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. Last Updated: 07/27/2016

Unilever to Be First Foreign Firm to Buy Land

A St. Petersburg subsidiary of the Anglo-Dutch giant Unilever is about to become the first foreign-owned company to buy land in Russia in more than 80 years in a move that city officials said Wednesday should kick start the sale of real estate.

Severnoye Siyaniye, a cosmetics company almost wholly owned by Unilever, last month signed a contract with the St. Petersburg Property Fund to buy the 7,959 square meters of downtown land on which the premises are located, said Yevgeny Shepelev, head of the fund's land-sales department.

"We feel that in these dangerous times it's better to be the complete owner of the property on which we stand," said Yury Borisov, general director of Severnoye Siyaniye, which translates as Northern Radiance.

Under communism, state ownership of land was an article of faith. Moves to sell off land have met with fierce resistance.

While the St. Petersburg deal is not the first case of land purchase in post-communist Russia -- there are a handful of isolated examples in Vladimir, Samara and Yaroslavl -- consultants say the move is just the first of a wave of land privatization in St. Petersburg. A number of other St. Petersburg companies have already applied to buy their land.

"It's always difficult to be the first," said Borisov. "The second and third who go through the process will have it easier."

For many Russian companies, the ability to buy their land provides them with an asset that can be used as collateral to raise money for investment. It also avoids the problem of paying rent to the city, which can be arbitrarily hiked at any moment, Borisov said.

Business consultants say the development is likely to make St. Petersburg an attractive option for investors in comparison to Moscow, where the city government maintains a tight grip over land.

"If enterprises in St. Petersburg hold title over their land, they will have an important competitive advantage over the other cities of Russia," said Don Elliot, a real estate lawyer with Tadco, a U.S. company that has been working with the city property and land committees.

St. Petersburg officials have spent the last six months devising procedures for selling land, which they have promoted as a means of developing local capital and real estate markets.

Land sales in the city got the go-ahead from a directive issued by Mayor Anatoly Sobchak last autumn, said Maxim Kalinin, a St. Petersburg-based lawyer for Baker & McKenzie.

The sales were made technically possible by President Boris Yeltsin's decree last year on the second stage of privatization, but a lack of regulations and administration to oversee the process at a local level delayed the first sales until recently, Kalinin said.

A comprehensive draft land code is still being discussed by the State Duma, but the potential consequences of this bill are still unclear, he said.

St. Petersburg's desire to speed up the pace of land privatization is being hampered by federal controls on land prices, Kalinin said.

Under current legislation, the price of land is set by the central government and is often too high for newly privatized companies, he said.

"St. Petersburg authorities want to meet companies' demands halfway," Kalinin said. "But prices are exorbitant, and local authorities can do little to diminish them."

According to Shepelev of the city's property fund, the price of a square meter of land in St. Petersburg ranges between 60,000 rubles ($120) and 690,000 rubles, depending on the location.

While officials declined to say how much Severnoye Siyaniye paid for its land, a local newspaper Delovoi Petersburg reported the company had agreed to hand over 3.8 billion rubles for its centrally located site, five minutes drive from Nevsky Prospekt.

The site mainly houses the company's offices. The manufacturing facility is located further out of the center.

Shepelev indicated that the city may in future be more cautious about selling off land in downtown St. Petersburg.

"After privatization started, the city improved," Shepelev said. "Property owners are setting the city in order. What was falling apart before is glistening and sparkling now. But maybe we should restrict land sales in the center of the city."

In the meantime, companies are flocking to the scheme. Said St. Petersburg property committee chairman Mikhail Manevich: "You have to hurry."