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. Last Updated: 07/27/2016

Real Estate Reform Still Elusive

Despite dramatic changes in the laws governing real estate in the Russian Federation since 1991, it is widely agreed among investors that further reform and change are required. The familiar land-ownership right is all but unknown in Russia's commercial sector. A recent writer in this column described some of the steps taken by presidential decree that aim to improve the situation. So far, however, only domestic users of small land plots have benefitted.

The legal position remains unclear. One piece of legislation most eagerly awaited by real estate investors is a new land code. Until such a code is passed, the existing provisions of Russia's Civil Code that deal with land rights will not come into force.

Opinions differ on the issue of land ownership. For example, the Moscow City Government has declared that it will not support private land ownership until it has developed a method for establishing the sale price of what it regards as the city's primary asset. The city does not, however, appear to have ruled out the possibility of land ownership rights being available in the future. Local authorities elsewhere have told investors looking to purchase land that, although they would like to sell land, there is no established procedure for them to do so.

The Communist and Agrarian parties cooperated to pass a restrictive and, by reformist standards, reactionary land code in late 1995. Although the proposed code envisaged some private land ownership, it raised serious concerns about the ability of both foreign legal entities and Russian legal entities with foreign capital to acquire land ownership rights. It was vetoed by President Boris Yeltsin.

Recently, the Duma passed another draft code. Although it did set out in some detail the responsibilities of various levels of government in real estate transactions, it too contained serious restrictions upon ownership. It appears that the Duma is less concerned with commercial development transactions than the ownership of land in the agricultural sector. Yet again, this draft is less reformist than the existing -- but as yet not effective -- provisions of the Civil Code.

The document currently awaits consideration by the Federation Council. But the agriculture minister, who is expected to be one of the experts to give evidence to the Federation Council, said last week that no draft land code as restrictive as the current version under discussion would be approved by the Federation Council or signed by Yeltsin.

A new land code is not the only reform necessary in the real estate sector. Federal laws on the mortgage and the registration of real estate are also required. A new land code would, however, clarify many of the fundamental issues regarding land ownership.

So what effect will the outcome of the presidential elections have on this question?

The exact results of a Zyuganov win are difficult to predict, as his policy in this area remains unclear. It must, however, be assumed that his own views are closer to those of the Duma. But a Yeltsin win will not bring an immediate solution. Prime Minister Viktor Chernomyrdin, accepting the division of opinion on the land ownership question, last year suggested a referendum on the issue. Little or nothing has been heard of the proposal since that time, although it may prove to be the only solution.

Whether or not Yeltsin remains as president, the influence of the Communist and Agrarian parties in the Duma will remain the same. Therefore, if Yeltsin is re-elected, the issue is likely to take further time to resolve.

Adrian Moore is an attorney with Baker & McKenzie.