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. Last Updated: 07/27/2016

Moscow Moves Cautiously Toward Land Sales

After more than two years of debates and law making, the Moscow Land Committee has announced it is prepared to start selling land via its pilot project in Zelenograd.

Thirteen land plots ranging from 0.1 to 3.6 hectares - 12 hectares altogether - will be sold this year at an open tender or tenders for a starting price of $260 per a hectare, Interfax quoted Viktor Damurchiyev, head of the Moscow Land Committee, or Moskomzem, as saying Tuesday.

According to law firm Baker&McKenzie, each parcel is assigned a predetermined land use under the overall plan for city development and includes retail space, a public building, warehouse and industrial facilities, a gas station and a water park. The plots are deemed to be of non-strategic importance to the city and are unencumbered by any third party rights.

Damurchiyev said that despite the construction being preplanned for the sale, their nature may change depending on the will of investors. However, ecologically unfriendly enterprises will not be allowed to be built.

The tender winners will execute a purchase-and-sale agreement for each land plot. Upon completion of construction, the landowner will automatically acquire ownership of the constructed buildings and facilities.

However, there is a fly in the honey pot.

Moskomzem reserves the right to withdraw the land "for state and municipal needs," Baker&McKenzie said in a statement. "Upon the agreement with the landowner, the land may be either replaced with a plot of equal value, or the owner may receive compensation at the market level for the land and all facilities constructed as of such withdrawal.

"Some investors will doubtless be skeptical of such a provision, especially given the vague definitions of its scope and the mechanisms for such compensation," Baker&McKenzie said.

Damurchiyev said Moscow plans to raise about $4 million for the city coffers from the sales.

The law on the pilot project to be implemented in Zelenograd, 35 kilometers northwest of Moscow, has been already signed by Moscow Mayor Yury Luzhkov.

Sergei Andreyev, head of the Moskomzem's land policy department, said that the first draft of the law had been vetoed by Luzhkov, who demanded two amendments: to change the seller from the Zelenograd district authorities to Moskomzem and to direct all the revenues from sales to city coffers as opposed to earlier plans to distribute them in a more complicated way.

Andreyev said the tender will take place after the presidential elections but denied that the two events are connected politically.

Damurchiyev said a few applications have already been obtained by Moskomzem, including some from foreign investors who, under the final version of the law, can also buy land. The first draft had banned sale of the land to foreign entities and individuals.

Andreyev said, "There is no such ban in the federal legislation. It was included in a version of the Land Code that was passed by the State Duma but was vetoed by [former] President [Boris Yeltsin].

"The problem is that our Civil Code says that some restrictions on who can bid for land in Russia may or may not be imposed. So with our Moscow law we did not impose these restrictions. But when or if the federal law introduces such restrictions, it will become a direct norm and will have to be enforced.

"I can't deny it will be introduced," Andreyev said. "But the situation in the State Duma can never be predicted."

Moscow is behind other cities such as St. Petersburg, Samara and Nizhny Novgorod in land sales, and Luzhkov has always preferred leasing to selling.

In Moscow one can buy rights to lease land for five years or 49 years. However, a lack of investment and interest by investors made Luzhkov reconsider.

After the experiment in Zelenograd the Moscow Mayoralty will decide on further land sales in Moscow.

Gaik Nersesyan, marketing and advertisement manager with real estate company Western Group Oncor International, said he expects demand for the land in Zelenograd to be high.

"There must be a big demand for the Moscow land. This experiment is a wonderful beginning and I think may turn into a boom of such sales. Companies will obtain the opportunity to create fully owned businesses and I hope it will reduce the cost of lease in Moscow."