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4. Land Transactions

a. Purchase and Sale

Purchase and sale transactions in agricultural land will not occur in the Western CIS countries unless legislation clearly allows such transactions, permission of local bureaucrats is not needed, and procedures for notarization and registration are simple and affordable. With the exception of Moldova, where registered land transactions are not uncommon, anecdotal evidence indicates that purchase and sale transactions do occur to a limited extent, but they are unrecorded and therefore not secure. (An exception is transactions in small plots in Russia.) Some of the surveyed Balkan countries also lack a supportive legal milieu and have gaps in and signs of poor craftsmanship of their land-related legal frameworks.

In the rest of the Eastern European countries, the legal framework for land transactions is adequate and the impediments to transactions relate to administrative process and market imperfections (see recommendations under administrative framework, state land reserves, farm restructuring, and mortgage). The most common legal restriction is the prohibition on foreign ownership of agricultural land which occurs not just in the Eastern European countries, but in many countries throughout the world.538 If the issues of privatization, farm restructuring, registration, and taxation are resolved, the lag in the land markets will progressively disappear. This has been true in Poland and Lithuania and to some extent Estonia.

i. Issue: Legislation allowing the purchase and sale of agricultural land is non-existent or unclear. (Russia, Balkans)

Policy options

ii. Issue: In Armenia, fixed prices set by the government are much higher than current market prices and impede the purchase and sale of land.

Policy Options

iii. Issue: In the EU accession states, the status of the restitution process is often unclear to market actors, and the assumption is that land tenure is insecure.

Policy Options

b. Exchange

In the Balkans, the most critical transaction is not purchase and sale or lease, but rather exchange of land, which is needed to expedite the settlement of displaced persons. In some of the surveyed Balkan states, post-war resettlement and repatriation challenges have been inhibited by difficulties facing those who would become or remain a minority within their previous home area. In Croatia, minority Serbs have faced discriminatory laws, courts, and communities during their attempts to return and reclaim property. At least as of early 1999, fewer than half of the Serbs in Croatia had been able to return to their pre-war homes.539 Housing commissions in place to facilitate the return of minorities to their property have been characterized as sluggish, corrupt, and ineffective.540 Similar difficulties have been encountered in Bosnia and Herzegovina, where only 100,000 of 1.76 million displaced persons have been able to return to their pre-war homes if they are now in a minority at those home areas.541

In Bosnia and Herzegovina, land swaps have been done by way of contracts and then later registered in the local cadastre.542 Lawyers create these contracts, and they are reported to have fixed fee schedules for the service. The courts have generally recognized these land swaps. While some government programs sanctioning land swaps based on minority status may not be acceptable because government sanctioned ethnic tension was at the heart of the Balkan conflicts, more regulated, transparent, monitored, and (thereby) equitable programs might be a possible policy solution. In any event, it seems clear that many of those cast out of an area through ethnic cleansing are not likely to return to their pre-war homes.543

Land exchanges have been used around the world to achieve a variety of public purposes, and the precedent of facilitating them is in place. Land consolidation programs frequently envision land exchanges as a way to create larger parcels. Exchange programs have been used to facilitate the movement of larger, more consolidated populations as well. For example, land exchange programs have been used in the Philippines specifically to deal with the problem of squatting and facilitate secure settlement.544 Local governments have encouraged and made possible the acquisition of occupied land through land swapping, land exchange, and direct purchase of settlements and land occupied by squatters.545 In the United States, trades of public land for sought-after private land are made in accordance with the Federal Land Policy and Management Act (FLPMA) and regulations set forth by the Bureau of Land Management.546 The primary regulatory requirements for these swaps are that public interest is well served and that the land exchanged be of equal value determined by an unbiased market appraisal.547

However, disadvantages to increasing formal land exchanges might include the potential for capture of the process and resulting ethnic discrimination, the high transaction costs created by cross-state cooperation, the diversion of resources from other needs (such as registration, privatization, or restitution), and the danger of supporting transactions made under duress.

i. Issue: Within several of the surveyed Balkan countries, repatriation and resettlement of displaced persons are subject to land-related processes that are cumbersome, not transparent, and, in some cases, discriminatory.

Policy Options

c. Lease

Land leasing policy is somewhat complex in the Transcaucasus and the EU accession countries. On the one hand, much of the land that is leased is state owned, and there is a desire to privatize this land and get it into the market. If the land is not privatized, there is a desire for long-term leases, which would allow for at least the possibility of mortgage and would provide tenure security and the desire to improve the land. State land is easy to locate, and easy to access, and therefore is used a great deal to expand or consolidate small-holdings.

On the other hand, this state land is often used to rectify a failure to make correct restitution and, privatizing it or providing long-term leases to others would eliminate or greatly reduce this function.

Land that is privately owned is often leased back to the cooperative from which it came at little to no cost. This land is already privatized but essentially has little to no value to those who received it. Policies must be considered that would encourage more productive use of this land.

These issues are discussed at length in other sections. See administrative framework (taxation and consolidation), state land reserves, and farm restructuring.

In the Western CIS countries, the primary issue regarding land leasing is lack of information. Farmers often do not know what their choices are, or do not know how to exercise their choices regarding their land and their land shares.

i. Issue: For a lease market to thrive, farmers must understand their right to lease out their land shares and receive payment for those shares. (Russia, Ukraine)

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5. Mortgage

Mortgage of agricultural land cannot occur without secure land rights and a land market. In addition to the need for legislation that allows mortgage of agricultural land, there needs to be legislation allowing for the free transfer of land. Land-based lending will not occur until there is an active agricultural land market, and for Russia, Ukraine, and Belarus major changes in legislation and political will would have to occur first.

Once mortgage of agricultural land is a legal right, as it is in the rest of the Eastern European (EE) countries, it still needs to be a part of a larger scheme of providing credit to farmers. Few landowners are using land as security for loans in the EE countries. In fact, mortgage lending to any great extent will not occur until: (1) an active land market exists and agricultural land has market value; and (2) foreclosure procedures are reasonably quick and effective. Laws to create mortgagability will not have the positive effects anticipated unless other conditions enabling farmers to take advantage of mortgagability are first satisfied. In addition to secure land tenure and the existence of a rural land market, these conditions include willing lenders; terms farmers find attractive; support services that can help ensure success in agricultural innovation; a political and legal situation that permits foreclosure if necessary; and prices for produce that permit recovery of costs of an investment.549

a. Issue: Legislation allowing mortgage of agricultural land does not exist or the legislation forbids the mortgage of agricultural land. (Russia, Ukraine, Belarus)

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b. Issue: Land-based lending is limited because agricultural land is not valuable due to a slow land market.

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c. Issue: Incomplete or conflicting mortgage legislation and poor performance of land institutions affect the desire of lending institutions to use land as collateral.

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6. Registration

One of the key measures needed for a fully functioning land market is a system for registering legal rights, so that right holders can be easily identified and have their rights protected. Poor registration systems can constrain:

However, land registration and other land market supporting measures are costly. From early 1994 through 2001, USAID spent over $15 million on the Albanian Land Market Action Plan, in a small country of 3.5 million people. The World Bank and EU Phare have also made contributions to the effort.

The Western CIS countries, except for Moldova, have seriously under-functioning registration systems and need basic legislative assistance to begin with. Effective land registration is (with the notable exception of Albania) largely not occurring in the surveyed Balkan countries, although the vast majority of agricultural land is privately owned and privately farmed. The Transcaucasus and the EU accession countries are in the process of transforming and bettering their registration systems, but still have problems due to the large number of new owners and the need to reestablish boundaries.

a. Issue: Inadequate legislation or lack of legislation regarding which rights should be registered impedes the land market.

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b. Issue: Distribution of land share certificates is incomplete, and registration cannot occur without at least a land share certificate.

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c. Issue: Unclear rules about which agency has responsibility for registration of land and buildings leads to overlap, confusion, and extra costs. For example, Armenia does not have a centralized institutional framework for registration, and three separate agencies issue temporary certificates of ownership. Moreover, important information is not shared among actors.

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d. Issue: Surveying and title preparation are slow due to lack of resources and lack of experience.

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e. Issue: The current owner-based system in Armenia provides one land title for multiple land holdings.

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f. Issue: Lack of land tax or a high transaction tax can discourage registration of land.

In Armenia, a high tax must be paid in cash based on the fixed value of land when a transaction is registered.

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7. Land Consolidation

Traditional consolidation projects have been criticized as too slow and too expensive. However, with new tools such as the technology of spatial data infrastructure (GIS, LIS etc.) land use planning can be discussed more easily and comprehensively. On the other hand, as of yet, there are few examples of successful consolidation projects.

An alternative to the traditional consolidation procedures would be market-assisted consolidation, in which for example a legal rule would be established stating that very small plots cannot be divided and then transferred through sale or inheritance or divorce. However, legal rules such as these often infringe on custom and individual choice, especially in terms of inheritance rules and can be unpopular because they are seen as inequitable within the family. Moreover, division through sale represents a market-based choice which, it may be rather persuasively argued, should not be overridden by administrative means.

Land fragmentation is an issue that has been raised in all of the EE countries with the exception of Belarus, Russia, and Ukraine. The EU accession states are receiving much help from the European Union in relation to consolidation efforts. Many of these programs are a combination of market assisted reform and government intervention at the community level. Because many of the EU countries have a state land fund, there is already a system in place for purchasing and redistributing land.

a. Issue: Privatization has affected the size and shape of many parcels of land in the EE countries. Privatized parcels are often non-adjacent and sometimes not in the community where the new owner now lives.

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Some problems with these consolidation techniques include:

In general, it may be concluded that non-voluntary measures aimed at consolidation or against subdivision of land holding should be viewed with great caution.

8. Land Use Planning

There are two primary issues related to conversion of agricultural land to non-agricultural uses. First, there is concern that, without guidelines for conversion, development will be scattered throughout the urban-rural fringe. Most often, agricultural land is subject to conversion to non-agricultural uses when it comes within a community’s potential zone of expansion. Conversion occurs characteristically on land nearest the city, but because competition for land at the immediate urban fringe increases its purchase price, development costs there are substantial.

Thus, speculators and developers are attracted to more distant farmland that carries a smaller price tag and provides greater profit.560 Second, countries with little arable land per capita may be concerned about protecting farmland to assure future food supplies.

a. Issue: Conversion of Agricultural land to non-agricultural use is strictly prohibited.

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9. Role of the Public and Private Sector

There are a variety of measures that could be undertaken to help create and strengthen the private sector institutions that participate in and support healthy land markets. A disadvantage to these types of support measures is the difficulty in quantitatively ascertaining progress.

In the Western CIS countries, the first step must include the political will for the State to delegate certain functions to the private sector and away from the State.

a. Issue: In the Western CIS countries, land administration functions related to agricultural land are still held primarily by the federal government and not by local or private institutions.

These functions include(with some exceptions for Moldova), surveying, titling, registration of rights, land use planning, valuation, market information, and sometimes crop planning. This over-centralization is a legacy of the former Soviet Union.

Policy options:

b. Issue: In some of the EU accession countries private surveyors, real estate agents, and valuators need to be encouraged, and land market information must be widely disseminated.

Policy Options:

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