27 December 2015
The government took a giant step toward transparency this year by opening up databases for land titles and real estate property to the public | commentary by Oleg Boichuk, KyivPost

Transparency comes to real estate, land transactions

The government took a giant step toward transparency this year by opening up databases for land titles and real estate property to the public.

Doing business also got easier: most powers of the corrupt State Architectural and Construction Inspectorate – which issues building permits – were stripped.

Private notaries now have the rights to compete on equal footing with their state counterparts.

A property tax was introduced and the minimum lease term on agricultural land was extended to seven years, and 10 for irrigated land.

It will take the next year to provide a proper assessment of these measures, particularly those laws passed in line with decentralization.

Public registries

Making the land and real estate databases open to the public in July also introduced a significant law enforcement tool. It helps identify the misappropriation of state funds and proceeds of bribery among state officials.

Public information on real estate transactions is also a normal part of a market economy, helping government officials assess the values of assets for taxation.

“A few years ago it was considered dangerous or impossible to build a registry and open it to the public. But that turned out to be political color,” said Oleg Boichuk, counsel at Egorov, Puginsky, Afanasiev & Partners.

Searches can be made by individuals as well as property and is more transparent than databases in many Western countries, such as the British Land Registry where searches are limited to properties.

“It’s good for prosecution. It’s good for transparency,” said Roman Drobotskiy, a senior associate at Asters law firm. “I understand there might be privacy issues but right now maybe it's necessary. Maybe in some time when we have change, it can be reduced.”

Assessing decentralization

As part of a wider policy to delegate more authority and functions to regional and local governments, parliament voted to transfer almost all land and real estate powers from the State Architectural and Construction Inspectorate to municipal authorities. The central body has been left to oversee “significant objects” such as power stations.

Rights to a land plot and a construction permit can now be obtained in the same local department. The idea is to channel the bureaucracy to local officials and make them more accountable.

However, not all local councils have applied for the rights to be transferred from Kyiv.

"We only expect to see (the effects) in the next year. Each city will be individual,” Boichuk said. “There are some concerns that it might increase corruption…but I think we should try this because the previous system was definitely not effective."

Lawmakers also granted private notaries the same rights as state notaries this year. In the past only the Ministry of Justice could register land plots and buildings. This highly centralized system made it a “slow and corrupt process” and businesses usually paid “a lot of money,” according to Aleksandra Fedotova, head of real estate at Spenser & Kaufmann law firm.

Property tax, revenues

The introduction of property tax in January was supposed to fill the budgets of local governments, but many have failed to introduce the tax and it doesn't seem to have affected many property owners. Local authorities only saw a 0.3 percent increase in their budgets from the measure by October, according to research conducted by the Ukrainian Reform Monitor, a Carnegie Endowment project.

Apartment owners of more than 60 square meters, and houses of more than 120 square meters must pay the annual tax. Local authorities define the rate, which cannot exceed more than Hr 27.5 ($1.20) per square meter, 2 percent of the official minimum salary, and exemptions. In Lviv, for example, authorities exempted apartments of 80 square meters or less from taxation and 200 square meters for individual houses.

It also doesn't affect the majority of apartment owners in Ukraine, as a typical two-room apartment is less than 60 square meters, according to Dobrinskiy.

Reluctance on the part local authorities to use the tax for its intended purpose is due to its unpopularity.

"We consider this stance irresponsible," Artem Shevaliov, deputy finance minister on European integration issues, told the Kyiv Post. "Local communities should use this tax to help their local budgets. The reason for [not doing so] is populism."

The Finance Ministry is also seeking to introduce a luxury property tax on properties larger than 300 square meters, requiring payments of roughly Hr 20,000 per year.

Land-sale moratorium goes on

Parliament’s decision to extend the moratorium on the sale of agricultural land until Jan. 1, 2017 disappointed many legal experts.

“It’s taken a lot of rights from owners who can’t sell their plots,” said Aleksandra Fedotova of Spenser & Kaufmann. “It’s all been made very political.”

Lifting the ban would mean that existing land owners and agricultural companies could use their land as collateral. But others argue that regulation should come first to assure the land is valued at market prices.

The Agriculture Ministry says it needed time, approximately a year, to prepare people for lifting the moratorium and in this way avoid “social tensions.” This includes drafting new legislation to allow regulators to oversee the sale of land.

“This isn’t the first time we’ve heard this. I understand that the land market law is important but it all depends on their intention and interest. Now they seem to be more interested,” Boichuk said.

“Many of my colleagues disagree but I am actually satisfied with the extension. I don’t feel we are really ready for this. We need to adopt proper legislation so that the land will be sold at market prices and villagers will be protected,” said Yuriy Zaremba, an associate at Avellum Partners.

Still, other changes such as the extension of the minimum agricultural land lease to seven years have made a difference to businesses. “They used to have to renew them every two or three years, now this has made things much easier…it means they can plan for crop rotation,” said Drobotskiy.

Isobel Koshiw, Dec. 27, 2015

 

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