The development of the real estate market is of course directly linked to the development of the land market. Well thought-out legislation, transparency and cooperation from local authorities enable the developers to focus on the actual task at hand. In Russia this type of ideal business environment is still a long way off but in some cities we are seeing a gradual shift towards a modern, more professional land market.

Today the central legislation which regulates the land market is: the RF Land Code, RF Urban Development Code and local laws and regulations. The key legislative revisions and additions for 2007 and 2008 are:

In March 2008 a new state cadastre law will come into force (No. 221-F3). It will revise the existing system for recording real estate property. The current system for the technical registration of buildings, structures and the state land cadastre system will be replaced by a single state cadastre registry for all real estate.
A new Land Tax chapter has been added to the RF Tax Code which is based upon the cadastre value for land lots. The new law will regulate the maximum tax rate which municipal authorities can set as well as the payment deadlines and procedures.
In the summer of 2007 new Federal Law was passed, according to which land located beneath privatized real estate must be registered into ownership or lease by January 1, 2010. If an entrepreneur cannot buy the land for the established rate then the law provides a right to acquire the leasehold.

Today the Russian land market cannot be described as fully formed because the procedures for assigning land have not been standardized. There are a number of different ways in which land can be alotted – local authorities awarding development contracts, state institutions disposing of unwanted assets and private sales.
“Of course the basic conditions for land transfers are regulated by Federal laws but local authorities can exert a considerable influence and create regulations which govern the entire process. In addition, in small cities and in the regions administrative leverage can be very significant. In some cities the local authorities boost the entry of outside investors to the local market while in others the local authorities put a spike in the work,” says Ruslan Suvorov, head of the industrial real estate department at Praedium.

Northwest
The NW capital, St. Petersburg, is the leader when it comes to land privatization. Since 1995 building owners have been able to acquire the land beneath them and today the land under most factories and state farms has been acquired and even resold.
The main source of land in the center of St. Petersburg and in the industrial belt is industrial and agricultural areas. “Market participants prefer to acquire land lots on the secondary market with developed building service infrastructure,” says Dmitry Sazanchikov, marketing and regional development director at GVA Sawyer.
According to Sergey Belov, deputy director of the appraisal department at Jones Lang LaSalle, St. Petersburg offers the best investment climate and administrative support with regard to land distribution. The municipal authorities regularly organize land auctions, “There are some problems with lots located beneath commercial developments in the city center but this is understandable, since properties of historic value need to be municipally regulated,” says Mr Belov.
Among the younger cities (from the land market development perspectives) in the NW region Syktyvkar, which is currently developing its master plan to be completed in 2010, is of particular note. Today the land market is actively developing, and land lots are being allotted on the basis of competitive development contracts organized by the municipal authorities. “ The specifics of the local land market include high construction density and a shortage of city land on the primary market,” says Mr Sazanchikov.

Central Region
“In the Moscow region land is divided up between several large landlords who are only now starting to think about its development. The secondary market i.e. transactions between landowners has not yet developed and only small areas are sold to small-scale projects,” says Mr Belov. Many landowners have announced development plans and launched projects, since undeveloped land has ceased to be attractive from an investment viewpoint.
“The main problems for the Moscow region land market are the long line of private owner-intermediaries, a lack of knowledge on the part of landowners and professionalism on the part of intermediaries, and frequent representation of landowners’ interests. The positives include the fact that the Moscow region has approved the principle of changing the category of land and the use of agricultural and industrial land which will make it possible for investors to develop land between populated centers ,” says Olga Kuzyakina, director of the department of land relations at Cushman & Wakefiled Stiles & Riabokoblyko. Other cities in the Central region have also started to sense the imminent saturation of the Moscow market. At the risk of generalizing it seems that development activity will mainly depend on the readiness of local administrations to receive and support investors.

Southern Russia
Today throughout Southern Russia and the country as a whole a lot of attention is focused on the city of Sochi as the official host of the Winter Olympics 2014. The city’s recent success has prompted a hike in land prices in Russia’s Riviera and its surroundings. The Sochi authorities swiftly reacted by announcing in July that the privatization of land lots was to be suspended since the resort area is a specially protected natural preserve.
“Previously it was possible to acquire land in all the regions of Sochi and the most expensive lots were located in Central Khosta, Krasnaya Polyana and Adler districts. The cheapest area was Lazarevskoe district. Now landowners can only acquire the leasehold right to land for a period of 49 years and all applications must be processed before January 1, 2008,” says Mr Sazanchikov.
It should be added that there is virtually no primary market in Sochi. Land is divided between private individuals and hotel and sanitorium owners. In order to build the sport and tourism infrastructure for the Olympics, land will be requisitioned from owners and tenants who will be compensated in keeping with the legislation.
The second city, also responding to the oncoming Olympics, is Krasnodar, where the center is going to be redeveloped and the entire population will be resettled.
According to Alexander Trifonov, director of client services at lawfirm, Megapolis Legal, today the land market in Krasnodar is being supplemented from three main sources: agricultural enterprises, former industrial enterprises or entire industrial areas on the outskirts of Krasnodar and neighboring cities and private residential construction.
Market analysts comment on insufficiencies in the legislative base for governing land transactions which is creating corruption and a lack of transparency in the land market.

Volga Region
One of the largest cities is Volgograd, boasting of a stable situation in the land market. “In spite of a sufficiently developed regulatory base, market participants are not rushing to get involved. The position of the new municipal administration is not very clear. They have taken steps to resolve the stagnation in the real estate market. In particular in 2007 the long-awaited Master Plan was approved. At the same time the announced review of the land allocations in the previous period is not very inspiring,” says Andrei Lunev, general director of Regionalnaya Pravovaya Kompaniya.
“Today in a number of regions the procedures for changing the category of land are not being applied, and taking land out of agricultural stocks is extremely difficult. One such region is Samara. All the land situated along the main transport route (Moskovskoye Shosse) is still classified as farming plots and so the location of industrial parks is prohibited. Even areas near the airport which would be of greatest interest to developers have not been classified as industrial land,” says Ms Kuzyakina.

Urals
The Urals is one of the most promising Russian regions demonstrating sturdy economic growth. In the capital, Yekaterinburg, land prices rose by 100% in one year and experts anticipate they will increase by even more this year. New investors are coming to the city and the municipal authorities are assisting firms to develop new areas. However there are a number of problems which include an immature legislative base and an upsurge in shady dealings, which result from the missing demarcation of land titles. “Different regions and municipalities have not yet demarcated their respective ownership rights, which leads to regular conflicts between different parties,” says Alexei Golovchenko, head of Enco.

Siberia
The second biggest Siberian city is Omsk located on both sides of the river Irtysh. Local developers comment that obtaining land for big projects is almost impossible because a year ago everything was divided up between local and federal developers. The municipal authorities are focusing residential real estate which is leading to a boom in the commercial land sector. There is vacant land on the left bank and residential construction is actively underway there. According to the development plan, the area will soon house more than half a million residents.
Another Siberian city divided by a river is Krasnoyarsk. Traditionally the right bank of the Yenisei river is primarily commercial and the left bank, residential. The local authorities try to develop Vzletki district as a new city center and currently it has a lot of vacant construction land, which can be obtained only based on leasehold because it has the status of natural preserve.

Russian Far East
The Russian Far East is still just starting to develop. Cities like Khabarovsk and Vladivostok have been feeling the effects of national economic growth for some time. However its remoteness puts the region at the bottom of the list when it comes to investment attractiveness. The land market is currently in an embryo but the authorities are interested in attracting investors. Local market players comment on a preponderance of informal cooperation mechanisms with local authorities including issues surrounding the allottment of land lots.