To rent out a plot of land, you will have to pay and become internet literate.
Ukraine's land market is opening in the summer of 2021, and the Verkhovna Rada is scrambling to pass the final bills. However, the sale of state-owned and municipal land will still be prohibited. The deputies have come up with a market-based solution, they write. News.
The Earth is leaving electronically
We are talking about a bill from a group of people's deputies (Servant of the People) - "On Amendments to Certain Legislative Acts Regarding the Sale of State and Municipal Land Plots or Rights to Them (Lease, Superficies, Emphyteusis) through Electronic Auctions."
Essentially, this is an update to the procedure for land auctions for state or municipal property.
What changes:
- All actions must be carried out through electronic auctions in the electronic trading network in real time;
- based on the results of the auction, a purchase and sale agreement, lease, superficies, or emphyteusis agreement is concluded with the winner of the auction who has given the highest price or payment for its use;
- The auction is held at the expense of the participants under an agreement between the organizer and the operators of the electronic platform;
- the amount of registration and security fees shall not exceed 30% of the starting price or annual fee for use of the site.
The previous tenant has a preferential right to the plot.
What is emphyteusis and superficies?
The parliament hasn't yet considered this bill. But once it reaches the parliamentary floor, they'll have a lot of work ahead of them, as over 800 amendments have been submitted. Moreover, passions around electronic auctions are already running high outside the Verkhovna Rada.
Grandmothers won't figure it out, and the fee is high
In early April, Ukrainian farmers plan to gather to discuss the final details of land reform. Electronic auctions are particularly controversial. As Mykola Stryzhak, president of the Association of Farmers and Private Landowners of Ukraine, told Vesti.ua, the electronic auction format effectively makes it impossible for people with limited computer and internet skills to participate.
"They'll legitimize what was stolen in the form of emphyteusis (long-term hereditary lease)," the expert suggests. "They'll deprive the elderly of the opportunity to participate in auctions themselves, because who's going to help them figure it out?" For example, by registering correctly on an online platform.
In addition, participation in electronic auctions will require a fee. The bill provides for the following mandatory payments:
- registration fee – 0,1% of the minimum wage as of January 1 of the year in which the announcement of the land auction is published;
- security deposit – 30% of the starting price of the sale of the land plot or its emphyteusis, superficies, or 30% of the annual rent of the plot (but not more than 2500 subsistence minimums for able-bodied persons as of January 1 of the current year).
Considering that the most modest plots currently start at $1,000 per hectare (according to the Ukrainian Universal Exchange) and reach up to $17,000 per hectare, the participation fee for landowners can be substantial. On one website currently hosting online land auctions, the security deposit ranges widely, from UAH 3,000 to UAH 1 million. Adding online representation fees (if the owner is not digitally literate), the total can be substantial. This fee also includes the operator fee for the online platform where the auction will take place. The Cabinet of Ministers will determine the amount and payment procedure for the platform operator (it will adopt the relevant regulations).
The first electronic land auction
The middle class in reserve
"Those who are richer have more opportunities at these auctions, although formally everyone is equal," notes Nikolai Strizhak. "There's no room for smallholders and farms in this emerging circle. They'll find it difficult to compete. And yet, it's precisely this middle class that underpins the country's prosperity."
Not everyone will be able to participate in such auctions, agrees Ivan Fursenko, First Deputy Head of the All-Ukrainian Association of Local Self-Government Bodies. Both price and digital literacy come into play. However, if you wish, you can enlist the services of a specialist if you have the funds to purchase the plots. Moreover, there is a bonus.
"Local authorities have the right to provide everything related to small plots free of charge. For example, to privileged categories or to those village residents who don't have a land share. Previously, they had to apply to the State Geocadastre, but now it will be up to the local council to decide," the expert recalled.
Electronic land auctions will replenish local budgets, asserts Lviv Regional Council Deputy Yuriy Doskich: "Communities need to be able to conduct transparent online auctions for land leases and sales. Why is this necessary? Only in this way can local governments obtain the highest price for their land. They can use these funds to maintain schools, kindergartens, medical facilities, and roads."
In the comments to this post, user Ivan Lesho defends poor landowners: "Without access to large equipment, how much tax will they pay? Have you thought about this?" Marta Gurska responds: "Poor landowners have the right to receive favorable government loans for equipment and become competitive, like farmers here in Poland. This should be a separate decision by the government or the Verkhovna Rada. But! The farming community must advocate for this."
According to her, in Poland, farmers were given long-term loans (25-30 years) at 3-5%.
Minus the human factor
While the state and communities will indeed benefit from electronic auctions, the main objective of this innovation is somewhat different, Dmytro Michurin, chairman of the Ukrainian Association of Young Farmers, told Vesti.ua. "The main objective is to make land-related corruption impossible. Automation will eliminate the human factor, as in the ProZorro system. If land is transferred to communities not selectively, but entirely, they will have full control over it, putting it up for electronic auctions. There will be competition—meaning prices will rise, which is beneficial for communities," he explained.
Moreover, according to the expert, the fact that each lot at such auctions will be at least 20 hectares will also benefit farmers: "This will be attractive to small farmers, opening up the opportunity to obtain a plot of land—currently, much land is concentrated in the hands of large agricultural holdings. Therefore, electronic auctions will not be beneficial to legal entities; they 'let in' small agricultural entrepreneurs."
"Pump up" the Internet
The pitfalls of electronic land auctions, however, lie in unexpected places. First, the availability, quality, and speed of internet coverage. Not everywhere in Ukraine has an internet connection at all, let alone a fast one, notes Michurin. Incidentally, the bill doesn't address what to do if there's no internet or it "cuts out" during the auction. Second, potential landowners or tenants will need to constantly monitor the auctions. This monitoring is time-consuming. It's possible that third-party entities (like realtors) will handle the monitoring and will then select land plots for a commission.
There's another important detail. Although land is currently sold through online auctions, in-person auctions are also taking place. Participating in these land auctions requires a physical presence. Electronic auctions will enable those with the financial resources to lease or purchase land throughout Ukraine, Michurin noted.
Beginners need support
And here the issue of small and beginning farmers arises. While the bill on electronic auctions is fundamentally anti-corruption, young farmers will still face challenges even in the electronic auction format, where the human factor is minimized.
"For newly established businesses, young people, or beginning farmers, the auction makes it virtually impossible to obtain a plot of land. This is simply because priority is given to competitive businesses already in the market," Dmitry Michurin fears.
The same principle will apply as with bank loans: priority will be given to solvent and established firms. "Additional government measures are needed: support for young farmers, access to credit, and government guarantees. We absolutely must introduce electronic auctions, but also consulting centers at the agro-industrial department level or in communities, so that farmers can come and receive advice and registration assistance. If the state takes on this function, that would be fantastic. If not, private entities will provide this assistance to farmers," the expert believes.
At the same time, he believes the state needs to determine the fundamental nature of the agro-industrial complex: is it purely a business or is it essential to the country's food security? Simply put, who are we feeding?
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