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. Last Updated: 07/27/2016

Land Sales Are Inching Forward

Despite vague and incomplete legislation, land sales can still proceed wherever local administrations are willing, land law experts say.

However, buyers should be on the lookout for legal fishhooks if they don't want their purchases to be made in vain, the experts said at a seminar on Dec. 5 organized by law firm Pepeliaev, Goltsblat & Partners and The Moscow Times.

The participants said that the Moscow city government has shown a lack of will to implement land sales, but that other administrative regions are eager to attract property investors.

Andrei Goltsblat, managing partner at Pepeliaev, Goltsblat & Partners, said City Hall has not yet begun complying with federal laws on land, but it is just a matter of time before the city falls in line.

"I don't know long it will take it because Moscow is a very special city, but in the end the law will come into full force," Goltsblat said.

The city's reasons for the delays in putting the laws on private land ownership into practice are purely political, said Vladimir Zagvyazinsky, deputy head of the Moscow region's property department, responsible for land issues.

"The basic element of all economic reform has been privatization," Zagvyazinsky said. "It has largely finished but it went through without land and land has, in most cases, remained state property.

"Opponents of land sales have argued that the land is our mother, but that is no basis for business," he said.

Zagvyazinsky said one of the greatest difficulties in organizing sales has been determining whether state land belongs to the federal or regional authorities. The Property Ministry has issued various regulations to clear up this issue, but has still left would-be investors confused, he said.

"This lack of clarity is likely to persist for some time," he said.

Nevertheless, land sales are already possible outside of the capital. The Moscow region's government has managed to develop procedures to assist investors obtain land, Zagvyazinsky said.

Zagvyazinsky warned property holders that even if they have been given permanent and unlimited rights on the use of their land, they might not be able to purchase or lease the land under the existing terms.

Property rights have often been awarded by order of district governments, but starting in 2004, these district orders will no longer suffice, he said. All purchases or leases of property will require a regional registration.

Goltsblat agreed that the Land Code could be used to buy land now. Although, he added that the code requires several additions and amendments before it can be used without certain difficulties.

Among the additional requirements are a list of border areas in which foreigners may not own land and a clarification on the "correction factor" by which the cost of land bought under enterprises will be multiplied. The Land Code stipulates that the correction factor will raise or lower the cost by up to 30 percent, depending on the nature of the enterprise.

Goltsblat recommended that prospective land owners pay the full 30 percent in order to protect themselves from any future attempts to annul a property purchase.

Buyers can also protect themselves by not only requiring a certificate of sale, but also asking for a record of the sale from the local land registry, he said.

Anders Binnmur, deputy general director of IKEA Russia, said the Swedish furniture retailer had found that forming relationships with local authorities was the key to sealing land deals in Russia.

IKEA's approach has been to explain to the authorities what the retailer wants to do with a land plot and what the benefits to the region would be, and then to listen to what the authorities want, Binnmur said in a telephone interview after the seminar.

"It's not only a matter of rules and regulations," he said. "Everybody implements differently, and they read the rules differently; it's about understanding what the other side is saying.

"Each case has to be handled on its own," he added. "Although you can master what is written in the laws, you have got to form a relationship with the seller, which at the moment is the local government."

IKEA owns two stores in Russia and is in the process of buying the land under the stores.

It hopes in the future to buy plots outright rather than entering an investment contract, then leasing the land and eventually buying it.

The furniture retailer plans to have several stores in Moscow and St. Petersburg, and 12 others in Russia's largest cities.