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. Last Updated: 07/27/2016

Private Land Ownership Shrinking

While the nine-year wait continues for the government to set the rules for the conversion of large tracts of the country from public to private hands, the number of hectares owned by the state is actually growing.

According to a new report by the Federal Land Cadaster Service — the body charged with monitoring land ownership in Russia — the amount of private property in the nation shrank by 400,000 hectares from 1998 to 1999.

In 1998, the first year it issued a comprehensive study of nationwide land ownership, the service calculated that 130 million hectares of land — most of it in the rich farming areas of the south and southwest — was owned privately by individuals and nongovernmental entities.

By Jan. 1, 2000, only 129.6 million hectares, or 7.6 percent of the country, was owned privately.

The new report attributes the decline to the liquidation of bankrupt farms and enterprises and, in many cases, the voluntary return of property to the state.

Gerald Gaige, chief real estate consultant for Arthur Andersen, said Russia’s 1998 financial meltdown was probably the main reason for the number of bankruptcies and subsequent liquidations that resulted in the state regaining ownership of the land.

In the mid-’90s the agricultural industry received millions of dollars in aid from the West and was the testing lab for numerous projects that resulted in the transmutation of many Soviet-style kolkhoz and sovkhoz collective farms into "corporations" with allocated land as their major asset.

"After conversion to the private sector, many of the agricultural enterprises suffered from a lack of business incentives — like the lack of financing and unorganized markets — that resulted in their failure," said Gaige.

To add to the problem, the government has for years consistently failed to enact a Land Code, which has prevented the development of a legitimate land market.

"The government is still holding almost all land ownership rights and has not implemented a real privatization effort," Gaige said.

According to the Federal Land Service, the government owns an estimated 1,709 million hectares, or 92.4 percent, of all the territory in the country.

Vladimir Romanov, a top adviser to the service, said Tuesday that enacting a Land Code is one of the most important tasks facing the government.

The Russian Constitution provides for private ownership of land, but the legislative framework — the package of legislation collectively referred to as the Land Code — has yet to be considered by the State Duma.

The current Land Code was passed in 1991 and does not allow for private land ownership, thus contradicting the Constitution.

In its latest economic report on Russia, McKinsey Global Institute called the absence of a legitimate Land Code one of the country’s main obstacles to economic health. "The absence of fundamental principles on property and leasing relations is conducive to the increase of investment risk in Russia," the report said.

Despite the pressing need for it, however, many specialists are not optimistic that the present government will produce a new Land Code.

"I don’t have any foundation to expect the Land Code to be passed soon," Vasily Uzun, professor and chief consultant at the All-Russia Agrarian Institute, said Wednesday.