortgage

EU accession

All the EU accession countries have quite limited land-based lending. The primary reason is that the market for land is reasonably new and is still underperforming. In some countries, land titles are not clear or secure. In others, land prices are very low. While in many countries this situation has changed in the last few years, banks still perceive titles to be insecure. Several EU accession countries do not have separate mortgage laws, but instead have mortgage rules within the Civil Code, the Code of Civil Procedure, the Commercial Code and Laws on Contracts. As these separate laws are amended to meet the needs of a market economy, the foreclosure rules and priorities are often conflicting.

In Estonia, Hungary and Lithuania, mortgage lending is at an early state of development and is severely constrained by the restriction on landownership by legal entities, because banks are less willing to take land as collateral if they cannot take ownership of the land in foreclosure proceedings. At a minimum, this would probably lead banks only to lend on the security of agricultural land that is clearly marketable and has value well in excess of the loan amount, so that sale to a third party at an acceptable price at a foreclosure auction would be virtually assured.

In Slovenia, credit services have been slow to develop, even though land prices approach the highest levels in Europe and are also high compared with the land profitability prospects. Land markets in Slovenia have been hampered by the lack of a mortgage-banking infrastructure. The central problem is the inability of the financial sector to engage in true, long-term secured lending because the sector is undercapitalized and cannot afford to have money lent out for extended periods of time.

In Slovenia, there are no laws, statutes or regulations that specifically deal with mortgage banking services or protecting consumers.

Western CIS

In the western CIS countries, there are few private landowners and few land transactions - mortgages of agricultural land are therefore very limited. In the Republic of Moldova, the Law on Pledge was amended in 1999 to make land mortgage easier. In the Russian Federation, mortgage law excludes agricultural land. In Ukraine, the new Land Code provides the right to pledge (mortgage) privately owned land. However, only Ukrainian banks may act as pledges (mortgagees) and then only if they comply with the requirements established by the law. The Belarus Civil Code of 1999 relaxed leasing and mortgage restrictions, and leaseholders can now sublease and mortgage their use rights to land. However, the mortgage of lease rights is highly unlikely in a non-market economy.

CIS Transcaucasus

Although mortgage legislation has been passed in the Transcaucasus states, few, if any, mortgage transactions have taken place.

The Balkans

Mortgage lending is rare in these countries. Although all the countries have laws that would theoretically permit mortgage lending, none has the necessary support structures (reliable and searchable mortgage registration systems) or support institutions (courts prepared to conduct fair foreclosure proceedings, for example) in place to allow mortgage lending to thrive.

The former Yugoslav Republic of Macedonia has laws allowing and regulating the right of mortgage, but the lack of development in the land market and the lengthy procedures for foreclosure have made mortgages very rare. A new 2004 law of contractual pledge addresses regulation and registration of mortgages, and aims to increase the number of mortgage transactions (Dimova and Cenova, 2004). Serbia currently has a draft law on mortgages. It is worth noting, however, that although banks in Serbia do provide mortgages for real estate investments, none of them process mortgages for agricultural land owing to the very low prices of land (Bozinovic, 2004). In Croatia, there is little, if any, mortgage lending. The problem of loan collateral in agricultural lending is aggravated by the lack of a functional land market and poor land registers. Monopolistic market structures, inefficient markets for farmers and inappropriate agricultural education and training further contribute to insufficient competitiveness (Tanic and Lonc, 2003).

The Albanian Civil Code provides for mortgage lending and the Immovable Property Registration System provides for the registration of mortgages. However, although banks accept land as collateral for agricultural production loans or housing purchases, they do not accept land as collateral for agricultural land (Lushaj, 2004).

LAND ADMINISTRATION -REGISTRATION AND TITLING SYSTEMS

EU accession

Government land administration programmes in the EU accession countries generally consist of land registration, land appraisal and tax administration, land use planning and, in some cases, consolidation programmes. Donors have placed a great deal of focus on registration in EU accession countries. There have been considerable differences among countries in the effectiveness of several key registration issues.

In the past, many of these countries had separate land and cadastral registers (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia and Slovenia) and in some cases (Lithuania) even a separate mortgage registry. In the case of Romania, two different registration systems were in place. Donors have worked assiduously to promote integration and modernization of the systems. However, as a result of the vast increase in the number of land parcels created during restitution, there can be a significant lag between land possession and title issuance.

In many countries, restitution of agricultural land has created small plots and has spatially dispersed land. These countries have struggled to encourage land consolidation without interfering excessively with the market. People who keep small shares of land as insurance are not interested in giving them up, and land consolidation in general, whether simple or complex, can be costly and difficult to implement without coercive tactics or expensive incentives for landholders.

Western CIS

The western CIS countries have all started registering land (with the exception of Belarus). However, land legislation requires registration in the state land cadastre and demarcation of boundaries on the ground. In addition, the State Registration Act (2002) requires that both real land rights and contractual rights are registered (Vaskovich, 2005). In the Russian Federation, implementation of land registration has been problematic, partly as a result of a lack of funds to survey land shares. In the Republic of Moldova, privatized agricultural land was registered at the village level, but the law provides that such land can be the subject of transactions only if it is also registered in the regional registry. A three-year United States Agency for International Development (USAID) project is currently under way (2003-2006) to rectify the errors of past privatization by working with the National Cadastre Agency in the Republic of Moldova. The goal of this project is to address questions regarding how land plots were previously divided, and then to create more certainty about parcel ownership, as well as to offer general assistance with facilitating land market transactions. In Ukraine, the registration system is still underdeveloped and Ukraine estimates that a five-year donor-funded project will be necessary to complete the land registration of titles.

CIS Transcaucasus

Land titling has been a topic that both the World Bank and USAID have emphasized in the CIS. Azerbaijan has a single centralized land cadastral documentation system. In Georgia, the government privatized and transferred many land parcels to rural households, but only began to register them in June 1999. In Georgia, USAID is providing assistance for land titling, including surveying, registration and titling parcels in 51 regions of Georgia. By the end of 2001, more than 1 300 000 agricultural land parcels and 9 800 enterprise land parcels were registered. Furthermore, the sale of 2 000 enterprises and 3 700 agricultural land parcels was supported (Ebanoidze, 2005).

USAID also supported a three-year land titling and registration project in Armenia. However, the process of surveying and preparing titles has been markedly slow and inefficient.

The Balkans

The status of land titling and registration systems varies but is generally underdeveloped and unreliable, with the exception of Albania, where land registration is nearing completion. Albania is also one of the few countries to have created a government agency (Immovable Property Registration System) to focus directly and solely upon land and land market support. This agency was the result of a USAID land registration project that was active from 1994 to 2001. By November 2000, all district registration offices were open and operating, and it was estimated that 65-80 percent of all properties would undergo first registration by the end of 2002. This goal has since been moved back to 2006 (Lushaj, 2004).

In The former Yugoslav Republic of Macedonia, the initial registration of parcels has not been completed and subsequent transactions have not been recorded. It is estimated that within six years, the real estate cadastre will replace the land use cadastre (Dimova and Cenova, 2004). Bosnia and Herzegovina have had a framework in place for land titling and registration since the 1930s. Land registers are updated manually and many transactions have not been recorded because of political instability and a 15 percent purchase tax on real estate. Although modernized in 1984, the system was only 10 percent functional in 1999 and the lack of comprehensive registration is still an obstacle to a functional land market. Croatia has a cadastral and land registration system, but both of them are incomplete. The World Bank is currently financing a project to aid completion. The World Bank is also helping to finance the establishment and modernization of the real estate cadastre and registration system in Serbia to increase confidence in the system and to lower land transaction costs (Bozinovic, 2004).

CONCLUSION

Most Eastern European countries are progressing towards private ownership and management of land and a viable land market. The process of change varies with each country, based on their historical situation and current political will.

It is remarkable to consider the progress that has been made since 1989-91 in terms of the progression of agricultural land privatization and titling. Essentially, the restitution process in almost all instances is nearly complete and, where it is not finished, progress continues at a rapid pace. The second phase of the restitution or privatization process is under way in a number of countries. This entails determining how to dispose of state-owned lands that were unclaimed or never subject to privatization. In most cases, disbursement of these lands now involves their sale on the open market. In other instances, where land shares were issued, the second phase of the process has involved demarcation and issuance of title to shares, a process that is under way in a number of countries, but that has stalled in others. In most countries, agricultural land can now be legally purchased and sold.

Despite significant progress in privatization efforts, agriculture is still dominated by large, collective-style farms in most countries. Farm breakup did not necessarily accompany the privatization process and overall there has been little change in the structure of the average farm. In some countries, cosmetic reorganization of farm assets did occur, but this has not proved to be a meaningful step in the transition to small family farms.

Land markets in Eastern Europe have been very slow to develop. Even though agricultural land is freely transferable in many countries, land markets are generally underfunctioning. Many of the emerging markets are still hampered by the slowness of the initial privatization and titling of land. Lease of agricultural land is much more common than purchase and sale, and there are only a few countries where land sales are on a par with Western Europe. Furthermore, prices vary widely across the region and within countries, and are often quite depressed. Finally, almost all countries have sought to prohibit the sale of land to foreigners, although this prohibition is gradually being lifted.

The development of land-based lending through mortgage in the region has been predictably slowed by the lack of functionality in the purchase and sale market. Other factors that have served to limit access to credit include inadequate legal frameworks for mortgage, poor title security, low land prices and banker reluctance.

In contrast, modernization of land administration practices is an area where significant progress has been achieved throughout the region. In part, this progress has been donor driven, resulting from donor emphasis on titling and registration projects. Although these projects were designed in part to foster greater title security, they have not yet borne fruit in terms of achieving traction in stimulating agricultural land markets.

Overall, much systemic progress has been made over the past 15 years in paving the way for functional agricultural land markets, most notably in the privatization of land and the development of land administration systems. These legal and policy changes have laid the groundwork for the continued improvement in land market activity. Future improvement depends on political will and the support and development of institutions that will foster land market activity.

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Réforme agraire et marchés fonciers en Europe de l'Est: rapport de situation

Le présent article examine la situation des marchés fonciers agricoles dans 23 pays d'Europe de l'Est, en mettant l'accent sur les différences régionales. Il examine en particulier trois principaux domaines qui sont des indicateurs des progrès du développement des marchés fonciers: i) le cadre général et législatif de la réforme foncière; ii) les options en matière de propriété foncière; et iii) l'administration foncière, en particulier le cadastre et les titres fonciers. De façon générale, les marchés fonciers d'Europe de l'Est se sont développés très lentement. Bien que les transferts de terres agricoles soient librement effectués dans beaucoup de pays, les nouveaux marchés ont été freinés par la lenteur initiale du processus de privatisation et d'attribution des titres fonciers. La location des terres agricoles est beaucoup plus fréquente que l'achat et la vente, et rares sont les pays dans lesquels les ventes sont équivalentes à celles des marchés d'Europe occidentale. Mais dans l'ensemble, des progrès importants ont été réalisés depuis une quinzaine d'années vers la création de marchés fonciers agricoles fonctionnels, notamment par la privatisation des terres et le développement de systèmes d'administration foncière. Ces changements d'ordre juridique et général ont ouvert la voie à l'amélioration constante du secteur du marché foncier.

La reforma agraria y los mercados de tierras en Europa oriental: informe de la situación

En este artículo se examina la situación de los mercados de tierras agrícolas en 23 países de Europa oriental, haciendo especial hincapié en las diferencias regionales. Se estudian tres temas principales como indicadores de progreso en el desarrollo de los mercados de tierras: i) el marco legislativo y de políticas para la reforma agraria; ii) las opciones de titularidad de las tierras; y iii) la administración de las tierras, en particular el registro y la titulación. Por lo general, los mercados de tierras en Europa oriental se han desarrollado de forma muy lenta. Aun cuando las tierras agrícolas se transmiten libremente en muchos países, los nuevos mercados se han visto frenados por la lentitud de la privatización inicial y la titularidad de las tierras. El arrendamiento de tierras agrícolas es mucho más común que la compra y venta y sólo en unos pocos países las ventas de tierras se encuentran al mismo nivel que en Europa occidental. No obstante, en general se han realizado grandes progresos sistémicos en los últimos 15 años hacia la consecución de mercados de tierras agrícolas funcionales, muy singularmente en la privatización de las tierras y en el desarrollo de sistemas de administración de las mismas. Estos cambios jurídicos y en las políticas han sentado las bases para la mejora constante de la actividad en los mercados de tierras.