36117 V. 1
Public Disclosure Authorized Foreign Investment Advisory Service, Project is co-financed by the a joint service of the European Union International Finance Corporation in the framework of the and the World Bank Policy Advice Programme
Public Disclosure Authorized SURVEY OF LAND AND REAL ESTATE TRANSACTIONS IN THE RUSSIAN FEDERATION
CROSS-REGIONAL REPORT
Public Disclosure Authorized
March 2006
Public Disclosure Authorized
Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
The project has also received financial support from the Government of Switzerland, the State Secretariat for Economic Affairs (seco).
Report is prepared by the Media Navigator marketing agency, www.navigator,nnov.ru
Disclaimer (EU)
This publication has been produced with the financial assistance of the European Union. The contents of this publication are the sole responsibility of its authors and can in no way be taken to reflect the views of the European Union.
Disclaimer (FIAS)
The Organizations (i.e. IBRD and IFC), through FIAS, have used their best efforts in the time available to provide high quality services hereunder and have relied on information provided to them by a wide range of other sources. However they do not make any representations or warranties regarding the completeness or accuracy of the information included this report, or the results which would be achieved by following its recommendations.
2 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
TABLE OF CONTENTS
Glossary...... 4 Procedures under the survey...... 5 1. INTRODUCTION...... 6 2. KEY FINDINGS...... 16 Ownership Rights to Real Estate of ARCS Companies...... 18 General Indicators of Investigated Procedures...... 20 Time ...... 20 Total Cost...... 22 Unofficial Payments...... 22 Additional Costs...... 25 Tenders...... 27 Agencies...... 27 3. LAND RELATED STATISTICAL INFORMATION GATHERING...... 31 3.1. Methodology and Statistical Information Gathering...... 31 Methodology...... 31 Statistical Information Gathering...... 33 3.2. Summary of Results...... 34 Ownership structure of land...... 34 Privatization of land...... 36 Tenders...... 38 Land leases...... 40 3.3. Recommendations for gathering and use of the statistical information on land related procedures to track progress with implementation of federal policies and laws at the local level...... 41 4. SURVEY METHODOLOGY...... 43 4.1. Overview...... 43 4.2. Instruments...... 44 4.3. Sampling...... 44 4.4. Fieldwork...... 44 5. GENERAL INFORMATION ABOUT COMPANIES UNDER SURVEY...... 45 6. GENERAL INDICATORS FOR ALL PROCEDURES...... 49 7. PROCEDURE BY PROCEDURE ANALYSIS ACROSS REGIONS...... 58 8. AGENCY BY AGENCY ANALYSIS...... 74 9. INSPECTIONS...... 78 10. PROBLEMS, ATTITUDE OF AUTHORITIES...... 79 11. FINAL QUESTIONS...... 82
ANNEXES
Annex 1. Methodology and data used in analysis of land and real estate transactions in the Russian Federation. Annex 2 (to Chapter 3). Templates for gathering land and real estate procedure specific statistical information Annex 3 (to Chapter 3). Statistical data used in analysis (Excel tables with specific sources: rows and columns of the Statistical Form ‘3-zem’).
3 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Glossary
Term Description BIS Business intermediaries survey (within this project - legal entities and sole proprietors providing intermediary services for locating procedures – are called BIS) ARCS Administrative and regulatory costs survey (within this project - legal entities and sole proprietors that attempted, underwent or completed locating procedures in 2004 - are called ARCS) APD Abridged procedure description CPD Comprehensive procedure description n/a Not available For fee Obtaining documents with payments On contract Something being done on the contract with private organization or physical person Additional Different kinds of services or material contribution made by burdens companies in addition to official payments Official Payments done in order to carry out the procedure (obtain payments documents) required by legal acts Unofficial Payments or presents given personally to the officials in order to payments carry out the procedure (obtain documents) not required by legal acts Free of charge Obtaining documents without payments Stage Part of the procedures that implies obtaining a document (a set of documents) from a government authority (several government authorities)
4 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Procedures under the survey
Procedure#1 Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location Procedure#2 Obtaining ((#2A) ownership rights or (#2B) lease rights) a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders Procedure#3 Obtaining rights (#3A – ownership and #3B – lease) on land plots that are currently state or municipal property, with premises, buildings or constructions, which are private property Procedure#4 Lease of a real estate object (premise, building or construction) which is currently municipal property, without the procedure of tender (including for targeted use) Procedure#5 Lease of a real estate object (premise, building or construction) which is currently the municipal property during tenders or auctions Procedure#6 Transferring a premise (building) from the residential use to non- residential one Procedure#7 State registration of rights on real estate and real estate transactions (in the cases of (A) buying or selling a real estate object (land plot, building or premise) in the secondary market, (B) drawing a contract of a real estate object (land plot, building or premise) lease for the term of more than 12 months in the secondary market) Procedure#8 Transferring a land plot from one category into another, changing designated use of a land plot Procedure#9 Privatization of a real estate object (building or premise) which is currently municipal property
5 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
EXECUTIVE SUMMARY
This survey of businesses’ access to land and real estate in 15 regions of the Russian Federation was carried out by FIAS at the request of the Ministry of Economic Development and Trade and the Federal Antimonopoly Service. A closely related FIAS project provided a series of detailed recommendations to both organizations.1
Numerous business surveys by FIAS since 2000 (and also documented by the Center for Economic and Financial Research, CEFIR) have shown that access to land is among the most severe administrative barriers to business growth in the Russian Federation, in particular deterring the expansion of successful “small” firms to “medium” size and larger.
More specifically, FIAS surveys of businesses reveal that the most common obstacles encountered by all firms (chart 1: blue, closer to center line) are access to finance, interest rates, and bribery. The most severe obstacles for firms that have experienced them (chart 1: pink line) are construction permits, acquisition of land, acquisition of buildings, and rent of land, followed by bribery, courts and foreign trade.2
Chart 1. Ranking of importance of problems for development of business
1 FIAS/EU Report on Business Access to Land (prepared for MEDT) and FIAS/EU Report on Land and Real Estate Cases (prepared for FAS), www.worldbank.org/russia/fias. 2 Source: FIAS, “Estimating the Costs of Administrative Barriers to the Russian Economy”, Sept. 2005, based on FIAS surveys in the Oblasts of Nizhny Novgorod, Leningrad, Magadan, Irkutsk, Rostov, Tomsk and Sakhalin). These findings are also supported by earlier FIAS surveys in Perm and Kaliningrad Oblasts, and by CEFIR in 20 Oblasts in 2004 and 2005.
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Businesses continuously complain that there has been very little land privatization to date, and that the limited amount of privatization that has taken place has suffered from severe inconsistencies, non-transparency, and outright favoritism. The business surveys reinforce these findings with complaints about “need to rely on connections”, excessive discretion and a higher degree of corruption associated with real-estate transactions than most other administrative procedures3. Another FIAS survey of “potential and runaway investors” from Kaliningrad, Novgorod and Tomsk Oblasts also found that potential foreign investors, in particular, were concerned about access to land.4
The new Land Code of the Russian Federation explicitly calls for land to be privatized. However, most land of interest to businesses is still owned or controlled by municipal governments. This gives municipal governments strong “market power” as near-monopolist land lords. While new federal legislation constrains their legal discretion in setting land rents and related terms, there is still considerable evidence of municipalities abusing their market power through administrative barriers, not necessarily to keep rents high5, but more often to favor some firms over others and/or exercise undue influence over local business development.
More general land reforms are taking place supported by the World Bank Land Cadastre and Land Registration projects, and to some degree also by the Urban Housing and Communal Services Project. However, there has been relatively little attention devoted to the issue of businesses’ access to land and real estate.
While many regions and municipalities have instituted mechanisms to privatize real estate, most are not yet transparent or fair. Unfortunately, left to their own devices, they have little incentive to improve their procedures and advance the reforms.
Сhart 2 shows what proportion of land in 15 regions is owned by state and municipalities. As can be seen in the Сhart 2, in 10 out of 15 regions, more then 3/4 of land is owned or is in possession of state or municipalities. In only 1 of these 15 regions (in Rostov Oblast) the share of state and municipal lands is less than 50%. Moscow City stands out with 100% of land in possession of state or municipality. Overall, the statistics clearly indicates that currently municipalities (which are in fact administering the privatization and lease applications for state lands as well) are still monopoly holders of this resource.
Of the remainder of the land in the 15 regions, some is owned by legal entities and some by individuals. St. Petersburg has the highest proportion of land owned by legal entities, at 11%, and Rostov Oblast has the highest proportion of land owned by individuals, at just under 65%. Moscow City has 0% of its land in private ownership of any kind, while Khabarovsk Krai has less than 1%.
3 See Chapter I and Chapter IV of the 2004 FIAS Administrative Barriers report. 4 FIAS, 2004: Russia’s Runaway Investors. 5 In fact, there is significant evidence that many municipalities keep rental rates relatively low and sales prices relatively high also to deter land privatization.
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Chart 2 Land owned/possesses by state and municipalities, 2004, %
Land Owned/Possessed by State and Municipalities, 2004, %
Moscow 100.00% Khabarovsk Krai 99.92% Sakhalin Oblast 99.34% Irkutsk Oblast 98.50% Tomsk Oblast 97.68%
Leningrad Oblast 94.33% Sverdlovsk Oblast 92.76% Novgorod Oblast 89.30% Perm Oblast 89.14%
Saint-Petersburg 86.85% Moscow Oblast 73.56% Nizhny Novgorod Obl. 69.93% Novosibirsk Oblast 68.61% Kaliningrad Oblast 60.90%
Rostov Oblast 35.02%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Based on data from Roskadastr State (National) Report on the Status and Use of Lands in the RF in 2004.
Data from recent surveys reinforce this message: Among SMEs surveyed by CEFIR in 2005, only 6% own land. From FIAS’ surveys for the current project in 15 regions of the Russian Federation of firms that have carried out land or real estate transactions in 2004 (i.e., mostly medium-sized firms), the proportion of respondents reporting ownership rights in land was about 18% (table 1).
Table 1. Average Proportion of Survey Respondents' Land Rights in 2004, %
Ownership Lease No Land SMEs (General) /1 6 34 57 Firms involved in land/real estate transactions /2 18 45 43
Sources: 1/ CEFIR, 2/ FIAS (note figures sum > 100% because some respondents have more than one parcel of land and may have ownership rights on some and lease rights on others)
The survey also showed a large range of responses across regions, from zero private land ownership in Moscow City to a high of 47% in Irkutsk. Respondents in most regions indicated less than 25% of respondents owned land. Fully one third of all survey respondents reported that they wanted to buy land but were deterred from doing so by local authorities.
While many firms had officially applied for land ownership rights in 2004, the success rate ranged from zero in Moscow City to a reported 97% in Rostov Oblast. By contrast, applications for lease-hold rights were usually much more successful, ranging from a low of 50% in Moscow Oblast to a high of 93% in Rostov Oblast.
8 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
The survey covers the 9 key administrative procedures for access to land and real estate by businesses in the 15 regions included in the survey (see list above on page 5). One of the most important procedures covered by the survey is the privatization of land under buildings that had previously been privatized. This relatively straightforward procedure involves an average of:
· 11 stages · 8 different agencies, · 17 different documents, · 220 days, and · about 70,000 Rubles.
The range, however, is quite large, from low figures of about 50 days in Rostov Oblast and 10,000 Rubles in Novgorod Oblast to high figures of over 400 days in Novosibirsk and 360,000 Rubles in Moscow Oblast.
The simple registration of title of land was, as expected, the most common procedure and the easiest to document across all regions. The range of responses was surprisingly wide, ranging from a low of 46 days in Rostov (for intermediaries) to a high of 197 in Novosibirsk for registration of ownership rights in land and real estate and from 20 days in Leningrad Oblast to 280 days in Sakhalin Oblast for registration of long- term leases.
International comparisons on this particular procedure are possible using the World Bank Group’s Doing Business report. DB’s figure (52 days for Moscow) is close to the FIAS survey (67 days for Moscow). While these figures are relatively good by international standards (e.g., 74 days for Mexico, 67 days for India, 32 days for China and 197 days for Poland), the fact remains that for most businesses in the Russian Federation, registration is only the last stage of a much longer process. Until much more land is privatized and in the “secondary market”, most firms must deal with a set of bureaucratic procedures for privatization that take an average of six months to a year to complete and often much longer than that.
For ownership rights in most regions, professional intermediaries hired by firms could usually complete the procedure in a shorter time (but often for higher cost) than firms could manage on their own, but there is evidence that registration officials often request bribes, and intermediaries are more experienced than other firms in paying them. In this regard, Novosibirsk Oblast stands out for its lengthy delays and high total costs (including unofficial payments).
Land transactions in general appear to be magnets for corruption. On average, according to the business intermediaries who carry out such transactions on a regular basis, over half of privatization transactions involve “unofficial payments”. Firms who carry out such procedures on their own behalf report a somewhat lower level of bribes (about 36%), but about 25% of them report they were required to pay “sponsorships” to various foundations suggested by government officials and over 20% reported they had to pay for other burdens, such as paving a nearby road or upgrading a power transformer.
Again, there was a wide range of reported problems of the type described above. Fully 100% of firms in St. Petersburg who attempted to privatize the land under their buildings reported “unofficial payments”; 50% of firms in Khabarovsk Krai reported “sponsorship” payments and “other burdens.”
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There were disappointingly few responses for procedures involving auctions and tenders (Procedures 2 and 5, for land and real estate respectively). Unfortunately, it appears that it is relatively expensive for municipalities to prepare such auctions and tenders, which may be disproportionate to the value of the properties themselves. However, since such means of sale are the most transparent, they should be used whenever possible.
Across all procedures, Tomsk Oblast is perceived by survey respondents as among the most transparent, while Rostov Oblast usually has fewest delays (although it also has the highest reported frequency of “speed payments”). Novgorod Oblast had the lowest level of corruption.
A deeper analysis of the data will be required for a more complete understanding of the situation. However, it is generally acknowledged that a functioning secondary market in land is now critically important in order to ensure a level playing field for competition in the Russian economy, to remove the last of the most onerous “administrative barriers” to investment, and to encourage the development of mortgage finance as a source of long-term capital for investment. New federal legislation being prepared by MEDT is designed to improve the transparency, consistency, and fairness of land and real estate markets, and to encourage further privatization of land, which can in turn lead to the development of a robust, competitive “secondary market” in land.
While some mature jurisdictions such as Hong Kong managed a thriving market in long-term leases, they were able to ensure full marketability of such leases, and had a track record of transparency, accountability, and restraint from abusing the Government monopoly on land ownership. Since Russia lacks such a track record, it is probably preferable to go for full privatization.
FIAS work at the regional/local levels has shown that substantial improvements are possible. Novgorod, Rostov and Tomsk are places where FIAS survey respondents report relatively simple, quick, and transparent land procedures.
Novgorod implemented a “one window” approach to land and real estate transactions in the late 1990s, which has been recognized as “good practice” within the Russian Federation. FIAS made recommendations to Tomsk Oblast to follow many of the positive examples in Novgorod, such as creating a “one window” system for land allocation procedures, increasing privatization of urban land for business use, and accelerating development of zoning and land-use regulations.
More detailed recommendations for reforms at the sub-national level included the following:
· Encourage further divestiture of land and creation of a private land market in the region. · Take steps to increase the supply of land and real estate facilities in the region available for formation of new businesses and expansion of existing businesses. · Take steps to increase demand for land and real estate facilities by reducing privatization prices. · Demonstrate at the level of the Regional Administration a comprehensive asset management plan for state-owned real estate assets. · Implement a system of performance indicators and performance monitoring to periodically assess progress towards achieving the objectives and implementing the main tasks.
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FIAS provided detailed guidance to accompany the recommendations, including guidance on publicizing key information about real estate parcels available for privatization, tender procedures, and performance indicators. Tomsk Oblast implemented the bulk of FIAS recommendations, and increased privatization of land parcels to business from about 120 in 2002 to an estimated 200 in 2004. Survey results in Tomsk Oblast in 2002 and in 2004 also indicate improved evaluation of authorities’ services in land and real estate related fields (see chart 3).
The data show the average of respondents’ perceptions of the quality of service from the agencies providing the listed services before and after reforms to remove administrative barriers in the real estate sector. The specific question was whether respondents were satisfied or unsatisfied with the service of the relevant agencies, and the chart shows the balance of the proportion of those “satisfied” vs. those “unsatisfied.”
Chart 3: Tomsk Oblast: Changes in evaluation of authorities’ services in land and real estate related fields, 2002 - 2004
60
40
20
0 land permits building land building building ownership environ- -20 project registry permits approval registry ment approval approval -40
-60
2002 2004
Source: FIAS Report “Comparative Analysis of 2002 and 2004 Business Surveys. November 2004”. For more information see www.worldbankorg/russia/fias.
FIAS’ more recent survey of firms who carried out real estate transactions in 2004 also confirmed that survey respondents rated Tomsk Oblast tender procedures as the most transparent and fair of the 15 regions included in the survey. Thus, the reforms introduced in Tomsk Oblast would probably be beneficial in most Subjects of the Russian Federation. However, FIAS experience suggests that many administrations are unwilling to give up their monopoly powers in land markets and the ability that accompanies it to influence business activities in their territory. Thus it may be necessary for reforms to be implemented at the Federal level of Government.
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The key issues for Federal level reforms include the following:
1) To push for much more privatization of land to create a robust secondary market in land. This in turn requires: a) Greater use of auctions and tenders for vacant land instead of discretionary and opaque administrative procedures and greater transparency in these procedures; b) Lower prices for land privatization, especially for land under buildings that have already been privatized;
2) At the Federal level, FIAS survey data suggests that many of bureaucrats involved in land and real estate privatization and registration appear to create or threaten delays in order to encourage “speed payments.” One way to deter such behavior would be for MEDT to draft new legislation to impose time limits on the processing of applications, with “silent consent” coupled with a requirement for Government officials to provide written explanations for any refusals, citing objective reasons for rejecting an application.
3) MEDT should require annual statistical reporting by regions and municipalities about land and real estate ownership and lease rights, privatization transactions, mode of privatization, and the relevant prices.
4) The Federal Antimonopoly Service may be able to make use of the official statistical data and survey data to help identify possible instances of abuse of market power by public sector bodies (such as Municipal Administrations).
More detailed findings from the survey are contained in the text of this report. Further recommendations to remove administrative barriers in land and real estate transactions may be possible after deeper analysis of the survey data. In particular, it is further recommended that the survey be repeated in 2007 or 2008 in order to measure the impact of recent reforms in this area.
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1. INTRODUCTION
The main aims and goals of the project “The survey of Land and Real Estate Transactions in the Russian Federation” were the following:
· Provision of feedback from BI’s and enterprises, which in 2004 attempted, underwent or finished locating procedures, on the regulatory and administrative constraints faced by the private sector of economy in Russia; · Measurement of the governance and public services delivery quality with regard to key public agencies and formal procedures, which businesses must comply with; · Evaluation of the types and magnitudes of costs of impediments imposed on private enterprises by the main administrative/regulatory locating procedures, and pinpointing the areas of excessive cost or unnecessary delays which might benefit from reform or streamlining; · Provision of an opportunity to initiate a public-private sector dialogue based on the survey results and creation of implications and the agenda for reform; · Provision of the basis for monitoring the changes in the administration system so that an evaluation of potential government reforms may be possible. · Identifying priority areas for most urgent need for improvement and most important and difficult impediments; · Further improvement of methodology for surveying administrative procedures for locating an enterprise, elaborated during the FIAS pilot project “The Survey of Business Intermediaries in Four Regions of Russian Federation” · Definition of the sampling universe of business intermediary companies (BI’s) and enterprises, which in 2004 attempted, underwent or finished locating procedures in each of the regions under survey; and the development of appropriate interview tools. · Gathering of statistic information from the federal and regional/municipal sources to complement the survey and to provide recommendations for future use of such official statistics in monitoring the implementation progress of federal land related policies and laws at the local level.
The following nine basic locating procedures were studied:
· Procedure 1. Obtaining (by lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location. · Procedure 2. Obtaining (by lease or purchase) a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders. · Procedure 3. Obtaining ownership or lease rights on land plots that are currently state or municipal property, with premises, buildings or constructions, which are private property. · Procedure 4. Lease of a real estate object (premise, building or construction) which is currently municipal property, without the procedure of tender (including for targeted use). · Procedure 5. Lease of a real estate object (premise, building or construction) which is currently the municipal property during tenders or auctions. · Procedure 6. Transferring a premise (building) from the residential use to non- residential one.
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· Procedure 7. State registration of rights on real estate and real estate transactions (in the cases of (1) buying or selling a real estate object (land plot, building or premise) in the secondary market, (2) drawing a contract of a real estate object (land plot, building or premise) lease for the term of more than 12 months in the secondary market). · Procedure 8. Transferring a land plot from one category into another, changing designated use of a land plot. · Procedure 9. Privatization of a real estate object (building or premise) which is currently municipal property.
The survey was based on interviewing two groups of respondents:
· Legal entities and sole proprietors providing intermediary services for locating procedures (BIS6); · Legal entities and sole proprietors that attempted, underwent or completed locating procedures in 2004 (ARCS7).
The survey was conducted in 15 regions of Russia: Irkutsk, Nizhniy Novgorod, Novosibirsk, Rostov, Perm, Sakhalin, Kaliningrad, Leningrad, Moscow, Sverdlovsk, Tomsk and Novgorod Oblasts, Khabarovsk Krai and the cities of Saint Petersburg and Moscow. The location of the regions under survey is shown on the map (picture 1.1). These regions combined cover 17% of the Russian territory, about 33% of the Russia’s population lives there. These regions provide 44% of the Russian GDP (table 1.1).
Table 1.1 Information about the regions under survey in the Russian Federation % of % of Population, % of the Territory, GDP, mln. the Region 2 the RF mln. RF popu- km rubles RF territory people lation GDP Irkutsk Oblast 767,900 4,5% 2,55 1,8% 177 019 1,5% Kaliningrad Oblast 15,100 0,1% 0,95 0,7% 51 328 0,4% Khabarovsk Krai 788,600 4,6% 1,42 1,0% 122 550 1,1% Leningrad Oblast 84,500 0,5% 1,65 1,1% 132 386 1,1% Moscow 1,091 0,0% 10,41 7,2% 2 441 426 21,1% Moscow Oblast 46,000 0,3% 6,60 4,5% 447 055 3,9% Nizhniy Novgorod Obl. 76,900 0,5% 3,45 2,4% 222 415 1,9% Novgorod Oblast 55,300 0,3% 0,67 0,5% 39 069 0,3% Novosibirsk Oblast 178,200 1,0% 2,66 1,8% 168 018 1,5% Perm Oblast 160,600 0,9% 2,77 1,9% 232 160 2,0% Rostov Oblast 100,800 0,6% 4,33 3,0% 183 426 1,6% Saint Petersburg 1,491 0,0% 4,60 3,2% 435 683 3,8% Sakhalin Oblast 87,100 0,5% 0,53 0,4% 67 443 0,6% Sverdlovsk Oblast 194,800 1,1% 4,43 3,0% 313 798 2,7% Tomsk Oblast 316,900 1,9% 1,04 0,7% 103 725 0,9% Total 2,875,280 17% 48,05 33,1% 5 137 500 44,4%
In each of the regions (excluding Moscow and Saint Petersburg), the sphere of the survey included the administrative center of the region and one or two other major municipal areas, the choice of which was done jointly by the two contractors and was approved by FIAS. The list of municipalities under survey together with the information about their population is given in the Annex 1, table 1.1, to the this report.
6 BIS – Business Intermediaries Survey 7 ARCS – Administrative and Regulatory Cost Survey
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Picture 1.1 Regions under survey on the map of Russia
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2. KEY FINDINGS
The project “The survey of Land and Real Estate Transactions in the Russian Federation” had among its main goals to provide feedback from business entities, as well as the intermediaries they hire, on the regulatory and administrative constraints they face when undergoing various “locating” procedures.
The project provided information about existing regulations, as well as information about the quality of the governance and public services delivery with regard to key public agencies and formal procedures, which businesses must comply with. The project also resulted in an evaluation of the types and magnitudes of costs of impediments imposed on private enterprises by the main administrative/regulatory “locating” procedures, and tried to pinpoint the areas of excessive cost or unnecessary delays which might benefit from reform or streamlining.
The Survey results confirmed that the topic selected really represents one of the most problematic issues for Russian entrepreneurs. As can be seen in Chart 2.1, “locating procedures” are almost as problematic as some general issues like corruption, interest rates and access to financing, while they are on the very top of the list of administrative obstacles troubling Russian entrepreneurs.
Chart 2.1 Percentage of respondents claiming certain issue as an obstacle for operation and growth of their business8
Corruption 80 Interest rate 66 Access to financing sources 65 Measures of the local authorities interrupting competition 65 Obtaiining a perrmmiissssiion for connsstructiion 64
Procedurures haviing to ddoo wiitth the purchase of lland plots 64 Tax rates 63
Judicial processes 58 Proceduurres having to dodo with the llease of land pllots 57
Qualification of employees 57 Proceduurres having to dodo with the connection to infrastrruucture 53 Antimonopoly regulation 49 Procedures related to foreign economic 48 Procedures having to do with the purchase of buildings 48 Licensing of individual types of activities 42 Access to transport infrastructure 42 Registration of intellectual property rights 39 Reorganization of business 39 Procedures having to do with the lease of buildings 38 Currency regulation 34 Procedures of product certification and standardization 33 Establishment of a new business 33 Labor regulation procedures 28 Procedures concerning taxation and bookkeeping 26
8 Issues for which italic letters were used mark general issues, while others represent various regulatory areas
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The results of this project are also expected to provide an opportunity for informed private – public dialog, which might result in an agenda for further reforms. It is hoped that the results of this project will help identify the priority areas in most urgent need of improvement. The results also provide the basis for monitoring changes in the relevant administrative system over time, so that an evaluation of government reforms is possible.
In order to achieve these goals, this project was organized around two main components:
1. An analysis of the legal requirements underlying administrative procedures for access to land and real estate, which included an analysis of existing federal, regional and municipal legislation in order to identify all steps, including documents and other requirements within these steps, that businesses have to comply with in order to successfully complete these procedures. This component also included conducting several in-depth interviews with experts in this area, in order to capture regional specifics. 2. A survey, which was divided into two sub-surveys, one trying to obtain the information directly from businesses attempting to go through the “locating” procedures, and the other targeting business intermediaries who are providing assistance services in these procedures.
The analysis of the legal requirements resulted in detailed descriptions of the procedures under investigation, and a roadmap for each procedure in each region included in the survey, showing what, how, where and when it is supposed to be done in order to successfully complete the procedure.
The baseline for the survey were instruments for capturing administrative obstacles, developed by FIAS, and already tested and proved in other transition countries. Of course, the instruments were adopted to specific Russian circumstances, as well as to the specific needs of this project. The original idea was to conduct 100 interviews with entrepreneurs (ARCS), and 100 interviews with intermediaries (BIS) in each region (with some differences in Moscow, St. Petersburg and Novgorod), but due to various problems (lack of intermediaries in some regions, difficulties of finding appropriate respondents or high refusal rates in others), in some regions this quota was not achieved. However the quantity and quality of collected data allows a thorough analysis of businesses’ “side of the story”.
The work was done by two Russian contractors (“Business Tezaurus”, and “Media Navigator”), while for the specific fieldwork in the regions, additional subcontractors (with appropriate experience in data collection) were hired. Final statistics show that 1188 businesses were interviewed and information about 1111 procedures was collected from business intermediaries.
Although the project was restricted to 15 regions, covering not more than 17% of the territory of Russian Federation, the regions under survey represent all seven Federal Districts of the Russian Federation, include 33% of the Russian population, and produce 44% of Russian GDP. So, with a certain degree of caution, the results obtained during the project might be considered as a roughly representative picture of the Russian Federation9.
9 One should also note that 11 out of 15 regions were FIAS clients before this project, and thus might be more interested in the reform process than an average Russian region. This leads to a presumption that the results obtained might represent the better side of the real situation in Russian Federation.
17 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
The sample of this survey was, in the case of BIS, stratified (i.e., the same number of respondents was planned for each procedure). Thus we tried to secure enough responses on each procedure for the purpose of analysis. Due to certain difficulties, the final sample is slightly biased towards more common procedures. In the case of ARCS, there was a condition to be satisfied to qualify potential respondents for our survey: the respondent should have at least attempted undergoing one of the “locating procedures” in 2004. This resulted in a slight shifting of sample characteristics from the representative picture of Russian businesses. It seems that companies attempting these procedures are somewhat bigger (our median size was 16 employees, while CEFIR general survey captured a median of 10 employees), less oriented towards trade (37% vs. 52% in general population), and more towards service- providing (39% vs. 31%).
As an illustration, the Table 2.1 compares a general sample of SMEs in the Russian Federation with the FIAS sample of firms that have been involved in land/real estate transactions, with regard to their land rights.
Table 2.1 Average Proportion of Survey Respondents' Land Rights in 2004 (in %) Ownership Lease No Land SMEs (General)10 6 34 57 Firms involved in land/real estate transactions11 18 45 43
Although our sample is therefore somewhat biased relative to the general population of small and medium-sized firms, it provides richer pool of information about the subject under investigation.
Ownership Rights to Real Estate of ARCS Companies
Thus, it is interesting to notice the ratio between ownership and lease of the land: while 45% of FIAS’ respondents reported leasing land, only about 18% claimed to own it. That would mean that the approximate ratio of rights over land between ownership and lease is 30% ownership vs. 70% lease. Comparing similar procedures in our survey we can see that this is not exactly what Russian entrepreneurs wish. Results indicate that the ratio of those entrepreneurs trying to obtain ownership vs. those trying to obtain lease is 41% vs. 59%. This issue becomes even more interesting if we mention that approximately one third of our respondents reported the practice of government officials in which they deter companies from attempting to purchase land, so they don’t even try to do this and apply for a lease instead. According to the ARCS respondents, the latter practice is especially widespread in Leningrad Oblast, Sakhalin Oblast, Tomsk Oblast and Moscow City (See chart 2.2).
It is important to note that the practice of owning or leasing land and real estate is not consistent across all regions we surveyed. As we can see on chart 2.3., ownership of land is more widespread in some regions than the others. While 36% of our Rostov respondents reported owning land, no case with land ownership was recorded in Moscow City. The lack of consistency exists in the case of real estate as well. Generally, the share of businesses having ownership rights to real estate is much higher than for land (61% of our respondents reported owning premises vs. only 18%
10 Source: CEFIR 11 Source: FIAS; figures may sum > 100% because some respondents have both leasehold and freehold land.
18 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
reporting to own land), and this share reaches its maximum (100%) in case of Moscow Oblast, and its minimum in case of Saint Petersburg (20%).
Chart 2.2 Estimation by ARCS of the frequency of situations, when government agencies deter companies from purchase of land, mean %
All regions 34 Leningrad oblast 75
Tomsk oblast 63
Sakhalin oblast 61
Moscow 58
Nizhny Novgorod obl. 43 Irkutsk oblast 41 Novosibirsk oblast 38 Kaliningrad oblast 35 Perm oblast 31 Sverdlovsk oblast 23 Rostov oblast 18 Moscow oblast 17
Khabarovsk Krai 17
Novgorod oblast 15
Saint Petersburg – n/a
Another difference between the issues of land and real estate can be nicely demonstrated with the finding that 64% of our respondents attempted to undergo the procedure related to land, while in case of real estate that percentage is significantly lower (39%). Another look at chart 2.3. might reveal the reason for this difference. While only 3% of respondents have no (ownership or lease) rights on their real estate, in case of land the share of companies not having any rights to land reaches 45%. Thus, one might conclude that while the vast majority of Russian entrepreneurs already resolved their rights on premises, half of them are still struggling to obtain rights on land.
19 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Chart 2.3 Existing lease and ownership rights on land and real estate in 15 surveyed Russian regions
REAL ESTATE, % LAND, %
24 42 31 3 Kaliningradoblast 26 5 60 9 2 80 Saint-Petersburg 91 72 3 34 48 14 Leningradoblast 41 7 52 7 45 43 5 Moscow 48 52 11 89 Moscowoblast 6 6 72 17 4 49 44 2 Sverdlovskoblast 76 4 20 21 22 55 2 Novgorodoblast 23 14 61 2 19 37 37 7 Tomsk oblast 63 21 14 2 30 21 46 3 Khabarovskoblast 30 3 64 3 34 22 43 1 Irkutsk oblast 29 16 24 31 4 43 48 5 Rostov oblast 44 34 20 2 22 29 49 Permoblast 41 9 36 14 21 48 31 Novosibirskoblast 65 5 28 2 7 40 51 2 NizhniyNovgorodoblast 49 3 39 9 19 26 54 Sakhalinoblast 16 13 54 16 17 37 44 3 All regions 45 11 37 7
No land / real estate Only ownership Only lease Both of them
General Indicators of Investigated Procedures
The best way to get an overall picture of the nine procedures investigated is to analyze some general indicators on them. Legal analysis provides us with the number of stages within the procedure as an indicator, while the survey data provides indicators like the time needed to complete the procedures, financial costs associated with them, value of official fees required, presence of unofficial payments (as well as their amount), and presence of other financial burdens associated with “locating procedures”.
Time
A quick look at Chart 2.4 reveals that, in the case of both surveys, the time required for procedures related to land transactions tend to be significantly longer than time required for real estate transactions. The only exception is procedure# 6 (Transferring a premise (building) from the residential use to non-residential one) probably due to its complexity and the necessity to go through the relatively high number of stages (more detailed analysis of these phenomena will be presented later).
20 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Chart 2.4 Time required to complete the procedures under survey
AVERAGE TIME, DAYS (ALL REGIONS)
PROCEDURE #1 296 272
PROCEDURE #2A 261 150
PROCEDURE #2B 239 178
PROCEDURE #3A 220 227
PROCEDURE #3B 209 189
PROCEDURE #4 117 77 BIS ARCS PROCEDURE #5 77 107
206 PROCEDURE #6 244
86 PROCEDURE #7A 88
74 PROCEDURE #7B 101
221 PROCEDURE #8 226
110 PROCEDURE #9 137
The longest time was reported in the case of procedure #1 (Obtaining (lease of) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) and this procedure is especially time consuming in Novosibirsk Oblast (584 days reported by BIS and 665 days reported by ARCS). The least time consuming are procedures are related to lease of state (municipal) property with or without tenders. In the case of ARCS the shortest time was reported for procedure #4 (Lease of a real estate object in municipal property, without tender), and in case of BIS it was procedure #5 (Lease of a real estate object in municipal property during tenders or auctions). One of the reasons for such considerable difference in time needed to complete various “locating procedures” can be identified if we analyze the number of different stages for each procedure. As chart 2.5 suggests, the number of required steps is higher in the case of longer procedures, while it is lower in the case of less time consuming procedures (a correlation calculated is 0.76 and 0.91, for ARCS and BIS data respectively).
21 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Chart 2.5 Number of required stages for Chart 2.6 Total cost of the procedure each procedure
AVERAGE NUMBER OF STAGES (ALL REGIONS) AVERAGE TOTAL COSTS, THOUSAND RUBLES (ALL REGIONS) PROCEDURE #1 287 263 PROCEDURE #1 22 PROCEDURE #2A 229 75
PROCEDURE #2 16 PROCEDURE #2B 253 52
PROCEDURE #3A 77 PROCEDURE #3 11 63
PROCEDURE #3B 72 PROCEDURE #4 7 70 PROCEDURE #4 49 23 BIS ARCS PROCEDURE #5 6 PROCEDURE #5 80 34
PROCEDURE #6 12 PROCEDURE #6 104 51
55 PROCEDURE #7 3 PROCEDURE #7A 18
25 PROCEDURE #7B PROCEDURE #8 9 27 165 PROCEDURE #8 10 PROCEDURE #9 6 56 PROCEDURE #9 31
Total Cost
Analysis of the total costs of the procedures (charts 2.5 and 2.6) shows a similar pattern as for time. Again, it seems that procedures related to land are more costly than those related to real estate, and again one can notice that the exception is procedure #6 (Transferring a premise (building) from residential use to non-residential).
Our ARCS and BIS respondents agree that the most expensive procedure is the same procedure they reported to be most time consuming (procedure #1). ARCS reported an average cost of 263 045 rubles and BIS somewhat more - 287 213 rubles. The costs reach their maximum in Moscow City, where BIS reported an average cost of 1 520 000 rubles and ARCS reported 840 000 rubles. It is worthwhile to note that fairly good correlation (0.75) was found between average duration and costs of the procedure for BIS and ARCS data put together. So, the more time it takes to carry out the procedure, the more it normally costs.
Unofficial Payments
According to the survey data, the share of BIS that have reported using unofficial payments while carrying out procedures under the survey is quite significant and, on average exceeds half of the intermediary companies that participated in the survey. As Chart 2.7 suggests, the highest share of BIS that reported using unofficial payments was observed for procedure #8 (Transferring a land plot from one category into another) (73%), but one should keep in mind that the number of observations for this procedure is relatively small.
22 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
It is followed by procedure #6 (Transferring a premise from residential use to non- residential) (71%). Procedure #7B (State registration of a long-term lease agreement) is characterized by the lowest absolute level of unofficial payments (31%). The last figure, however, can hardly be looked upon as good news. If the lowest level of unofficial payments is close to one third, it can hardly be considered as something positive at all. It is also the simplest and shortest procedure.
Chart 2.7 Frequency of reported unofficial payments
AVERAGE PERCENTAGE (ALL REGIONS)
PROCEDURE #1 60 62
PROCEDURE #2A 66 44
PROCEDURE #2B 60 37
PROCEDURE #3A 51 44
PROCEDURE #3B 49 27
PROCEDURE #4 52 36 BIS ARCS PROCEDURE #5 41 76
PROCEDURE #6 71 63
PROCEDURE #7A 45 39
PROCEDURE #7B 31 32
PROCEDURE #8 73 50
PROCEDURE #9 59 39
The share of ARCS respondents that have reported the presence of unofficial payments is, in the case of most procedures, lower in comparison to BIS. The highest share of ARCS respondents reporting unofficial payments is for procedure #5 (Lease of a real estate object in municipal property during tenders or auctions) (76%) but it is based on a relatively small number of observations. The second highest share was observed again for procedure #6 (Transferring a premise (building) from residential use to non-residential), and again, despite the relatively low number of collected responses, one can observe a relatively high level of unofficial payment in the case of procedure #8 (Transferring a land plot from one category into another). The phenomena of high frequency of unofficial payments occurring while carrying out these two procedures may be explained by the “trigger” character of these procedures. The authorities may or may not allow the use for business purpose a real estate object or land in which money has already been invested. In other words, officials may be exploiting the fact of an investor’s sunk costs to extract more bribes.
23 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
If we use the combined results from both ARCS and BIS, the lowest level of corruption may be found in Novgorod Oblast (15%12), Perm Oblast (28%), and Tomsk Oblast (37%). However, in the case of the latter two, results showing that one third or one fourth of the transactions include unofficial payments can hardly be considered a positive finding. The numbers are even more alarming in the cases of Moscow City (67%) and Moscow Oblast (65%) where this indicator reaches the highest value. Even more alarming is the fact that 9 out of 15 regions have this indicator above 50%.
An analysis of the actual amounts of unofficial payments reveals that higher amounts of unofficial payments were reported for procedures having to do land in comparison to procedures having to do with real estate. Maximal or second highest amounts of unofficial payments were reported for the most complicated land related procedures: procedure #1 (Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) and procedure #2 (Obtaining a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders) for both BIS and ARCS in the majority of regions.
Cross-regional comparison of reported results indicates that Moscow City and Oblast are, again, among top three when it comes to the value of unofficial payments (chart 2.8). It is interesting to notice that although Rostov Oblast is in the top three when it comes to the frequency of unofficial payments, the amounts reported in Rostov Oblast are among lowest.
Chart 2.8 Average amount of reported unofficial payments, thousand rubles
53,3 Moscow 89,2 87,5 Moscow Oblast 73,1 37,5 Irkutsk Oblast 41,4 33,6 Khabarovsk Krai 40,7 118,8 Nizhny Novgorod Obl. 36,8 44,8 Novosibirsk Oblast 23,7 46,9 Sverdlovsk Oblast 21,6 11,3 BIS Tomsk Oblast 16,8 ARCS 9,0 Sakhalin Oblast 16,6 5,9 Perm Oblast 14,4 5,0 Novgorod Oblast 9,4 20,6 Kaliningrad Oblast 7,4 4,6 Leningrad Oblast 5,5 7,9 Rostov Oblast 3,1 37,6 Saint-Petersburg 2,8
12 % of cases among all procedures in which unofficial payments were reported
24 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Additional Costs
The survey has revealed a new type of cost that companies in a number of regions incur while going through procedures related to land and real estate. These are sponsorships and payments to non-governmental foundations that companies are encouraged to make by different authorities. These types of expenses lie exactly on the border between official and unofficial costs. On the one hand, these payments cannot be called completely unofficial since they are not payments in cash but rather official bank transfers to officially registered foundations. On the other hand, they also cannot be called official since they are not made to government agencies or municipalities and are not required by any legal act. Such payments may be a safe way for some officials to obtain weakly controlled funds without any serious risk of prosecution. These payments are not as widespread as unofficial payments (on average these payments were registered in 21% of cases) but they cannot be called a rare phenomenon. The highest reported occurrence of this phenomenon was observed in Khabarovsk Krai, where according to our respondents 58% of all procedures included payments to these foundations.
Another type of cost imposed on the companies while carrying out land and real estate procedures are so-called additional burdens. Additional burdens mean services or some material contribution (normally, not money) to the municipality made by the company in addition to official payments. Depending on the region and procedure, such contributions may or may not be prescribed by the law. Examples of such contributions might be paving the road next to the land plot obtained for the construction or building an additional residential apartment for the municipality to replace the one transferred into a non-residential usage. And again Khabarovsk Krai tops the list of regions where this phenomena is most widespread, with 39% incidence. It should also be noted that on both additional burdens and contributions to funds, Khabarovsk Krai is followed by Sverdlovsk (36% for funds and 30% for additional burdens), while the same regions have relatively low occurrences of these phenomena (Rostov, Irkutsk, Novgorod and Tomsk), which shows that this is not a completely random practice, but while it is relatively rare in some regions, it is quite common in others.
As Chart 2.9 indicates, the occurrence of unofficial payments, fund contributions and additional burdens is not reported consistently across all regions under the survey. It also suggests that “traditional” unofficial payments represent only one part of unofficial and semi-official burden to businesses. According to our respondents, in some regions these semi-official burdens are an even more frequent practice than the “old-fashioned” unofficial payments.
25 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Chart 2.9 Frequency of unofficial payments, contributions to foundations, and additional burdens13
Kaliningrad oblast 40 14 8 Saint-Petersburg 56 13 5 Leningrad oblast 56 8 24 Moscow 67 30 23
Moscow oblast 66 31 10 Sverdlovsk oblast 60 36 30
Novgorod oblast 10 9 4 Tomsk oblast 11 33 9 Khabarovsk krai 51 58 39 Irkutsk oblast 60 10 8 Rostov oblast 61 11 5 Perm oblast 27 18 21 Novosibirsk oblast 38 21 16 Nizhny Novgorod oblast 56 22 23 Sakhalin oblast 49 18 30
Frequency of unofficial Sponsorship Burdens payments
Procedure #6 (Transferring a premise from the residential use to non-residential one) and procedure 8 (Transferring a land plot from one category into another, changing designated use of a land plot) were already mentioned as the ones with the highest incidence of unofficial payments. Thus, it is not a surprising finding that, compared to other procedures, respondents choose to use intermediaries somewhat more often when faced with procedure #6 and procedure #8. Overall, respondents reported using outside professional consultants in 26% of the cases, while for these two procedures the shares are 48% and 44% respectively.
The highest reported cost and highest reported necessary time makes procedure #1 (Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) one of the most serious candidates for the most complicated procedure. The averages, based on the responses reported in all 15 regions indicate that it takes between 272 (ARCS) and 296 (BIS) days to complete it. Additionally, our respondents indicate that one will have to spend between 263 045 rubles (ARCS) and 287 213 rubles (BIS) while going through 22 stages (on average) for this procedure. Respondents in Novosibirsk Oblast reported an especially long duration (665 days reported by ARCS and 584 days reported by BIS), while Moscow City ones reported extremely high cost (ARCS reported an average cost of over one and a half million rubles). Somewhat better practice was reported by our respondents in Rostov Oblast (53 (ARCS) to 78 (BIS) days, 12 500 (ARCS) to 26 600 (BIS) rubles). A discouraging fact, however, is that 90% of Rostov BIS reported unofficial payments during this procedure. This procedure also has the reported frequencies of unofficial payments, contributions to funds and additional burdens higher than for most of other procedures.
13 Calculated as an average of what BIS and ARCS have reported
26 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Details about the other eight procedures are contained in the main text of this report.
Tenders
The share of companies that participated in tenders or auctions while carrying out procedures related to land and real estate transactions is relatively small: in the case of ARCS, it does not exceed 10% of the companies under the survey in most of the regions. In the case of BIS it is even smaller and is on average below 5%. According to discussions with experts, this is probably due to the fact the preparing for tenders and auctions can be quite expensive for a municipality.
Evaluation of quality of tenders’ organization by BIS depends on the region. The highest level of accessibility of tender documentation was reported by BIS respondents in Tomsk Oblast (value 1,5 on the scale 4 with 1 being the highest and 4 being the lowest), while the lowest accessibility of tender documentation was reported for Novosibirsk and Sverdlovsk Oblast (value 3). Clearness of tender documents was most positively evaluated by BIS respondents in Tomsk Oblast (value 1,5), while most negative evaluations were obtained again for Novosibirsk Oblast (value 3).
The worst estimates of accessibility and clearness of documents on tendered property as well as of fairness and openness of tenders were obtained for Sverdlovsk Oblast (values 3, 2.5 and 3.5 respectively). The best evaluations of accessibility and clearness of documents on tendered property were obtained for Kaliningrad Oblast and Moscow City respectively with the value 1.4 in both cases, while the best evaluation of tenders’ fairness and openness was observed in Tomsk Oblast (value 1,4).
More than a half of both BIS and ARCS companies that participated in the survey had to deal with the problems of land survey and boundaries settlement. The regions where the biggest share of ARCS companies was reported to have requested the settlement of boundaries are Moscow Oblast (78%) and Kaliningrad Oblast (76%), while the lowest occurrence of such procedures was observed in Saint-Petersburg (19%) and Sverdlovsk Oblast (27%).
The practice of “recommendation” of affiliated land survey companies by the government authorities is quite widespread: about a half of BIS companies under the survey have reported about the existence of such a practice. According to the BIS survey data, such situations are most widespread in Moscow City (about three quarters) and Khabarovsk Krai (about two thirds), while this practice is less common in Kaliningrad Oblast (29%), Rostov Oblast (35%) and Irkutsk Oblast (36%).
Agencies
This report will also try to compare various agencies involved in the procedures under the survey. For the analysis, 22 agencies were chosen for comparison. Only agencies that exist in 7 or more regions14, and those having more than 5 observations were taken into consideration. The following results are based on BIS survey only, since the interviews with ARCS companies did not include the level of separate documents within each procedure.
The biggest number BIS respondents had contacts with the Department of Justice. The reason is that this agency is doing the state registration which is the
14 In identical or similar form
27 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
logical end of any land or real estate procedure. The agency with the second largest number of respondents that reported contacted is the Municipal Administration, and this agency is also characterized by the biggest number of contacts per respondent (within the course of the procedure, one company would often have contact with a certain agency more than once).
For the analysis of the administrative barriers imposed by each of the agencies two coefficients were used:
1. The first one is the coefficient on the frequency of occurrence of negative phenomena that are reported in the interaction with a particular authority, such as an interaction implying semi-official payments (funds and additional burdens), interactions wasting respondent’s time to the biggest extent, interactions causing the biggest number of problems and those including established non-official relations with the agency. All these evaluations were taken into account if and only if the respondent was interacting with the mentioned agency in the course of the procedure.
Chart 2.10 Coefficients on the frequency of negative phenomena15
Municipal Administration 0,20 The Extradepartmental Committee 0,17 Municipal Committee for Land Resources and Land 0,15 Development Committee for Property Management 0,13 Technical Inventory Bureau (BTI) 0,12 Committee for Architecture and Urban Planning 0,12 District Administration 0,10 Department of Justice 0,10 Region Administration 0,10 Tender Committee 0,09 Cadastral Chamber 0,09 State Fire Department of Ministry of Emergency 0,08 Situation of the region Sanitary & Epidemiological Station (SES) 0,07 Mayor 0,06 Traffic Police (GIBDD) 0,05 Inspectorate for protection and use of cultural 0,05 heritage Land management organization (land-surveyors) 0,04 Commission on Land planning and development 0,04 Committee for Environmental Conservation 0,04 Taxation bodies 0,03 Architectural and design organization 0,02 State environmental expert review agency 0,02
15 On the basis of obtained results three groups of government agencies were separated characterized by low, middle and high level of Coefficients on the frequency of negative phenomena. Dividing into groups was done by the following way: - a group with middle level of Coefficients of the frequency of negative phenomena consists of government agencies that have coefficient meaning to be in the group of “average out of all agencies +/- one standard deviation”; - а group with high level of frequency of negative phenomena consists of government agencies that have coefficient meaning to be more than “average out of all agencies + one standard deviation”; - а group with high level of frequency of negative phenomena consists of government agencies that have coefficient meaning to be less than “average out of all agencies – one standard deviation”.
28 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Analysis of calculated coefficients has shown that the highest level of negative phenomena was obtained for the Municipal Administration, Extradepartmental Committee and Municipal Committee for Land Resources and Land Development (See chart 2.10). The smallest level of negative phenomena was observed for Land management organization, Commission on Land planning and development, Committee for Environmental Conservation, Environmental Expert Review Agency, Architectural and design organization and State and Taxation bodies. However the later two were based on relatively small numbers of interactions.
On the regional level the most negative example comes from Nizhniy Novgorod where for Municipal administration, the frequency of negative phenomena was the highest one.
2. The second coefficient reflected the reported frequency of corruption in different government agencies. This coefficient is tied to the percentage of situations when unofficial payments were reported by respondents as a share of their total number of interactions with a particular authority. Analysis of calculated coefficients has shown that the highest level of corruption was reported for 5 authorities:
The regional State Fire Department of Ministry of Emergency Situation. This high coefficient is the fact that the lowest coefficient registered in all regions was in Perm.
Traffic Police (GIBDD) – However, satisfactory number of observations exists in only two regions – Moscow City and Khabarovsk Krai, so one could call this phenomena “regional specific”. Although based on relatively small number of observations, high corruption coefficient was also found in Sverdlovsk and Irkutsk Oblasts.
Sanitary & Epidemiological Station (SES) is unfortunately again an example of consistently high corruption coefficient across regions. Somewhat lower coefficients were recorded in Perm and Novosibirsk Regions. It is interesting to notice that the number of respondents interacting with this agency is the highest for the very same two regions.
State environmental expert review agency, Committee for Environmental Conservation are also in the group, which is characterized by the high level of reported frequency of corruption (See chart 2.10).
The smallest coefficients were obtained for Department of Justice, Architectural and design organization, Municipal Administration. High level of corruption coefficient obtained for State Fire Department, GIBDD and SES may be explained by the fact that these authorities may interact with the applicant both at the preliminary stages of the procedure and at the stages of the procedure when it is almost settled and the investor has high sunk-costs. Unfortunately, the data do not distinguish between corruption occurring in early stages of the procedures and those occurring in the latest stages.
Comparing regions on the corruption coefficient shows the highest average corruption coefficient for Rostov region, which is followed by Saint Petersburg. The lowest level of unofficial payments is registered in already mentioned Novgorod.
29 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Chart 2.11 Coefficients reflecting the reported frequency of corruption16
State Fire Department of Ministry of Emergency Situation of the region 0,45 Traffic Police (GIBDD) 0,43 Sanitary & Epidemiological Station (SES) 0,41 State environmental expert review agency 0,39 Committee for Environmental Conservation 0,38 Taxation bodies 0,37 Tender Committee 0,32 The Extradepartmental Committee 0,32 District Administration 0,30 Technical Inventory Bureau (BTI) 0,28 Commission on Land planning and development 0,28 Municipal Committee for Land Resources and Land Development 0,27 Land management organization (land-surveyors) 0,27 Cadastral Chamber 0,26 Inspectorate for protection and use of cultural heritage 0,24 Committee for Architecture and Urban Planning 0,22 Mayor 0,21 Committee for Property Management 0,21 Municipal Administration 0,19 Architectural and design organization 0,18 Department of Justice 0,17
Chart 2.12 Coefficients reflecting the reported frequency of corruption17
Rostov oblast 0,56 Saint-Petersburg 0,49 Moscow oblast 0,41 Moscow 0,35 Sverdlovsk oblast 0,33 Irkutsk oblast 0,33 Kaliningrad oblast 0,23 Leningrad oblast 0,22 Nizhny Novgorod obl. 0,22 Khabarovsk krai 0,20 Tomsk oblast 0,17 Novosibirsk oblast 0,14 Sakhalin oblast 0,14 Perm oblast 0,13 Novgorod oblast 0,00
16 The principle of dividing groups with high, middle and low level of corruption is the same as described for chart 2.9 17 The principle of dividing groups with high, middle and low level of corruption is the same as described for chart 2.9. A group of low level of corruption consists of Novgorod Oblast only.
30 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
3. LAND RELATED STATISTICAL INFORMATION GATHERING
Together with the Russian Ministry of Economic Development and Trade (MEDT) FIAS undertook gathering of statistic information from the federal and regional sources in order to complement the survey of land and real estate transactions. The statistics data was collected in parallel to the survey in the same regions. This chapter focuses on the official statistical information on land related procedures. It briefly describes the methodology employed and the process of gathering the information, as well as the summary of the results obtained. Finally, this chapter provides some observations and recommendations for future use of such official statistics in monitoring the implementation progress of federal land related policies and laws at the local level.
3.1. Methodology and Statistical Information Gathering
Methodology
The goals of this exercise were as follows: 1. Ascertain the official statistical information on nine most important real estate related procedures that is currently being collected and is available; 2. Gather the information that is available and analyze it in conjunction with the results of the business survey; 3. Identify the gaps and provide recommendations to the MEDT on possible improvements to the current official reporting requirements of government agencies and municipal authorities involved in implementing various land related procedures. The initial identification of the potential sources of existing information indicated that some data is being gathered by Roskadastr, but clearly not all aspects of real estate related procedures are captured in this way. Thus it was decided to continue with two complimentary approaches to gathering the statistical information: 1) Accessing the already available statistical information and using certain portions of data that relate to the nine key procedures being investigated in detail. The following sources were identified: a. Reports of Roskadastr - “State (National) Report on the Status and Use of Lands in the RF” in 2003 and 2004. b. Statistical Form #3-‘zem’ “Information on Land Transactions” of the Federal State Statistical Survey gathered via Roskadastr territorial units. 2) Direct and targeted gathering of specific information on land related procedures from relevant government institutions and municipalities as per the needs defined during the design of the monitoring system. The FIAS team in consultation with the MEDT staff designed a set of specific statistical templates for the nine key procedures for land and real estate transactions, aimed at gathering data that would allow an assessment of how these procedures are implemented in practice. The questions in the procedure- specific statistical templates related to the volume of applications received, number of decisions taken, rejections issued, number and outcome of appeals,
31 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
etc. The specifics of this management-type information allows us to ascertain how the procedures are implemented in practice, if there is any system for tracking status and number of applications, to what extent the procedures are formalized and if the actual implementation is being monitored by the authorities themselves. Besides gathering the statistical information, such an exercise allows us to assess the capacity of the regional and local governments and highlights their approaches to managing their services to businesses. Templates for gathering the procedure specific statistical data were developed for each of the survey procedures (see Annex 2 for statistical templates):
Table 3.1. Statistical Templates and Corresponding Survey Templates Number and name of statistical templates Template number from the survey Procedures related to purchase or lease of land Stat.Procedure Lease of a land plot, which is currently federal, oblast or municipal №1: property, for construction with preliminary agreement on the 1 object location Stat.Procedure Lease of a land plot, which is currently federal, oblast or municipal №2а: property, for construction without preliminary agreement on the 2b object location, during auctions or tenders Stat.Procedure Purchase (ownership) of a land plot, which is currently federal, №2b: oblast or municipal property, for construction without preliminary 2a agreement on the object location, during auctions or tenders Stat.Procedure Obtaining ownership rights on land plots, which are currently №3: federal, oblast or municipal property, by owners of premises, 3 buildings or structures located on these land plots (privatization and lease) Stat.Procedure Transferring a land plot from one category into another (changing 8 №4: designated use of a land plot) Procedures related to purchase or lease of real estate objects (premises, buildings or structures) Stat.Procedure Lease of a real estate object (premise, building or structure), №5: which is currently federal, oblast or municipal property, without the 4 procedure of tender (including purposive assignment cases) Stat.Procedure Lease of a real estate object (premise, building or structure), №6: which is currently federal, oblast or municipal property, during 5 tenders or auctions Stat.Procedure Privatization of a real estate object (building or premise), which is №7а: currently federal, oblast or municipal property, without the n/a procedure of tender Stat.Procedure Privatization of a real estate object (building or premise), which is №7b: currently federal, oblast or municipal property, during tenders 9 (auctions) Stat.Procedure Transferring a premise (building) from residential use to non- 6 №8: residential use Procedures related to state registration of rights acquired to land and real estate objects Stat.Procedure State registration of ownership rights in real estate in the case of №9a: buying or selling a real estate object (by the category of real 7a estate object) Stat.Procedure State registration of rights in real estate in the case of lease 7b №9b: agreement (by the category of the real estate object)
32 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Statistical Information Gathering
The information gathering stage was initiated in September 2005. The MEDT sent out two letters requesting information: 1) From Federal Cadastre Agency of Real Estate Objects on: a. Reports of Roskadastr - “State (National) Report on the Status and Use of Lands in the RF” for all years starting from 2001, if available. b. Completed statistical forms #3-‘zem’ “Information on Land Transactions” for 15 regions starting from 2001 and all subsequent years, if available. As a result, the Federal Cadastre Agency provided the following information fairly promptly: Ø “State (National) Report on the Status and Use of Lands in the RF” for 2003 and 2004. Ø Completed statistical forms #3-‘zem’ “Information on Land Transactions” for all 15 regions for 2002, 2003 and 2004. It should be noted that the form 3-zem has been altered fairly significantly between 2002 and 2004. Therefore full comparability of data between these two years is not ensured. However, with due disclaimer some data elements to be compared were identified and the results are presented below. In order to track trends over a longer period of time statistical information for 2002 and 2004 was used for analysis. For the data used in analysis, see Excel tables with specific sources (rows and columns of the Form 3-zem) in Annex 3. 2) From Heads of Subjects of the Russian Federation (Governors): The Governors were kindly requested to provide information in accordance with the attached templates about their oblast and the municipalities of their oblast, as well as to request information in the relevant federal territorial organization of their oblast in charge of the land and real estate issues to gather information on the deals with Federally possessed land and in the territorial organ of the Federal Registration Service, if possible, starting from January 2001 for every year including the incomplete 2005. It was also indicated that if the statistics on the specific procedures is not fully collected, even incomplete information will be useful for the purposes of analysis. The results of this portion of the statistical gathering exercise were much less uniform. Between September and December 2005 a total of 8 regions responded (out of 15). These were as follows:
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Table 3.2 Response to the request of MEDT on completing statistical templates for 9 specific procedures Region Response to the request of MEDT on completing statistical templates for 9 specific procedures 1. Irkutsk Oblast NO 2. Kaliningrad Oblast NO 3. Khabarovsk krai NO 4. Leningrad Oblast YES 5. Moscow City NO 6. Moscow Oblast YES (no template, but only a letter explaining that the Regional Administration does not have information on municipalities) 7. Nizhny Novgorod Oblast YES 8. Novgorod Oblast NO 9. Novosibirsk Oblast NO 10. Perm Oblast YES 11. Rostov Oblast YES 12. Sakhalin Oblast NO 13. St.Petersburg City NO 14. Sverdlovsk Oblast YES 15. Tomsk Oblast YES
3.2. Summary of Results
This section provides a brief summary of the results of the statistical information gathering exercise on the land and real estate related procedures for 15 regions of the Russian Federation. The section provides an overview of the information obtained via analysis of the Statistical Form #3-‘zem’ “Information on Land Transactions” for all 15 regions and the National Report on the Status and Use of Lands in the RF for 2004. One of the key findings emerging from this exercise is that there appears to be no single source and no complete data available on the status and results of implementation of key land related procedures in the regions and municipalities. While the data available in completed forms 3-zem would appear to provide a general overview, discussions with relevant stakeholders indicated that there are certain doubts about the accuracy of the data contained therein. Similar doubts on the validity and accuracy of the data gathered via this form 3-zem was cast in discussions with the regional Land Departments (or similar) who apparently did not have and did not use this data in this format and/or were not aware that such form existed and such data was being collected in their region by the Roskadastr. At a minimum, this indicates that even potentially useful data is not being used at all in the analysis of performance of regional institutions and local authorities at the regional level. Similarly, trends related to the progress with privatization of land and other important aspects of these procedures are not being tracked and analyzed.
Ownership structure of land
Information from the National Report on the Status and Use of Lands in the RF for 2004 and form 3-zem provides a good overview of the actual situation with the ownership structure of the land. Overall, 7,6% of the territory of the RF is owned by private entities (natural persons and legal entities) with wide variation across seven federal regions.
34 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Table 3.3 Characteristics of land ownership in the Russian Federation in 2004 Land owned by Land owned by state and natural persons and Total area municipal authorities legal entities (as per (as per state registry) (as per state registry) state of these of these registry), leased, leased, % of all Federal Districts th.ha. th.ha. th.ha % th.ha. area Russian Federation 1709824,2 1580249,8 70154 4,4 129574,4 7,6%
North West FD 168696,8 163788,6 3705 2,3 4908,3 2,9% Central FD 65020,5 40274,4 2622,1 6,5 24746,1 38,1% Volga FD 103697,5 70844,6 4662,2 6,6 32852,8 31,7% Southern FD 59131,5 36433,5 6124,5 16,8 22698 38,4% Ural FD 181849,7 171997,9 31172,5 18,1 9851,8 5,4% Siberian FD 514495,3 482371,4 13336,8 2,8 32123,9 6,2% Far East FD 616932,9 614539,4 8530,9 1,4 2393,5 0,4% Source: Roskadastr State (National) Report on the Status and Use of Lands in the RF in 2004.
The charts below indicate what proportion of land in 15 regions is owned by state and municipalities, and what proportion is owned by private persons - legal entities and natural persons (also see chart 2 in “Executive Summary” section) . In 10 out of 15 regions, more then 3/4 of land is owned or is in possession of state or municipalities. In only 1 of these 15 regions (in Rostov Oblast) the share of state and municipal lands is less than 50%. Moscow City stands out with 100% of land in possession of state or municipality. Overall, the statistics clearly indicates that currently municipalities (which are in fact administering the privatization and lease applications for state lands as well) are still monopoly holders of this resource.
Chart 3.1 Land owned by legal entities, 2004, %
Land Owned by Legal Entities, 2004, %
0% 2% 4% 6% 8% 10% 12%
Saint-Petersburg 11.08% Moscow Oblast 7.23% Kaliningrad Oblast 3.60% Rostov Oblast 1.42% Novgorod Oblast 1.24% Nizhny Novgorod Obl. 0.80% Perm Oblast 0.66% Leningrad Oblast 0.52% Novosibirsk Oblast 0.41% Sverdlovsk Oblast 0.38% Sakhalin Oblast 0.16% Irkutsk Oblast 0.06% Tomsk Oblast 0.03% Khabarovsk Krai 0.01% Moscow 0.00%
Source: Based on data from Roskadastr State (National) Report on the Status and Use of Lands in the RF in 2004.
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If we assume that the category of land owners “legal entities” mostly represents businesses, we see that by far the largest share of land is owned by these legal entities in St.Petersburg (11%). Another region that stands out is Moscow Oblast with 7 % of land owned by legal entities. With the exception of Kaliningrad Oblast with 3,6%, Rostov Oblast – 1,4% and Novgorod Oblast 1,2%, in all other regions legal entities own less then 1% of land.
Another important indicator of the development of regional land markets is the share of land owned by natural persons. This is predominantly agricultural land and land for private homesteads and cottages, etc., but clearly some of this land is also used for business purposes. Leader among the 15 studied regions is Rostov, where over 60% of land is owned by natural persons. None of the other regions comes anywhere close to that. The next three are - Kaliningrad Oblast with 35,5% of land in ownership of natural persons, Novosibirsk – 31%, Nizhny Novgorod – 29%. On the other end Moscow City boasts with 0% of land owned by natural persons.
Chart 3.2 Land owned by natural persons, 2004, %
Land Owned by Natural Persons, 2004, %
0% 10% 20% 30% 40% 50% 60% 70%
Rostov Oblast 63.57% Kaliningrad Oblast 35.50% Novosibirsk Oblast 30.98% Nizhny Novgorod Obl. 29.27% Moscow Oblast 19.20% Perm Oblast 10.20% Novgorod Oblast 9.45% Sverdlovsk Oblast 6.86% Leningrad Oblast 5.15% Tomsk Oblast 2.29% Saint-Petersburg 2.07% Irkutsk Oblast 1.44% Sakhalin Oblast 0.50% Khabarovsk Krai 0.07% Moscow 0.00%
Source: Based on data from Roskadastr State (National) Report on the Status and Use of Lands in the RF in 2004.
Privatization of land
The next indicator of interest is the number of privatization deals reported in 15 regions for the past few years. The chart below indicates the number of privatization deals in 2004 with land in urban areas, where the land was purchased by legal entities (except agribusiness) for industrial & other special uses and other purposes. For 2002 the data includes privatization deals with all entrepreneurs (i.e. including natural persons registered as entrepreneurs). Thus, although the base of this data is not identical, it is likely to overestimate the number of such deals in 2002 as compared to the base for 2004. Despite this difference, the data indicates a solid growth in the
36 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
number of privatization deals for 2004 as compared to 2002 in all regions but St.Petersburg and Moscow. Rostov Oblast and Moscow Oblast are clear front-runners in terms of the increase in the number of privatization deals with legal entities for lands in urban areas. The next group in terms of the dynamics is formed by Irkutsk, Nizhny Novgorod, Perm and Tomsk Oblasts – all which have concluded between 200 and 300 such privatization deals. The other regions have had a little more then 100 sales deals of lands in urban areas to legal entities in 2004 (except for Sakhalin Oblast – 33; Khabarovsk Krai – 6; St.Petersburg and Moscow City – 0).
Chart 3.3 Privation deals in urban areas, 2002 & 2004
Number of privatization deals in urban areas (concluded with legal entities/entreprenuers), 2002 & 2004 0 100 200 300 400 500 600 700 800
131 Rostov Oblast 761 76 Moscow Oblast 615 96 Irkutsk Oblast 307 44 Nizhny Novgorod Obl. 275 195 Perm Oblast 265 0 Tomsk Oblast 205 55 Sverdlovsk Oblast 134 27 Leningrad Oblast 131 22 Kaliningrad Oblast 130 53 Novosibirsk Oblast 116 43 Novgorod Oblast 107 11 Sakhalin Oblast 33 0 Khabarovsk Krai 6 140 Saint-Petersburg 0 0 Moscow 0
2002 # of deals/year 2004 # of deals/year
Source: Completed statistical forms #3-‘zem’ “Information on Land Transactions” for 15 regions for 2002 and 2004. Land plots purchased by legal entities in urban areas (except agribusiness) for industrial & other special uses and for other purposes (for 2002 - deals with entrepreneurs, incl. natural persons).
Given the substantial differences in the area of land covered by each of the 15 regions, it is not worthwhile to compare the absolute figures for the area of land privatized in these deals. However, a useful indicator is the average area of land per privatization deal. In all but three regions the average area of land per privatization deal in urban areas is between 0,25 ha and 1,5 ha. Khabarovsk Krai has had only 6 privatization deals in 2004, but these involved on average 4 ha. Moscow City and St.Petersburg effected no privatization deals with legal entities in urban areas in 2004 as per the official statistical information supplied in the form 3-zem.
37 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Chart 3.4 Size of land per one privatization deal, 2004, hectares
Hectares of land per privatization deal, 2004
0.0000 0.5000 1.0000 1.5000 2.0000 2.5000 3.0000 3.5000 4.0000 4.5000
Khabarovsk Krai 4.1246 Novosibirsk Oblast 1.5090 Perm Oblast 1.3676 Irkutsk Oblast 1.2166 Novgorod Oblast 1.0250 Rostov Oblast 0.7607 Kaliningrad Oblast 0.7569 Sverdlovsk Oblast 0.6204 Leningrad Oblast 0.5650 Nizhny Novgorod Obl. 0.5507 Moscow Oblast 0.5018 Tomsk Oblast 0.3957 Sakhalin Oblast 0.2494 Moscow 0.0000 Saint-Petersburg 0.0000
Source: Completed statistical forms #3-‘zem’ “Information on Land Transactions” for 15 regions for 2002 and 2004. Land plots purchased by legal entities in urban areas (except agribusiness) for industrial & other special uses and for other purposes (for 2002 - deals with entrepreneurs, incl. natural persons).
Tenders
Yet another indicator highlighting the practices in the regions for how the land privatizations are conducted is the use of auctions/tenders as a sales mechanism. The largest number of reported auctions/tenders in 15 regions studied has been undertaken in Rostov Oblast in 2002 – 65 and in Moscow Oblast in 2004 – 58.
Table3.4 Number of privatization deals conducted via auctions/tenders ”with legal entities for land in urban areas” Region 2002 2004 Moscow Oblast 13 58 Rostov Oblast 65 28 Nizhny Novgorod Oblast 18 24 Leningrad Oblast 5 13 Novosibirsk Oblast 7 9 Perm Oblast 29 5 Novgorod Oblast 0 5 Irkutsk Oblast 6 3 Sakhalin Oblast 4 2 Kaliningrad Oblast 0 1 Tomsk Oblast 0 0
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Region 2002 2004 Sverdlovsk Oblast 0 0 Khabarovsk Krai 0 0 Saint-Petersburg 0 0 Moscow 0 0
Source: Completed statistical forms #3-‘zem’ “Information on Land Transactions” for 15 regions for 2002 and 2004. Land plots purchased by legal entities in urban areas (except agribusiness) for industrial & other special uses and for other purposes (for 2002 - deals with entrepreneurs, incl. natural persons), of these – sold on auction/tender.
It is interesting to note that as a percentage of all public land sales completed in 2002 and 2004, the share of those deals conducted via an auction/tender has decreased substantially in 2004 as compared to 2002 (see chart 3.5).
Chart 3.5 Land plots privatized by legal entities in urban areas via auctions/tenders, % of total privatized land plots
Land plots privatized by legal entities in urban areas - % of these sold on auctions/tenders 0% 10% 20% 30% 40% 50% 60%
50% Rostov Oblast 4% 41% Nizhny Novgorod Obl. 9% 36% Sakhalin Oblast 6% 19% Leningrad Oblast 10% 17% Moscow Oblast 9% 15% Perm Oblast 2% 13% Novosibirsk Oblast 8% 6% Irkutsk Oblast 1% 0% Novgorod Oblast 5% 0% Kaliningrad Oblast 1% 0% Tomsk Oblast 0% 0% Sverdlovsk Oblast 0% 0% Khabarovsk Krai 0% 0% Saint-Petersburg 0% 0% Moscow 0%
% sold on auction/tender, 2002 % sold on auction/tender, 2004
Source: Completed statistical forms #3-‘zem’ “Information on Land Transactions” for 15 regions for 2002 and 2004. Land plots purchased by legal entities in urban areas (except agribusiness) for industrial & other special uses and for other purposes (for 2002 - deals with entrepreneurs, incl. natural persons), of these – sold on auction/tender.
The reduction in the relative share of land privatization deals conducted via auctions/tenders needs to be interpreted with caution. First, as discussed at the outset we have to be mindful of the accuracy of the data, regardless of the fact that the source is the official statistics gathered by the Roskadastr. Secondly, although a straightforward interpretation would be one of suspicion towards the regional
39 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
authorities which have avoided use of tenders and auctions, it is plausible that the nature of the privatization applications was one that did not allow for use of tender/auction procedures (i.e. privatization of land underneath private buildings). Nevertheless, it can be regarded as a deficiency of the current statistical reporting on land transactions that does not allow distinguishing between such causes and therefore no meaningful conclusions can be derived.
Land leases
Lease of public land continues to be an important source of access to this factor of production. The chart below indicates the number of effective lease agreements in 2002 and 2004 in all 15 regions. It is interesting to note that the number of lessees of land plots in urban territories has increased in most regions between 2002 and 2004 with two exceptions – Rostov Oblast and Moscow City were the number of lessees has remained virtually unchanged. For the other regions these figures most likely illustrate that the authorities started to require formal lease agreements for public lands occupied by businesses, thus replacing the previous use arrangements. It would be essential to monitor this indicator in the coming years as in principle the number of lessees should be decreasing if the privatization of public lands is continued and is implemented effectively.
Chart 3.6 Lease deals with enterprises for land plots in urban territories, 2002 & 2004
Lease deals with enterprises for land plots in urban territories, 2002 and 2004 0 5000 10000 15000 20000 25000
Moscow 24617 Rostov Oblast 10003 24541 10039 Moscow Oblast 4102 9840 Nizhny Novgorod Obl. 4158 6598 Perm Oblast 7507 6547 Sverdlovsk Oblast 5016 6185 Kaliningrad Oblast 2386 5222 Novosibirsk Oblast 1911 4271 3903 Tomsk Oblast 4098 Leningrad Oblast 2585 4048 Khabarovsk Krai 31783827 Irkutsk Oblast 24323235 0 Sakhalin Oblast 2090 2321 Saint-Petersburg 1577 1228 Novgorod Oblast 1557 2002 # of lessors 2004 # of lessors Source: Completed statistical forms #3-‘zem’ “Information on Land Transactions” for 15 regions for 2002 and 2004. Lease of state and municipal land plots.
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3.3. Recommendations for gathering and use of the statistical information on land related procedures to track progress with implementation of federal policies and laws at the local level
Under the current land code, land privatization is encouraged, but there are no effective requirements to ensure minimum standards of transparency and consistency of treatment. While most land of interest to business is currently owned by municipalities, business surveys indicate that most municipalities appear to deter land privatization with high land privatization prices, overly complex and opaque administrative procedures and through inconsistency of implementation, including favoritism and corruption and lengthy bureaucratic delays. Currently business opinions about these aspects to some degree are being captured via a number of surveys administered by different NGOs and think tanks and with the assistance of the international community. The business sector surveys and monitoring are a good thing, and they get at certain concerns that government does not, but they are not a substitute for government data gathering in support of policy and law enforcement. Ultimately, greater transparency may be one of the few weapons the national government has against the tendencies of local governments. The question should be asked why the government does not demand and maintain statistical information on this important aspect of state policy, especially given the fact that acceleration of privatization of enterprise land has been a stated objective of RF policy under several well publicized Government Resolutions since at least 2002.
The Federal government should establish a simple statistical reporting requirement for transactions in state and local land. The Federal government perhaps takes the position that land allocation is a local matter, which it is in an operational sense. At the same time, Federal law establishes the basic civil rights to privatize land and to be treated fairly in administrative procedures (e.g. auctions or direct allocation) and it is not possible to provide oversight on these matters if they don't know what is going on.
Current provisions for gathering the statistical information on land transactions as per form 3-zem are insufficient. It would be advisable to revise these reporting requirements to provide for a more user friendly and perhaps simpler version to be completed by municipalities and regions that would get to the core of the administration side of these procedures, because as the findings clearly indicate the problems are at the level of implementation.
The templates for gathering the procedure specific statistical data that were developed as part of this exercise (see Annex 2) might provide some ideas for future revisions to government data gathering in support of land policy and law enforcement.
At a very minimum, the indicators that should be tracked and that would provide an overview of the tendencies in a given locality are as follows:
41 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Some suggestions for minimum indicators to be tracked
1. Auction*
· number of events o initiated o cancelled · starting price · sale price · auction period (announcement to auction) · land use category · # of applications · # of disqualified applications · # of registered bidders
2. Privatization*
· number of applications · land use category · approved o (time for approval) · rejected o (time) · delayed o (time) · reasons for rejection o documentation o boundary o town planning o Federal/local land delineation o etc. · Price · Amount of land claimed · Amount of land awarded · Location - approximate distance to center
* All data kept by lease or sale and expressed in area (hectares).
42 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
4. SURVEY METHODOLOGY
This chapter provides a brief summary of the survey methodology used. Further details are available in Annex 1 (table 4.1, table 4.2)
4.1. Overview
The research methodology for the study required both a legal analysis and in-depth survey.
The Legal analysis included:
· A thorough analysis of federal, regional and municipal legislation behind the procedures under investigation, including detailed mapping of necessary steps to complete the procedures. The analysis was conducted on the basis of publicly available legal acts, including publicly available federal laws and regulations, regional laws and regulations and municipal regulations; · In depth interviews with experts for obtaining more specific information about the practical aspects of the procedures under investigation in each particular region. The legal analysis results were gathered in templates, which describe major stages for all surveyed procedures in each of the surveyed regions (sequence of stages, necessary documents, government authorities, organizations involved in every stages, official time and cost limits for obtaining documents).
These templates formed a basis for comparison with real practice, reflected in the responses of the surveyed companies.
The Survey included both a business intermediaries survey (BIS) and administrative and regulatory costs survey (ARCS). More specifically, the surveys targeted the following respondents:
BIS - legal entities and sole proprietors providing intermediary services for locating procedures ARCS - legal entities and sole proprietors that attempted, underwent or completed locating procedures in 2004
For the purposes of carrying out the survey, sampling quotas were fixed for each respondent type and for each region. The sample scope for most regions was 100 questionnaires filled in by ARCS companies and 100 questionnaires filled in by BIS companies. One BIS company could be interviewed about several procedures.
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4.2. Instruments
The instruments employed to conduct the survey were tailored for each of two respondent types (ARCS and BIS). A package of instruments for surveying each type of respondent included the following documents: · a questionnaire; · a classifier, · cards supporting the questionnaire; · comprehensive instructions and a summary for interviewers. Screening questionnaires were also developed for both surveys, with corresponding instructions.
4.3. Sampling
The choice of the regions for the survey was based not on the representative sampling of regions, but rather on interest of project’s donors and beneficiaries towards particular regions. Nevertheless, these regions represent all 7 Federal districts of the Russian Federation (see picture 1.1). Also, as it was shown in the introduction part, regions under the survey cover 17% territory, 33% of population and 44% of the GDP of Russian Federation. Thus, for illustrative purposes one can consider the picture in these regions as a roughly representative picture of Russia.
Due to the specifics of this project, the selection of regions in which this project is to be carried out18, as well as a selection process of respondents19, might be somewhat biased relative to the Russian Federation as a whole. This is likely to lead to underestimations of obstacles measured. One might say that the findings of this project represent the “lower bound” of problems entrepreneurs in Russian Federation realistically face, when undergoing the procedures under investigation. The actual situation in the Russian Federation is likely to be somewhat worse.
4.4. Fieldwork
Tables 4.1 and 4.2 in Annex 1 give the most important information about the fieldwork covering both: the screening and the main fieldwork.
18 11 out of 15 regions were those who requested to work with FIAS in the past on removal of administrative barriers to investment, and thus might be more interested in reform than average. Only Khabarovsk, Novosibirsk, Moscow City, and Moscow Oblast were never FIAS partners. 19 The fact that the survey uses only firms who have at least attempted one of the “locating procedures” already introduces a clear bias. For example, among ARCS respondents in this survey, 18% claim to own land, while more general business surveys indicate a figure closer to 5%. Also some of the contacted companies refused to participate in the survey. It was not possible to investigate the reasons for refusals
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NOTE TO THE READER: The results presented in chapters 4 to 10 are a summary of what respondents reported. Some of the questions in the questionnaires used (e.g., those about “unofficial payments”) might have been perceived as sensitive, even threatening. Although additional questions, added to the questionnaire in order to record interviewers perception of the respondents, indicate that the vast majority of respondents showed positive interest in the subject, questions added to measure the truthfulness and willingness to answer these sensitive questions indicate that in some cases, for one reason or another, respondents might have not answered these sensitive questions with absolute honesty. This report will present the results recorded, but in some cases the analysis related to these sensitive issues should be looked upon with caution. The results of such potential evasion might present a somewhat better picture than it is in reality. At a minimum, the survey results can be considered a “lower bound” estimate of the true extent of the problems.
5. GENERAL INFORMATION ABOUT COMPANIES UNDER SURVEY
In the course of the survey, 517 BIS companies and 1188 ARCS companies were interviewed (See Annex 1, table 5.1). In a number of regions (Moscow City and Moscow Oblast, Saint-Petersburg and Leningrad Oblast, Khabarovsk Krai and Sakhalin Oblast) the number of interviewed ARCS companies was below initially expected 100 companies. The reasons for this, as it was already mentioned in the chapter 3, were low percentage of companies that carried out procedures under the survey and/or high refusal rates. On average, one BIS company gave information about two different procedures. The least number of BIS was interviewed in Sakhalin and Leningrad Oblasts. The reason for that was very limited number of business intermediaries in these regions. It should be noted that the results for some regions (in particular, Moscow Oblast and Leningrad Oblast) presented in this report are based on a relatively small number of respondents (less than 30) and therefore should be considered carefully. Nevertheless, in a number of cases they seem to illustrate well some general tendencies.
The biggest part of ARCS companies under the survey is reported to be representatives of the small business: 69% of the companies under the survey have less than 50 employees. Maximal percentage of medium size and big companies was reported in Moscow Oblast: 61% of companies under the survey had a number of employees more than 50.
52% of interviewed ARCS companies have reported turnover less than 15 mln. rubles in 2004. The biggest share of companies with turnover under 15 mln. was observed in Tomsk Oblast (79%) while biggest share of the respondents with turnover of more than 100 mln. rubles was found in Moscow City and Moscow Oblast as well as Khabarovsk Krai and Perm Oblast. Generally, the analysis of company size suggests that the largest portion of ARCS respondents belongs to the group of small companies.
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The sphere of activities of the companies under the survey differs from the general distribution of companies. The percentage of the trade companies in the sample was below their share in the total population of the companies (by 15%). As a contrast, our sample has somewhat larger share of service-providing companies (by 8%), while the percentage of the companies in the spheres of construction and production is almost the same as in the wider population. The probable explanation of this phenomenon could be the fact that trade companies have less need for a long term commitment to the same plot of land and/or real estate, but rather prefer to be flexible and move to a different location if it is necessary or beneficial for their business.
89% of ARCS that were interviewed have either long-term leasehold or freehold property rights for non-residential premises. This share does not significantly depend on the region. The shares of companies having freehold and leasehold premises are nearly equal (51% and 49% respectively). There are two regions where the situation drastically differs from an average picture. In Saint-Petersburg the share of the companies that lease non-residential premises is 4 times higher than the share of the companies that own such premises. The situation in Moscow Oblast is the opposite: the share of companies owning non-residential premises is 8 higher than the share of the companies leasing premises.
40% of ARCS companies have either freehold or long-term leasehold rights for buildings. The percentage of companies having freehold building turned out to be 3 times higher than the percentage of those having leasehold buildings (33% vs. 11%). In Moscow Oblast almost all companies having a building possess them as a freehold property (94%).
About a half of the companies under the survey have freehold or leasehold rights for the land under the buildings, but only 15% of companies under the survey have freehold land under the buildings, while 39% of companies have leasehold land under the buildings20. The only region, where the number of companies having freehold land under the buildings exceeded the number of companies having leasehold land was Tomsk Oblast (22% freehold vs. 10% leasehold), but as figures suggest it is much more due to the smaller share of companies having lease, than due to the larger share of companies having ownership. In Khabarovsk Krai, on the other hand, the number of companies possessing leasehold land exceeded the number of those having freehold land by almost 10 times.
There are relatively few companies that have both free-hold and lease-hold land without buildings or structures, allocated for the construction (19%), the biggest share of them is observed in Moscow Oblast (44%). In most of the regions the share of companies leasing the land allocated for the construction is significantly higher than the share of the company having freehold land allocated for the construction. There are
20 In addition, the survey identified a few companies which have ownership rights on building and structures, but don’t have any rights on land under these constructions (15 respondents). Other 5 respondents from those who have ownership rights on building and structures reported possessing use- rights on land under constructions. According to the Land Code this form of land right is no longer supposed to exist.
46 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
only two regions, where the share of companies having freehold land allocated for the construction exceeds the number of those having leasehold land allocated for the construction: Rostov Oblast (21% freehold vs. 10% leasehold) and Novgorod Oblast (6% freehold vs. 4% leasehold), but again this phenomenon is mostly caused by a huge drop in share of respondents having leasehold.
Analysis of the number of the procedures that the companies under the survey have carried out shows that there are more frequent and less frequent procedures. Since sampling rules for BIS survey (see Annex 1, Part 8.2) required approximately equal numbers of each procedure collected (wherever it was possible), thus the procedure distributions for BIS are not so representative as in case of ARCS where the selection was purely random (among firms who undertook any real estate transactions in 2004). For this reason ARCS data will be used for the analysis of procedures frequencies.
First, if we exclude from consideration procedure #7 (because this procedure is the final procedure following all other procedures), it can be noted that procedures related to land transactions in 2004 are more widespread than procedures related to real estate transactions (64% of ARCS under the survey have carried out the procedures related to land, such as procedures #1, #2, #3 and #8, while only 39% of respondents have carried out procedures related to real estate, such as procedure #4, #5, #6 and #9).The possible reason is the fact that a secondary market of privately owned business real estate is already formed, while a big part of land remains state owned.
There are two very rare procedures in 2004 which are not even seen in a number of regions under the survey: procedure #5 (Leasing a real estate object, which is municipal property, during tenders or auctions) – 1,8% of ARCS, and procedure #8 (Transferring a land plot from one category to another, changing designated use of a land plot) – 2,1% of ARCS. It’s worthwhile to note that even in the BIS survey where the minimal number of interviews for each region was predefined, very few interviews concerning these procedures (in some regions none) could be collected. The procedure #9 (Privatization of a real estate object) can also be considered as a relatively rare – 3,7% of ARCS. The other procedure connected with the real estate object – procedure #4 (Leasing a real estate object without the procedure of tender) is, on the contrary, quite widespread (22,8% of ARCS went through this procedure).
This phenomenon might have the following explanation. Most of the real estate that was intended for privatization in the regions under the survey has already been privatized. Therefore, there are few privatization procedures met. The remaining property is normally leased on the long-term conditions with the restrictions on its usage. Lease without procedures of tenders or auctions may simply be the formal confirmation of long-term lease relations with municipal authorities. The possible explanation for low abundance of the procedure #8 (Transferring a land plot from one category to another, changing designated use of a land plot) may be the fact that this
47 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
procedure is quite complicated and, is in most cases, not regulated on the level of regional nor the municipal legislation. 21
The two most frequent procedures were procedure #3 (Obtaining rights (lease or purchase) on land plots that are currently municipal property), and procedure #7 (State registration of a purchase and sale transaction or of a long-term lease agreement) (See Chart 5.6. in Annex 1). These procedures were carried out by 38% and 37% of companies, respectively. The high frequency of the procedure #7 is well understood: all land and real estate transactions, whether done with the state or on the secondary market, are always finished with state registration (except for the short-term lease of the private property). The high percentage of the procedure #3 (Obtaining rights (lease or purchase) on land plots that are currently municipal property) can be explained if one looks at the table 5.3 in Annex 1. There are significantly more companies possessing building or premises than companies having any rights on the land under these buildings. Probably, there are many companies that have acquired real estate property some time ago and now they try to obtain rights for the land under it. It’s worthwhile to note that the share of companies, undergoing procedure #3 related to the lease of the land (procedure #3A), significantly exceeded the number of registered procedures related to land purchase (procedure #3B) – 24% vs. 15%. The opposite situation (the number of purchase cases is more than the number of lease cases) is observed only in 3 regions: Tomsk Oblast, Irkutsk Oblast and Rostov Oblast.
It is interesting to compare the frequency of procedures #1 and #2. Both procedures have the same basic idea: obtaining a land plot for construction. However, procedure #1 (obtaining the land plot with preliminary agreement on location of the object) requires that the applicant should negotiate directly with the authorities the acquisition of the rights to the land plot and the type of the object to be constructed, and make all necessary arrangements for the land plot preparation. In procedure #2 (acquiring the right to the land plot without prior agreement on location of the object) the applicants participate in the tender (auction) for the opportunity to build the agreed type of real estate on land plots already prepared by authorities. The frequency of the procedure #1 exceeds the frequency of the procedure #2 by more than 2 times. Procedure #1 is more frequent in all regions except Leningrad Oblast, Irkutsk Oblast and Rostov Oblast. There might be two possible explanations for the procedure #1 being more widespread. First, government authorities may not have enough resources or desire for preparation of land plots and prefer that this job is done by applicants. Second reason might be the willingness of authorities to negotiate with applicant on the individual basis instead of organizing tenders. Probably, both reasons may play some role here.
21 There I s a distinction between changing a “category”’ of use, which was covered in the survey for Procedure #8 and simply changing a “targeted use”, which happens more frequently through the usual urban planning process.
48 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
6. GENERAL INDICATORS FOR ALL PROCEDURES
General indicators of the procedures under the survey include: · average total duration of the procedure, · average total cost of the procedure, · average value of official payments, · presence of unofficial payments and other additional types of payments, · amounts of unofficial payments.
For the purpose of analysis, extreme values were excluded before comparing average length and cost of the procedures. It means that for the analysis of the procedure in Russia as a whole, maximal values which exceeded the next biggest value by more than ten times were excluded from the analysis (for example, if the reported duration of procedure was 60, 70, 90, 1000 days, the value 1000 was excluded). For the analysis on the level of individual regions, situations when the average value for the region was based just on one observation were excluded from consideration.
Time
Comparison of the time required for going through different procedures obtained in BIS and ARCS surveys shows that both in BIS and ARCS cases, procedures related to land transactions (Procedures #1, #2, #3, #8) tend to be significantly longer than procedures having to do with real estate transactions (procedures #4, #5, #9). The only exception is procedure #6 (Transfer of building or premise from the residential usage into a non-residential one) where the duration was comparable to the procedures with land or, as in case of ARCS, exceeding them. The probable reason might be the complexity of this procedure and the necessity to interact with a big number of authorities. The procedure #7 (State registration of land real estate transactions) is usually a part of all other procedures and it is normally one of the shortest ones.
There is a high correlation (R=0,83) between average time needed for carrying out the procedure reported by BIS and ARCS. Nevertheless, according to the survey data, it depends on the type of company (BIS or ARCS), which procedure is the longest or the shortest one.
The longest procedure for both BIS and ARCS is procedure #1 (Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) which takes, on average, 296 days for BIS and 272 days for ARCS. For both BIS and ARCS the longest duration was observed for the procedure #1 in Novosibirsk Oblast (665 days for ARCS and 584 days for BIS). Thus, the longest procedure is procedure #1 and its maximum duration is reached in Novosibirsk Oblast. This is quite logical, since procedure #1normally involves more stages than any other procedure.
49 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
In the case of BIS, the shortest length of a procedure for Russia as a whole is reported to be the procedure #5 (Lease of a real estate object currently the municipal property, during tenders or auctions), which takes, on average, 65 days, while the shortest procedure for ARCS was reported to be the procedure #4 (Lease of a real estate object in municipal property, without tender) which takes, on average, 74 days. Both procedures have the same idea: lease of the state (municipal) property with the use of tenders or without them. On the regional level the shortest procedure turned out to be the procedure #9 (Privatization of a real estate object which is currently municipal property) in Rostov Oblast (44 days) and the procedure #7B (State registration of ownership rights on real estate and real estate transactions (in the case of drawing a contract of a real estate object lease for the term of more than 12 months at the secondary market) in Leningrad Oblast (20 days). It’s worthwhile to note that shortest procedures are observed either in case of real estate transactions or in case of a state registration.
Total cost of the procedures
In case of BIS, the highest average costs for carrying out the whole procedure were reported for the procedure #1 (Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) (287 213 rubles), and for the procedure #2B (Lease a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders) (253 143 rubles), while the lowest average cost was reported for the procedure #7B (25 405 rubles). In case of ARCS the most expensive procedure was the procedure #1 (263 045 rubles), while the least expensive procedure was the procedure #7A (State registration of a purchase and sale transaction) (18 398 rubles).
It’s worthwhile to note that fairly good correlation (R=0,75) is observed between average duration and cost of the procedures for BIS and ARCS data put together. The more time it takes to carry out the procedure, the more it normally costs. Again, procedures related to land transactions tend to be more expensive than the procedures related to other real estate transactions.
According to the survey data collected for BIS, the most expensive procedure for a single region is the procedure #1 in Sverdlovsk Oblast (an average of 855 000 rubles), while the cheapest is the procedure #7A in Novgorod Oblast (5 750 rubles). In case of ARCS the most expensive procedure is again the procedure #1 in Moscow (1 520 000 rubles) while the cheapest one is the procedure#4 (Lease of a real estate object in municipal property, without tender) in Tomsk Oblast (1 460 rubles).
Thus, the most expensive procedure is the procedure #1 and it reaches the maximum in Moscow City and Sverdlovsk Oblast while the cheapest procedure is the procedure #7 (State registration of a purchase and sale transaction or of a long-term lease agreement).
50 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
Official costs
The highest average official costs were reported for the procedure #1 (55 967 rubles22 for BIS and 201 697 for ARCS). Minimal amount of official payments was observed for the procedure #5 (Lease of a real estate object in municipal property during tenders or auctions) in case of BIS (5 612 rubles) and procedure #8 (Transferring a land plot from one category into another) for ARCS (4 820 rubles). However, the number of observations in case of the procedure #8 was relatively small (n = 5). The second least expensive procedure is the procedure #7A (registration 14 320 rubles), followed closely by procedure #5 (15 194 rubles). Thus, the results suggest that procedure #5 can be characterized as the least expensive when it comes to official costs. Procedure # 8 seem to be also low costly (when it comes to official fees). Procedures that can be considered expensive (in official fees) are procedure #1(Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) and procedure #2A. (Purchase of a land plot, for construction, during auctions or tenders).
On the level of separate regions the highest official costs in case of BIS are observed for the procedure #2 Novosibirsk Oblast (227 800 rubles) and for the procedure #1 in Khabarovsk Krai (222 046 rubles). In case of ARCS all highest values of official fees are observed for the procedure #1 (Leasing a land plot for construction, with a preliminary agreement on the object location) (870 367 in Moscow City, 526 667 in Nizhniy Novgorod Oblast)
The smallest official fees are reported in case of BIS for the procedure #6 (Transferring a premise from the residential use to non-residential one) in Novgorod Oblast (1 283 rubles). For ARCS the smallest official fees were reported for the procedure #4 (Lease of a real estate object in municipal property, without tender) in Tomsk Oblast. It should be noted that the minimal values mentioned above were based on a small number of observations and, therefore, should be considered carefully.
Generally speaking, the procedure #1 remains the most complicated in most of the regions one not only in terms of duration and total cost, but also in terms of official payments amount. The procedure #2 takes sometime the leadership in terms of official payments because it’s quite similar to the procedure #1. The procedure with lowest unofficial payments, on the other hand, may vary from one region to another. The reason is that the values themselves are quite small.
Presence of unofficial payments
According to the survey data, the share of BIS that have reported making unofficial payments while carrying out procedures under the survey is quite significant and, on average exceeds half of BIS that participated in the survey. The highest share of BIS that reported using unofficial payments was observed for the procedure #8
22 In the case of BIS data for procedure#2 (84 831 RUR) was excluded from ranking due to the fact that it was obtained for only for three regions
51 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
(Transferring a land plot from one category into another ) (73%), the number of responses for this procedure is, however, relatively small. It is followed by the procedure #6 (Transferring a premise from the residential use to non-residential one) (71%) and procedure #2A (Purchase a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders ) (66%) were reported to have second and third highest frequencies of unofficial payments. Procedure #7B (State registration of a long-term lease agreement) is characterized by the lowest level of unofficial payments (31%). The last figure, however, can hardly be looked upon as good news. If the lowest level of unofficial payments is close to one third, it can not be considered as something positive at all.
Concerning regional minimums and maximums, it should be noted that on the level of a separate region for a number of procedures frequencies 100% and 0% were observed. However, in many cases such results were based on a relatively small number of observations. Therefore, in such cases situations with maximum number of observations were searched and defined as being more reliable. The biggest number of observations for the procedure with 100% frequency of unofficial payments was obtained in case of relatively simple procedure #7A (State registration of a purchase and sale transaction) in Saint-Petersburg, while similar situation for 0% frequency of unofficial payments was reported for the procedure #9 (Privatization of a real estate object) in Tomsk Oblast.
Procedure#1 (Leasing a land plot for construction, with a preliminary agreement on the object location) which, according to the previously given data, is the most time consuming and costly procedure, has a medium value of unofficial payments frequency. Generally speaking, for the procedures involving land, a higher share of BIS companies reporting the presence of unofficial payments was observed.
The analysis did not show any dependence of the frequency of unofficial payments on the size of the company. On the other hand, if one excludes the procedure #7 (State registration of a purchase and sale transaction or of a long-term lease agreement) (as it is a final step for most of the other procedures) from the consideration, occurrence of unofficial payments is observed more frequently in case of larger land and real estate projects.
The share of ARCS that have reported that they were using unofficial payments is, in case of most procedures, lower in comparison to BIS23. It’s interesting that in case of ARCS no significant dependence of unofficial payments occurrence on whether the procedure had to do with land or real estate was found.
The highest share of ARCS companies that were using unofficial payments was observed for the procedure #624 (Transferring a premise from the residential use to non-residential one ) (63%). The lowest percentage of unofficial payments for ARCS
23 Procedures with low number of observations were excluded from this comparison 24 Procedure#5 was excluded due to a small number of observations
52 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
was observed for the procedures #3B (Obtaining lease rights on land plots that are currently municipal property) (27%). High level of corruption observed for the procedure #6 both in cases of ARCS and BIS deserves special consideration. The phenomena of high frequency of unofficial payments occurring while carrying out this procedure may be explained by the “trigger” character of this procedure. The authorities MAY OR MAY NOT allow to use for business purpose a real estate object in which money has already been invested. This feature makes the procedure #6 different from most other procedures under the survey, where most of the money is invested after the procedure is settled. The only procedure similar in this sense to the procedure #6 is the procedure #8 (Transferring a land plot from one category into another), where the proprietor tries to use for business purpose already acquired land plot. Despite relatively small number of observations obtained for the procedure #8, it can be said the level of corruption for this procedure is also quite high both in cases of BIS and ARCS.
The search of the most and least corrupted ARCS procedures on the level of individual regions was based on the same principle as in case of BIS. The biggest number of observations with 100% frequency of unofficial payments was obtained for the procedure #2B (Lease of a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders) in Leningrad Oblast while the highest number of cases with 0% frequency of unofficial payments was obtained for the procedure #2A (Purchase of a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders) in Rostov Oblast. If we use combined results from both, ARCS and BIS, the lowest level of corruption may be found in Novgorod Oblast (15%25), Perm Oblast (28%), and Tomsk Oblast (37%). However, in case of the later two, results showing that one third or one fourth of the procedures include unofficial payments can hardly be considered a positive finding. The numbers are even more alarming in cases of Moscow City (70%) and Moscow Oblast (65%) where this indicator reaches the highest value. Even more alarming is the fact that 9 out of 15 regions have this indicator above 50%.
Value of unofficial costs
Analysis of unofficial payments amounts shows that patterns observed earlier for the duration of the procedure and for official costs are also applicable here. Higher amounts of unofficial payments were reported for procedures having to do land in comparison to procedures having to do with real estate. Maximal or second highest amounts of unofficial payments were reported for most complicated land related procedures #1 and #2 for both BIS and ARCS in the majority of regions. Procedures with reported minimal unofficial payments varied strongly from one region to another.
Highest average amount of unofficial payments observed in case of ARCS was for the procedure #3B26 (Obtaining lease rights on land plots that are currently
25 % of cases among all procedures in which unofficial payments were used 26 Procedure#8 was excluded due to a small number of cases
53 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
municipal property) (62 108 rubles), while BIS reported highest unofficial payments for the procedures #1 (Lease of a land plot, for construction, with a preliminary agreement on the object location) (113 904 rubles) and procedure #2B (Lease of a land plot for construction, without a preliminary agreement on the object location, during auctions or tenders) (111 100 rubles). Minimal amount of unofficial payments was reported for the procedure #9 (Privatization of a real estate object) (5 667 rubles) in case of ARCS and for the procedure #5 (Lease of a real estate object in municipal property during tenders or auctions) (3 193 rubles) in case of BIS. Again, real estate related procedures #5 and #9 turned out to be least expensive from the viewpoint а unofficial payment amount.
It does not make much sense to analyze minimal amount of unofficial payments because these values may be very small (e.g. 100 rubles for the procedure #4). The reason for such observations is that many of unofficial payments in this procedure are like “piece of chocolate”, so they automatically decrease average values. So, it is more correct to look at the procedures with minimal presence of unofficial payments rather than at the procedures with smallest amounts of unofficial payments.
Cross-regional comparison of reported results indicates that Moscow City and Oblast are, again, among top three when it comes to the value of unofficial payments. It is interesting to notice that although Rostov Oblast is in the top three when it comes to frequency of unofficial payments, the amounts used in Rostov Oblast are among lowest.
The performed analysis did not show any dependence of the unofficial costs on the size of an object, neither on the size and income of the company.
Sponsorship and payments to non-governmental foundations
The survey has revealed a new type of cost that companies in a number of regions incur while going through procedures related to land and real estate. These are sponsorships and payments to non-governmental foundations that companies are encouraged to make by different authorities. These types of expenses lie exactly on the border between official and unofficial costs. On one hand, these payments cannot be called completely unofficial since they are not payments in cash but rather official bank transfers to officially registered foundations. On the other hand, they also cannot be called official since they are made not to the government agencies or municipalities and are not required by any legal act. Such payments may be a good way for some officials to obtain weakly controlled funds without any serious risk of the legal prosecution.
Payments to non-governmental foundations are not as widespread as unofficial payments but they cannot either be called a rare phenomenon. It means that companies are often forced directly or indirectly to make such payments. Practice of providing sponsorship or making payments to non-governmental foundations was
54 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
found to be most frequent when carrying out the procedure #2A (Purchase a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders). In case of BIS 33% of companies that carried out the procedure #2A reported about the presence of such payments, while their ARCS counterpart reported the same phenomenon in 39% of the cases. Unfortunately the percentage is lower than 10 only in cases related to procedure #5 (Lease of a real estate object in municipal property during tenders or auctions) and procedure #7B (State registration of a long-term lease agreement.) After the exclusion of data on procedures in separate regions that are based on just one observation, the highest frequency of making payments to non-governmental foundations is observed for the procedure #1 in Khabarovsk Krai (88% of respondents).
According to the survey results, in general, there is no serious difference in the frequency of sponsorship or payments to non-governmental foundations between BIS and ARCS. Depending on the procedure, BIS or ARCS may show higher frequency of such payments in comparison to each other. No payments to non-governmental foundations were reported by ARCS in case of the procedure #8 (Transferring a land plot from one category into another) which is substantially different from the observed BIS practice.
The performed analysis did not show any significant dependency of the presence of such payments on the size of the company or on the size of the land/real estate object.
Burdens
Another type of costs imposed on the companies while carrying out land and real estate procedures are so-called additional burdens. Additional burdens mean services or some material contribution (normally, not money) to the municipality made by the company in addition to official payments. Depending on the region and procedure, such contributions may or may not be prescribed by the law. Examples of such contribution might be paving the road next to the land plot obtained for the construction or building an additional residential apartment for the municipality to replace the one transferred into a non-residential usage. Taking additional burdens is in general more typical for BIS than for ARCS. The highest percentage of BIS companies, that had to take additional burdens while carrying out the procedure, was observed for the procedure #2A (Purchase a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders) (32%). Procedure #2A is followed by the procedure #6 (Transferring a premise from the residential use to non- residential one) (29%). The addition of procedure #1 (Obtaining (lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location) (25%) to the top of the list is quite logical since both: procedures #1 and 2A imply construction works and the idea of officials might be “If they construct something for themselves, they can also build something for the town”. The same is true for the procedure #6 which normally implies redesign and
55 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
reconstruction works. It should be noted that in case of ARCS procedures #1 and #6 are characterized by the highest frequency of burdens as well (24% and 37% respectively). Taking into consideration both: BIS and ARCS, the lowest percentage of companies that reported about taking additional burdens was obtained for the procedure #7B both for BIS (4%) and ARCS (9%).
Maximal number of responses for the procedures, where no burdens were taken by BIS or ARCS companies, was obtained for the procedure#7 in Moscow City, Irkutsk Oblast and Novosibirsk Oblast (in case of BIS) and Kaliningrad Oblast (in case of ARCS).
According to the BIS survey data, there is some dependency of the probability of burdens on the size of the clients’ company, no dependence on the size of the company was observed in case of ARCS. Also, no dependence on the size of the object was observed either in case of BIS or in case of ARCS.
If we compare the findings across regions, Khabarovsk Krai tops the list with 39% of all procedures requiring additional burdens. In Sverdlovsk and Sakhalin burdens were registered in 30% of the procedures, while the practice is the rarest in Novgorod (4%), Rostov (5%) and Saint Petersburg (5%).
Share of the situations when BIS services were used by ARCS companies.
Taking into account all procedures our ARCS respondents reported using outside help in 31% of procedures. It seems that the tendency to hire intermediaries is somewhat higher in case of “transferring” procedures. In procedure #6 (Transferring a premise from the residential use to non-residential one ) and procedure #8 (Transferring a land plot from one category into another, changing designated use of a land plot) usage of outside help was somewhat more frequent (56% and 50% respectively). Comparing companies according to whether they used outside help or not, one can see that companies using it have on average a lower number of employees than ones not using it. This finding is logical, because larger companies usually have more professional staff to deal with the requirements imposed by these procedures.
Dependence of outside help usage on the size of the project was found only in the case of the real estate size. It seems that intermediaries are used more often for smaller projects. This is in accordance with the finding that smaller companies use intermediaries more often for it is to be expected that smaller companies also go after the smaller real estate objects. According to what our respondents reported, there is no relationship between the size of the land in and related transactions and the tendency to use outside consultants (neither in the full sample, nor in cases of specific procedures or regions).
Somewhat higher percentage of foreign owned companies uses outside help compared to Russian owned companies (45% vs. 26%).
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Maximal percentage and number of ARCS companies using intermediaries services was observed for the procedure #6 in Sakhalin Oblast, while in Khabarovsk Krai none of ARCS carrying out the procedure #3B has used business intermediaries services.
Lease vs. purchase
Comparison of the procedures with lease or purchase (2A vs. AB, 3A vs. 3B, 7A vs. 7B27) shows no significant differences of lease vs. purchase occurrence on the size of the company. In case of the procedure #2 (Obtaining a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders) the share of lease and purchase procedures is approximately equal for joint stock companies or limited liability societies. The share of procedure #2A as compared to the procedure #2B is lower in case of sole proprietors, which, probably, has to do with the smaller size of companies. The registration procedures have to do mostly with purchase of land and/or real estate.
It is important to note that one third of ARCS companies have reported that government officials deter companies from purchasing a land so they do not even try to do this and lease land instead. Such situations are most widespread in Leningrad Oblast, Sakhalin Oblast, Tomsk Oblast and Moscow City, while such situation is relatively rare in Novgorod Oblast, Moscow Oblast and Khabarovsk Krai.
Chart 6.1 Estimation by ARCS of the frequency of situations, when government agencies deter companies from purchase of land, mean %
All regions 34 Leningrad oblast 75 Tomsk oblast 63 Sakhalin oblast 61
Moscow 58
Nizhny Novgorod obl. 43
Irkutsk oblast 41
Novosibirsk oblast 38
Kaliningrad oblast 35 Perm oblast 31 Sverdlovsk oblast 23 Rostov oblast 18 Moscow oblast 17 Khabarovsk Krai 17 Novgorod oblast 15
Saint Petersburg – n/a
27 “A” procedure are related to purchase, while “B” procedures indicate lease
57 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
7. PROCEDURE BY PROCEDURE ANALYSIS ACROSS REGIONS
Cross-regional comparison for each procedure was based on joint comparison of such indicators as number of procedure stages (both from the legislation and factual number of stages reported by BIS), average duration of the procedure, average total amount of money paid for carrying out the procedure, total official and unofficial costs, frequency of unofficial payments and share of stages where unofficial costs were reported, frequency of payments to non-governmental foundations and frequency of additional burdens imposed on companies while the procedure is carried out.
Procedure#1: Obtaining (lease of) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location
As it was shown before, the procedure #1 is one of the most complicated ones. The results of the BIS survey show that the best practice of going through the procedure #1 is observed in Rostov Oblast28. According to these results, the procedure #1 in Rostov Oblast is characterized by the lowest average total cost (26 600 rubles) as well as by one of lowest durations of the procedure (78 days).
Chart 7.1 Average time for completing Procedure #1, in days
665 No vosibirsk oblast 584 insufficient data Moscow oblast 245
Moscow 413 225 346 Tomsk oblast n/a 341 Sverdlovsk oblast 398 320 Irkutsk oblast 365 301 Khabarovsk krai 379
Kaliningrad oblast 296 282 283 Perm oblast 466 270 Sakhalin oblast 260 202 Niz hny Novgorod obl. insufficient data 149 Novgorod oblast insufficient data
Saint-Petersburg n/a 132 Rostov oblast 53 78 51 BIS ARCS Leningrad oblast 213
28 Novgorod Oblast had the best figures for this category, but they were based on insufficient data for valid statistical comparison with other regions
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According to the ARCS survey data, best practice for the procedure #1 is also observed in Rostov Oblast due to the lowest total cost of the procedure, one of the lowest average durations of the procedure (53 days), absence of reported payments to non-governmental foundations and additional burdens and relatively low percentage of unofficial payments (13%) (Saint-Petersburg was excluded from the consideration due to a very limited number of valid responses).
Thus, according to the survey results, Rostov Oblast can be named as a region with the best practice for the procedure #1.
Chart 7.2 Average total costs for completing Procedure #1, in rubles
Moscow insufficient data 1 520 000 533 333 Nizhn y Novgorod obl. insufficient data 416 667 Novosibirsk oblast 484 286 275 000 Khabarovsk krai 380 000 254 000 Perm oblast 108 583 246 375 Sverdlovsk oblast 885 000
Irkutsk oblast 79 000 65 833 Kaliningrad oblast 57 114 87 250 52 883 Sakhalin oblast insufficient data 12 500 Rostov oblast 26 600 10 763 Novgorod oblast insufficient data n/a S aint-Petersburg insufficient data insufficient data Tomsk oblast n/a insufficient data Moscow oblast 269 250 insufficient data BIS ARCS Leningrad oblast 115 000
According to the survey results, no region can be singled out as the one with the worst practice. However, in a group of regions such as Novosibirsk Oblast, Khabarovsk Krai, Sverdlovsk Oblast and Nizhniy Novgorod Oblast the majority of indicators, according to both BIS and ARCS data, (duration, costs, frequency of unofficial payments and other additional payments) is worse than average Russian values, so the situation in these regions can be considered as the most problematic one.
Cross-regional analysis of documents29 identified Mayor’s ordinance on preliminary approval of the real property allocation as the most time consuming document (77 days in average). What is interesting is the distribution – while in Irkutsk, Moscow, Kaliningrad and Nizhniy Novgorod this seems to be a very lengthy document
29 Only documents existing (in identical or similar form) in 7 or more regions were subjected to this comparison.
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(taking more than 100 days in average) in the rest of the regions this document is usually processed within a month (Lowest time recorded in Tomsk – 22 days). Further analysis shows that, unfortunately, this document is not lonely at the top of the list. Another six documents take more than 50 days (in average) to process.
When it comes to the most expensive document30, The Application to the Mayor for allotment of a selected land plot and preliminary approval of the object allocation (317 396 rubles), and Technical specifications for connection of the facilities to supply lines and utilities (316 700 rubles) top the list of most expensive documents. The former is extremely expensive in Novosibirsk (1 650 000 rubles) and Nizhniy Novgorod (500 000 rubles), while in the other regions the cost is below 1000 rubles.
Unofficial payments are most common for various approvals: Approval issued by State Fire Inspection (53%), Approval issued by Sanitary & Epidemiological Station (43%), Approval issued by Committee for Architecture and Urban Planning (39%), and Approval issued by a cultural institution (33%).
Overall, having in mind all three analyzed parameters, two documents can be considered as most problematic: Technical specifications for connection of the facilities to supply lines and utilities with very high average official cost, relatively long processing time (56 days), and a level of unofficial payments among the highest ones (31%). Good example can be found in Tomsk, where this document is processed in 5 days, and the unofficial payment were registered in less than 10% cases Mayor’s ordinance on preliminary approval of the real property allocation with the highest processing time, and high level of unofficial payments (28%). This document seems to be especially problematic in Nizhniy Novgorod with particularly high duration, costs and reported unofficial payments.
Procedure 2A: Obtaining (purchase of) a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders
For procedures#2A and 2B relatively small number of responses suitable for the analysis on the whole procedure was obtained31 (responses from companies that carried out the procedure on their own and finished it to the moment of the survey), therefore the data presented here will bear semi-quantitative character.
The region where best practice is observed depends on whether BIS or ARCS data are considered. In case of BIS best indicators were obtained for Kaliningrad Oblast (lowest total cost, second lowest duration of the procedure, full absence of reported payments to non-governmental foundations unofficial payments or additional burdens and one of the lowest reported frequencies of unofficial payments). Such
30 Only official fees are taken into consideration here. 31 This is probably due to the fact that the preparations for such auctions and tenders are relatively burdensome and expensive for the municipalities.
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results are possibly achieved due to the optimal organization of the procedure: there are only 5 big stages that companies should proceed in order to carry out the procedure (average value for the regions under the survey is 13,7 stages). According to the regional legislation, the number of procedure stages is also only 5 (see Annex 1, table 7.3). Best indicators in case of ARCS are observed in Rostov Oblast (one of the lowest duration and total costs, complete absence of unofficial payments, payments to non- governmental foundations and additional burdens). Given the fact that in case of BIS most indicators for Rostov Oblast are also better than average Russian values (except for unofficial payments frequency), it can be concluded that that this region is probably the most advanced one among the regions under the survey in terms of carrying out the procedure#2A..
Comparative data on time and official cost necessary was obtained for very few documents, so a comparative analysis is not possible on these parameters. When it comes to unofficial payments The land plot cadastral survey (42%) is singled as one with the highest share of cases when these payments were recorded.
Procedure 2B: Obtaining (lease of) a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders
Situation with the procedure #2B is quite similar to the situation with the procedure#2A. Limited number of data suitable for the analysis on the cross-regional level does not allow to define regions with best or worst or unambiguously. According to the BIS data, the best situation is observed in Kaliningrad Oblast (lowest duration after the exclusion of Moscow and Leningrad Oblasts where the data were based on insufficient number of questionnaires, lowest average cost and complete absence of unofficial payments, payments to non-governmental foundations and additional burdens and minimal number of stages proceeded by BIS) (see Annex 1, table 7.4).
Data on procedure #2B in case of ARCS are very limited (in most regions based on insufficient number of questionnaires), so it is hard to use them for identification of best or worst practice.
As it was already mentioned, data on procedure#2B are very limited. Thus any in- depth comparative analysis of various documents is not possible. The only interesting finding is, that among six comparable documents, The land plot borders draft plan had the highest recorded level of unofficial payments (45%).
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Procedure 3A: Obtaining ownership rights (purchase) on land plots that are currently state or municipal property, with premises, buildings or constructions, which are private property
Based on the data of the BIS survey, two regions can be singled out for a good practice in case of the procedure #3A: Rostov Oblast and Tomsk Oblast32. In both Oblasts all major indicators of the procedure (duration, total cost, presence of unofficial payments and other types of additional payments, number of stages of the procedure according to the legislation (see Annex 1, table 7.6)) are significantly below average values obtained for all regions under the survey.
In case of ARCS best practice was reported for Rostov Oblast and Novgorod Oblast (See Chart 6.3, Chart 6.4). Both regions are characterized by lower than average for Russia duration, total cost and presence of unofficial payments. In case of Rostov lowest duration of the procedure (49 days) and in case of Novgorod lowest total costs were reported. Combining the data on BIS and ARCS allows to say that the best practice for the procedure #3A is likely to be in Rostov Oblast.
Chart 7.3 Average time for completing Procedure #3A, in days
375 Perm oblast 189 300 K habarovsk krai 268 279 Ka liningrad oblast 321 275 Irkutsk oblast 193
Moscow oblast 208 357 199 Sakhalin oblast insufficient data 194 N ovgorod oblast insufficient data 165 Nizhn y Novgorod obl. 269 155 Tomsk oblast 130 49 Rostov oblast 78
Sverdlovsk oblast insufficient data 150 insufficient data No vosibirsk oblast insufficient data n/a Moscow n/a insufficient data Leningrad oblast n/a n/a Saint-Petersburg n/a BIS ARCS
32 Novgorod Oblast had also top-level figures for this category, but they were based on insufficient data for valid statistical comparison with other regions. Novgorod Oblast is the also the only region where no unofficial payments or any other types of additional payments were detected
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It is hard to single out a region with the worst practice for the procedure #3A. However, Khabarovsk Krai can be mentioned as a region where all major indicators both for BIS and ARCS are consistently worse than average values for all regions under the survey.
Comparative analysis of documents under this procedure indicates highest processing time for The Ordinance on allotment of a land plot into ownership or by lease (60 days). None of the documents has significantly higher official costs than others and none of them exceeds 10 000 rubles by much, while the highest level of corruption was recorded in cases of Approved and validated land surveying file (43%) The land plot cadastral survey (34%). Having in mind all three parameters, two documents can be singled out as more problematic than others. Approved and validated land surveying file with the highest level of unofficial payments and second highest processing time (45 days).
Chart 7.4 Average total costs for completing Procedure #3A, in rubles
86 875 Khabarovsk krai 124 000 72 000 Sakhalin oblast insufficient data 68 750 Perm oblast 49 167 45 500 Tomsk oblast 24 833 41 682 Irkutsk oblast 87 813 20 000 Kaliningrad oblast 106 833 18 250 Nizhny Novgorod obl. 121 686 15 250 Rostov oblast 60 389 10 000 Novgorod oblast insufficient data n/a Sverdlovsk oblast 71 667 insufficient data Novosibirsk oblast insufficient data insufficient data Moscow oblast insufficient data n/a Moscow n/a insufficient data Leningrad oblast n/a n/a BIS ARCS Saint-Petersburg n/a
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Procedure 3B: Obtaining lease rights on land plots that are currently state or municipal property, with premises, buildings or constructions, which are private property
Procedure#3B is different from the procedure #3A from the viewpoint of regions with the best ad worst practice. According to BIS companies’ survey, it is difficult to single out a region with the best or the worst practice completing Procedure #3B in general33. The least time costs were fixed for Moscow City and Khabarovsk Krai. The least money costs, frequency of unofficial payments, frequency of payments into non governmental funds and burdens were fixed for BIS respondents in Perm’ Oblast.
ARCS survey data indicate that the best practice is observed in Novosibirsk Oblast and Novgorod Oblast with values of all indicators being the best (or second best - Leningrad Oblast was excluded from the consideration due to insufficient number of responses). Combining procedures #3A and 3B data allows to identify Novgorod Oblast as a region with the best practice34: in case of ARCS major indicators for Novgorod Oblast were not worse than average values for Russia35.
On the basis of the joint analysis of BIS and ARCS data, Nizhniy Novgorod Oblast and Khabarovsk Krai can be identified as regions with the worst practice for the procedure #3B. Most of their indicators are worse than average Russian values according to both BIS and ARCS survey data. Khabarovsk Krai can also be identified as the most problematic region for procedures #3A and 3B if they are considered jointly.
Cross-document analysis done on comparable documents shows highest average processing time for Land plot borders draft plan (54 days). Another three documents closely follow this processing time: The Ordinance on allotment of a land plot into ownership or by lease (51 days), The Contract of the land plot lease (51 days), and Developed land surveying file (50 days). The latter also has the highest reported official costs (12 465 rubles), while the unofficial payment levels are somewhat lower than for the previous procedure. This list is led by The land plot cadastral survey and Technical passport of a building, structure or installation located on the land plot with average share of respondents reporting unofficial payments being 20%. Although analysis of documents in other procedures might show many more issues to be concerned about (and much higher figures on these parameters), one might notice Developed land surveying file being at or close to the top of the list on all three parameters, so we might single out this document as the most problematic one. FIAS work in some regions have revealed near monopolization of these services, which may also be contributing to the problem.
33 Novgorod Oblast and Tomsk Oblast had the best figures for this category, but they were based on insufficient data for valid statistical comparison with other regions. 34 Tomsk Oblast had the best figures for this category, but they were based on insufficient data for valid statistical comparison with other regions. 35 In the case of BIS, Novgorod Oblast was the best one, but figures were based on insufficient data for valid statistical comparison with other regions
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Procedure 4: Lease of a real estate object (premise, building or construction) which is currently municipal property, without the procedure of tender (including for targeted use)
As it was mentioned before, procedure #4 is characterized by relatively low average duration and costs. Therefore, it is hard to define regions with the best practice because the indicators for the majority of regions are not so much different from each other.
According to the data of the BIS survey, Rostov Oblast might be identified as a region with the best practice since all considered indicators of the procedure are consistently among three best ones, although no single indicator is the best one.
In case of ARCS, Tomsk Oblast can probably be defined as the region with the best practice due to lowest total cost of the procedure and other indicators being better than average. No other regions comparable to Tomsk regions could be identified. It is hard to define a single region with the best practice based on both ARCS and BIS survey results.
On the other hand, the most problematic region can be clearly identified. Moscow City, according to both BIS and ARCS survey results, has all major indicators significantly above average values for all regions under the survey (maximal total costs and 78% frequency of unofficial payments at 52% stages.
Analysis of various documents included in this procedure shows relatively low official costs for all documents (the highest recorded average is around 6 000 rubles). Highest processing time was recorded for The Application for allotment of a municipal real estate to lease with required documents attached (39 days). However, the highest average share of respondents reporting unofficial payments is recorded in case of Documents on the real estate object status issued by the Technical Inventory Bureau and (or) the organization operating this real estate object (36%).
Procedure 5: Lease of a real estate object (premise, building or construction) which is currently the municipal property during tenders or auctions
For the procedure #5 the idea is similar to the procedure #4: lease of state owned real estate. The duration and the cost the procedure are relatively low, and the indicators for the majority of regions are not so much different from each other, so, as well as in case of the previous procedure, it is hard to define regions with the best practice. Besides, the number of responses for this procedure by both BIS and ARCS is low, so it is difficult to identify the best and the worst region.
The Certificate of State Registration is the documents with highest recorded processing time within this procedure (27 days). It is followed by The Contract of real estate lease (24 days), and The Bid for participation in the auction (23 days). The same
65 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
three documents score high on the unofficial payments reported as well (38%, 40% and 28% respectively).
Procedure 6: Transferring a premise (building) from the residential use to non- residential one
As it was mentioned before, procedure #6 is the most problematic among the procedures concerning real estate and its complexity is comparable to land transactions. This procedure is quite widespread, so the data obtained for this procedure allow to determine best and worst practice among regions under the survey.
According to the results of the BIS survey best practice was observed in Novgorod Oblast (minimal total cost of the procedure, lowest frequency of unofficial payments and all other indicators of the procedure being below average). In case of ARCS the best practice was reported for Irkutsk obast (also minimal total cost of the procedure, lowest frequency of unofficial payments and all other indicators of the procedure being below average). It is important to note that Novgorod Oblast in case of ARCS survey has shown one of the best results. Thus, Novgorod Oblast may be considered as example of the best practice for the procedure #6.
The region with the worst practice are likely to be Sverdlovsk Oblast and Khabarovsk Krai where according to both BIS and ARCS data, all key indicators of the procedure are one of the worst.
The most expensive document within this procedure is Documents on the real estate object status issued by the Technical Inventory Bureau and (or) the organization operating this real estate object (46 997 rubles in average). It is followed by The premises reconstruction preliminary design (12 802 rubles), but while the former has relatively low processing time (23 days), the latter tops the total “time required” list with 47 days in average (including time required for the applicant to prepare documents for submission to the authorities). Second document on the duration list - The Ordinance on Transferring a premise (building) from the residential use to non-residential one has average duration time of 41 days. It is interesting to notice that the highest level of unofficial payments are recorded for documents on the bottom of time and cost lists. Although not expensive (in official fees – up to 2205 rubles) and not very time consuming (17 – 22 days) Statement of the State Fire Inspection Authorities, Statement of the State Sanitary Supervision and Disease Control Authorities and Statement of the State Cultural Organization top the list of unofficial payments frequency (with 51%, 42% and 38% respectively).
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Procedure 7A: State registration of ownership rights on real estate and real estate transactions in the case of buying or selling a real estate object (land plot, building or premise) in the secondary market
Procedure #7A is the most widespread among the procedures under the survey for both BIS and ARCS. According to both BIS and ARCS survey data, Novgorod Oblast can be called as the region with the best practice. In BIS case all indicators of the procedure except for the duration are the best in Novgorod Oblast. The duration is the second best and is also very close to the leader (49 days in Novgorod Oblast vs. 46 days in Rostov Oblast). In case of ARCS Novgorod Oblast is second or third best for most of the indicators, but according, to the combination of indicators, it has a best practice again.
It is hard to define the region with the worst practice since the data of BIS and ARCS survey give different results. Novosibirsk region can probably be named as a most problematic region since, according to both BIS and ARCS survey data, most of the indicators turned out to be worse than average values for all regions under the survey.
Although a respectable number of respondents went through this procedure, cross-document analysis can offer comparison of only three documents. The land plot cadastral survey has the highest duration (47 days), as well as the highest recorded presence of unofficial payments (38%). Official costs for all three documents are low and between 5 and 9 thousand rubles. Saint Petersburg respondents reported somewhat higher duration, costs as well as incidence of unofficial payments than the average.
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Chart 7.5 Average time for completing Procedure #7A, in days
119 Novosibirsk oblast 197
Irkutsk oblast 114 65 109 Nizhny Novgorod obl. 59 105 Moscow oblast 65
Sakhalin oblast 96 168 90 Moscow 67 89 Kaliningrad oblast 96
88 Novgorod oblast 49 79 Sverdlovsk oblast 78 76 Tomsk oblast 79
66 Rostov oblast 46 51 Perm oblast 74
Khabarovsk krai insufficient data 66 insufficient data BIS ARCS Leningrad oblast 54 insufficient data Saint-Petersburg 128
Chart 7.6 Average total costs for completing Procedure #7A, in rubles 45 438 Moscow 142 247 28 357 Perm oblast 35 864 22 375 Nizhny Novgorod obl. 27 592 21 923 Irkutsk oblast 19 050 21 417 Kaliningrad oblast 23 780 19 050 Novosibirsk oblast 98 444 17 667 Rostov oblast 19 018 16 938 Sakhalin oblast 64 680 14 500 Tomsk oblast 39 643 12 020 Novgorod oblast 5 750 10 638 BIS ARCS Sverdlovsk oblast 25 920 insufficient data Khabarovsk krai 29 031
Moscow oblast insufficient data 133 725 insufficient data Leningrad oblast 19 500 n/a Saint-Petersburg 140 000
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Procedure 7B State registration of ownership rights on real estate and real estate transactions in the case of drawing a contract of a real estate object (land plot, building or premise) lease for the term of more than 12 months at the secondary market)
As it was shown before, procedure #7B is one of the simplest procedures concerning land and real estate transactions. For the procedure #7B no consistent results for BIS and ARCS survey could be obtained. In case of BIS the best practice in terms of lowest total cost, one of the lowest duration of the whole procedure, minimal number of stages and one of the lowest unofficial or other additional costs was reported for Khabarovsk Krai. In case of ARCS the best practice was reported for Leningrad Oblast where lowest duration of the procedure as well as complete absence of unofficial or any other additional payments were observed.
The most problematic situation was reported by BIS respondents for Moscow Oblast (highest cost, duration of the procedure, frequency of unofficial payments and payments to non-governmental foundations).
Cross-document analysis offers almost identical findings as for procedure#7A. The land plot cadastral survey has the highest duration (48 days), official fees for all three documents are in rage between 5 000 and 7 500 rubles, and the same document tops the list of reported unofficial payments with 33% incidence.
Chart 7.7 Average time for completing Procedure #7B, in days
280 Sakhalin oblast n/a 108 Novgorod oblast insufficient data 100 Irkutsk oblast insufficient data 95 Kaliningrad oblast 132 94 Moscow 64 63 Sverdlovsk oblast 88 59 Tomsk oblast insufficient data Novosibirsk oblast 55 120 51 Nizhny Novgorod obl. 158 43 Saint-Petersburg insufficient data 28 Perm oblast 84 20 Leningrad oblast n/a insufficient data Khabarovsk krai 59 insufficient data Moscow oblast 45 insufficient data Rostov oblast n/a BIS ARCS
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Chart 7.8 Average total costs for completing Procedure #7B, in rubles
32 200 Irkutsk oblast n/a 22 500 Sakhalin oblast insufficient data
Tomsk oblast 20 100 insufficient data 19 600 Perm oblast 21 500 13 182 Novosibirsk oblast 28 000 12 688 Saint-Petersburg insufficient data
11 583 Moscow 56 563 8 045 Kaliningrad oblast' 21 000 4 700 Nizhny Novgorod obl. 25 300
Novgorod oblast 2 000 insufficient data insufficient data Moscow oblast 33 667 insufficient data Khabarovsk krai 18 334 insufficient data Sverdlovsk oblast insufficient data insufficient data Rostov oblast n/a n/a Leningrad oblast n/a BIS ARCS
Procedure 8: Transferring a land plot from one category into another, changing designated use of a land plot
This procedure is difficult, as it is not just a simple change of an urban land use from one type of urban use to another. It is a change of land category as determined under the Land Code. The typical change is from agricultural to urban use, and this requires the approval of the regional Governor. Procedure #8 is therefore very rare, so data on it should be considered very carefully due to a very limited number of responses obtained for most of the regions. For BIS best cases were reported for Leningrad Oblast (lowest duration and cost of the procedure, lowest percentage of unofficial or any other additional payments and minimal number of stages reported by BIS). Worst cases were reported for Moscow Oblast in the BIS survey. It is difficult to single out worst or best region for ARCS survey because of insufficient number of respondents.
Official cost for various documents within this procedure can be compared for only four documents, and the comparison shows low cost and low variation. Official fees for all four documents are in range of 1 to 4 thousand rubles. It is interesting to notice, however that State Land Register documents have significantly higher official fees in Kaliningrad. Although Application for transferring of land held in municipal ownership, in ownership of the entities of the Russian Federation tops the list of the
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longest lasting documents (57 days), and Statement of the State environmental expert review agency (in cases specified by law) tops the list of documents with highest registered occurrence of unofficial fees (75%), Certificate of transferring of land or land plots can be considered as most problematic document within this procedure being second on both lists, with the duration of 48 days and 59% of respondents reporting using unofficial payments while processing this document. What should be raising some concerns is the fact that the analysis of unofficial payments shows that six documents cross the line of 40% reported unofficial payments, which, compared to other procedures, seems to be the highest number of documents requiring this practice.
Procedure 9: Privatization of a real estate object (building or premise) which is currently municipal property
Procedure #9 is also a rare one as of 2004 (most such procedures having been completed earlier in most regions), so the lack of data did not allow to obtain consistent results for both BIS and ARCS survey.
In the majority of regions studied, there were four different methods possible for such privatization:
· Sale of municipal property at an auction including sale of JSC on a specialized auction; · Sale of municipal property on a tender; · Sale of municipal property is performed by public offer if an auction is considered to be ineffective; · Sale of municipal property is performed without making a price if a sale by public offer is considered to be ineffective.
According to BIS survey data, best situation was observed in Perm Oblast (one of the lowest procedure durations, lowest cost and complete absence of unofficial payments), while the worst situation was reported for Irkutsk Oblast where highest total cost of the procedure and more than 60% frequency of unofficial payments was reported. In case of ARCS it is hard to define a region with best or worst practice for procedure #9. In general, it is hard to define unambiguously regions with best or worst practice for the procedure#9.
The cross-document analysis shows that The Bid for participation in the auction tops the lists of duration (30 days) and practices of unofficial payments (38%). On both lists it is followed by The Certificate of State Registration (28 days and 33%). Official fees are relatively low for three documents which are comparable and are in range of 4 and 6 thousand rubles. It should be noted that respondents in Rostov Oblast reported unofficial payments more often than their colleagues in other regions, although the amounts were relatively low.
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Tenders, auctions
The share of companies that participated in tenders or auctions while carrying out procedures related to land and real estate transactions is relatively small36: In case of ARCS it does not exceed 10% of the companies under the survey in most of the regions. In case of BIS it is even smaller and is, on average below 5%.
Evaluation of quality of tenders’ organization by BIS depends on the region. The highest level of accessibility of tender documentation was reported by BIS respondents in Tomsk Oblast, while the lowest accessibility of tender documentation was reported for Novosibirsk and Sverdlovsk Oblast. Clearness of tender documents was most positively evaluated by BIS respondents in Tomsk Oblast, while most negative evaluations were obtained again for Novosibirsk Oblast. Although Tomsk Oblast has shown the best practice in two previous issues, BIS respondents there believe that there was not enough time for evaluation of the property. Concerning the availability of time for property evaluation, the best practice was reported for Moscow City (data on Khabarovsk Krai were excluded from the consideration since they were based on insufficient responses).
The worst estimates of accessibility and clearness of documents on tendered property as well as of fairness and openness of tenders were obtained for Sverdlovsk Oblast. The best evaluations of accessibility and clearness of documents on tendered property were obtained for Kaliningrad Oblast and Moscow City correspondingly with the value 1.4 in both cases, while the best evaluation of tenders’ fairness and openness was observed in Tomsk Oblast.
Although Kaliningrad Oblast showed the best practice only with respect to accessibility of documents on tendered property, it should be noted that evaluations of all respects of tenders’ organization in Kaliningrad Oblast are consistently positive and, according to the joint estimate of all aspects of tenders’ organization Kaliningrad Oblast can be called as a region with the best practice of tenders. The region with the biggest number of problems concerning tenders is probably Sverdlovsk Oblast, where estimates of most of the aspects are consistently negative.
In general, ARCS companies evaluate tender organization better than BIS do. Accessibility of tender documents was considered the worst in Saint-Petersburg, while in Moscow Oblast, Sakhalin Oblast and Novgorod Oblast all ARCS respondents have completely agreed that tender documents were easily accessible. For all other aspects worst estimates were obtained for Sverdlovsk Oblast. Moscow Oblast and Sakhalin Oblast have shown the best results for most of the indicators of tenders’ organization. For 5 aspects of tender organization out of 6 in case of Sakhalin Oblast and for 4 aspects of tender organization out of 6 in case of Moscow Oblast ARCS respondents
36 Probably because relatively few are offered in most regions, in spite of the fact that the Land Code explicitly encourages it. Municipalities find them relatively expensive to prepare and thus tend to avoid them.
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have reported most positive evaluations. It’s worthwhile to note that, according to ARCS survey, Kaliningrad Oblast again shows consistently good evaluations of all aspects of tender organization, although best values are observed for only one aspect (clearness of documents on tendered property). According to the combination of ARCS responses on different aspects of tender organization Kaliningrad Oblast has a distinct third place after Moscow Oblast and Sakhalin Oblast.
Summarizing the data on both BIS and ARCS surveys, one can make the following conclusion: Moscow Oblast and Sakhalin Oblast might have a very good practice of tenders’ organization, but it cannot be confirmed by ARCS data. Kaliningrad Oblast has a consistently good practice of tenders’ organization confirmed by both BIS and ARCS data. Finally, Sverdlovsk Oblast is likely to have the biggest problems in this area.
Land survey and boundaries settlement
More than a half of both BIS and ARCS companies that participated in the survey had to deal with the problems of land survey and boundaries settlement.37 The share of BIS and ARCS companies that had to deal with the problems of boundaries settlement varies from one region to another. Since due to the specifics of sampling rules ARCS data are more representative than BIS data, it makes sense to compare the occurrence of boundaries settlements on the basis of ARCS survey. The regions where the biggest share of ARCS companies was reported to have requested the settlement of boundaries are Moscow Oblast (78%) and Kaliningrad Oblast (76%), while the lowest occurrence of such procedures was observed in Saint-Petersburg (19%) and Sverdlovsk Oblast (27%).
The practice of recommendation of affiliated land survey companies by the government authorities is quite widespread: about a half of BIS companies under the survey have reported about the existence of such a practice. According to the BIS survey data, such situations are most widespread in Moscow City (about three quarters) and Khabarovsk Krai (about two thirds), while this practice is relatively rare (about one third) in Kaliningrad, Rostov, and Irkutsk Oblasts.
ARCS survey shows that the companies under the survey often accept such recommendations and choose for the land survey affiliated companies: about 40% of ARCS respondents have reported that a recommendation by government authorities was a reason for choosing a land survey company. Such situations are most widespread in Moscow City and Tomsk Oblast (over 60% in each), while they are less prevalent in Sverdlovsk Oblast, Saint-Petersburg, Novgorod Oblast, Leningrad Oblast, and Kaliningrad Oblast (about 20 – 30%).
37 Earlier FIAS work in some regions has found either a shortage of surveying capacity or monopolization of survey work by a few preferred companies having former public ties. Both shortage and monopolization could explain the consistent results on the expense, delay and unofficial payments involved with these survey documents.
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Thus, Moscow City is a region where government officials often recommend affiliated land survey firms and companies that carry out land and real estate procedure normally accept their recommendations. In such regions as Khabarovsk Krai the frequency of such recommendations is also high but the companies doing transactions often choose another firm. Finally, the best situation is observed in Kaliningrad Oblast where companies have the biggest freedom of selection the firm for the boundaries settlement.
8. AGENCY BY AGENCY ANALYSIS
In this chapter government agencies that participate and land and real estate transactions are compared. For the analysis 22 agencies were chosen for the comparison. The principles of selection of these agencies were the following (Annex 1, table 8.1):
- such agency should participate in land and real estate transactions in not less than 7 regions out of 15 regions under the survey (it should be noted, that such agency may have had different names in different regions, however, the basis for selections were similar functions of the agency in land and real estate transactions); - number of responses for each agency was not less than 5.
The following results are based on BIS survey only, since the interviews with ARCS companies did not include this level of detail.
Only three agencies were documented as being involved in the procedures under investigation in all 15 regions under the survey in substantially similar form. They are: Committee of Architecture and Urban Planning, Sanitary & Epdemiological Station and State Fire Department of Ministry of Emergency Situation in the Region.
The biggest number BIS respondents had contacts with the Department of Justice. The reason is that this agency is doing the state registration which is the logical end of any land or real estate procedure. The agency with the second largest number of respondents that contacted this organization is the Municipal Administration, this agency is also characterized by the biggest number of contacts per 1 respondent (within the course of the procedure one company have contact with a certain agency more than once).
For the analysis of the administrative barriers level imposed by each of the agencies three coefficients were used:
1. The first one is the coefficient on the frequency of negative phenomena occurrence that are reported in the interaction with a particular authority (coefficient I). For calculation of this coefficient and ranking of agencies the following criteria were used:
74 Survey of Land and Real Estate Transactions in the Russian Federation. Cross-Regional Report
1. Percentage of cases when the interaction with this agency most often implies payment to different non-government foundations or providing sponsorship 2. Percentage of cases when the interaction with this agency most often implies accepting different additional burdens 3. Percentage of cases when the agency is mentioned as wasting the time of the respondent to a biggest extent 4. Percentage of cases when the agency is mentioned as authority causing the biggest number of problems 5. Percentage of cases when the respondent has mentioned about established relations with the particular agency.
All these evaluations were taken into account if and only if the respondent was interacting with the mentioned agency in the course of the procedure. Details on how this coefficient was calculated are shown in the Annex 1, part 8.2. The higher is the coefficient, the higher is the share of responses mentioning this agency in one of “negative phenomena” questions (Annex 1, table 8.4).
Analysis of calculated coefficients has shown that the highest (most negative) coefficient was obtained for the Municipal Administration (0.20). High coefficients were also found in interactions with Extradepartmental Committee (0.17) and Municipal Committee for Land Resources and Land Development (0.15). The smallest coefficients were observed for Environmental Expert Review Agency (0.02), Architectural and design organization (0.02) and State and Taxation bodies. However the later two were based on relatively small number of interactions.
On the regional level the most negative attitude was observed also for Municipal administration in Nizhniy Novgorod Oblast, where the frequency of negative phenomena was the highest one (0.39). It is harder to find the agency with the least negative attitude since for a number of agencies on the regional level the coefficient equal 0 was obtained.
2. The second coefficient reflected the reported frequency of corruption in different government agencies (coefficient B). This coefficient is tied to the percentage of situations when unofficial payments were reported by respondents as a share of the total number of their interactions with the particular authority. Detailed explanation on how this coefficient was calculated is provided in Annex 1, part 8.3.
Analysis of calculated coefficients has shown (Annex 1, table 8.5) that the highest frequency of corruption was reported for 3 authorities:
· The regional State Fire Department of Ministry of Emergency Situation with the coefficient of 0.44. Even more discouraging fact than this high coefficient is the fact that the lowest coefficient registered in all regions was 0.25 in Perm. That can be interpreted that in the “best” case scenario, there is “only” 25% chance for an enterprise to be forced into unofficial payments when interacting with this agency.
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· Traffic Police (GIBDD) (coefficient 0.43) – in this case the high value is caused by a couple of regions with extremely high coefficients: Moscow City (0.47), Sverdlovsk (0.75) and Irkutsk (1.00) are the regions contributing mostly to this high coefficient. · Sanitary & Epidemiological Station (SES) (0.41) is unfortunately again an example of consistently high coefficient B across regions. The only region scoring zero is Novgorod (but based on insufficient number of respondents), and somewhat lower coefficients were recorded in Perm and Novosibirsk Regions (0.18 for both). It is interesting to notice that the number of respondents interacting with this agency is the highest for the very same two regions.
The smallest coefficient was obtained for Department of Justice (0.17). High frequency of corruption coefficient obtained for State Fire Department, GIBDD and SES may be explained by the fact that these authorities may interact with the applicant both at the preliminary stages of the procedure and at the stages of the procedure when it is almost settled.
Chart 8.1 Coefficients reflecting the reported frequency of corruption
Rostov oblast 0,56 Saint-Petersburg 0,49 Moscow oblast 0,41 Moscow 0,35
Sverdlovsk oblast 0,33
Irkutsk oblast 0,33
Kaliningrad oblast 0,23
Leningrad oblast 0,22
Nizhny Novgorod oblast 0,22 Khabarovsk oblast 0,20 Tomsk oblast 0,17 Novosibirsk oblast 0,14 Sakhalin oblast 0,14 Perm oblast 0,13 Novgorod oblast 0,00
There are a number of agencies at the regional level that have the coefficient equal to 1 or 0. Again, the agencies with highest or lowest frequency of corruption were selected on the basis of the highest number of responses. The highest frequency of corruption was obtained for Commission on Land planning and development in Sverdlovsk (1.00) Oblast, for GIBDD in Irkutsk Oblast (1.00) and for District Administration in Saint Petersburg (1.00), but in all three cases the coefficient is based on relatively small number of observations. As a contrast to Saint Petersburg case, District Administration in Novosibirsk Oblast scored zero on this coefficient. It is also
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interesting to notice that all agencies scored zero in Novgorod region. Comparing regions on the coefficient B shows the highest average B for Rostov region (0.56), which is followed by Saint Petersburg (0.49) and Moscow region (0.41). The lowest frequency of unofficial payments is registered in already mentioned Novgorod (0), and is also relatively low in Perm (0.13) and Novosibirsk (0.14) regions.
3. The last coefficient used for the comparative analysis of government agencies is the coefficient “P” which corresponds to the evaluation by BIS on their perception of how often unofficial payments occur in general when interacting with certain agency (see Annex 1, table 8.4).
Most frequently unofficial payments are associated with the same agencies as for coefficient B. One agency that joins the top of the list is the Tender Committee, so the agencies perceived as taking unofficial payment most often are:
· Traffic police (GIBDD) for which the respondents perceive it is taking bribes in 47% of interaction in average. This percentage is the lowest for Khabarovsk Krai (10%), and highest for Moscow City (87%). · Tender committee with an average “P” of 44%. However only two regions have a relatively high number of observations for this agency (Moscow City and Novosibirsk), and their experiences are almost opposite (89% for Moscow, and only 6% for Novosibirsk).
The lowest frequency of unofficial payments, as well as in the previous coefficient, was reported for the Department of Justice. The maximal number of answers for the coefficient “P” equal to 1 was observed for Region Administration of Moscow City while similar result for the coefficient equal 0 was observed for Committee for Property Management in Sakhalin Oblast and for the Bureau of the Technical Inventarization of Novgorod Oblast.
Combination of three coefficients used allows to say that the highest level of corruption was reported for the State Fire Department of the Ministry of Emergency Situations. Lowest level of corruption was reported for Department of Justice and for Architectural and design organization. The latter is, however, in most cases the private organization, so it can be excluded from the consideration.
On the regional level the most problematic agency is again the State Fire Department of the Ministry of Emergency Situations in Irkutsk Oblast while least number of problems were reported for Taxation bodies in Novosibirsk Oblast, District administration in Kaliningrad Oblast and Land Surveyors in Sverdlovsk Oblast. The latter is, again the private organization, so it can also be excluded from the consideration.
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9. INSPECTIONS
This section includes a review of administrative hassles that companies face in the process of inspections which various authorities perform. As only the ARCS companies were questioned regarding the inspections, all the statistical data herein have been calculated on the basis of the responses collected from the ARCS companies.
According to the survey results (Annex 1, tables 9.1-9.8), there are three distinct leaders in terms of percentage of inspected companies: Fire inspection (68%), Tax inspection (63%) and Sanitary and Epidemiological Surveillance (48%). It‘s worthwhile to note that these three inspections are reported to have the highest percentage of inspected companies in 14 out of 15 regions, and also by all types of companies. Other inspections are far behind with the percentage of inspected companies being 25% and less. The most rarely met inspections in all regions and by all types of companies are specialized inspections such as Centre of standardization and metrology (13%), Land inspection (14%) and Licensing agencies (19%). Moscow Oblast can be singled out as a region where there is biggest number of inspections visiting an average company (5,5 inspections per one company) and the highest frequency of inspections by an average inspection (3 per year) (Annex 1, table 9.3). Thus, the average number of inspections of an average company in Moscow Oblast is 16,5 per year. The lowest average number of inspections per 1 company was observed in Khabarovsk Krai (2,34 a year for an average company).
Open as well as closed joint stock companies seem to be somewhat more burdened by inspections than the others in both, frequency and number of various inspections. The probable reason for this is the fact that joint-stock companies are normally of larger size and turnover compared to companies with other legal forms, and therefore more likely to become a target.
The percentage of companies that were inspected by one or another inspectorate and the average frequency of inspections by that inspectorate do not correlate with each other. For example, Police heads the list in the average number of inspections per year (2,7). It is followed by Administrative and technical inspection (2,5) and Oversight Committee for Architecture and Construction (2,1). Meanwhile, the percentages of companies inspected by these inspectorates are relatively low (24%, 21% and 16% respectively). Police and Oversight Committee for Architecture and Construction were pointed out by the largest share of our sample as the inspections creating problems. When asked which inspection is most problematic of all, our respondents, again, most often pointed out the Police (15%) as the most problematic. This may lead to a conclusion that most problematic inspections are not necessarily the most frequent ones.
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There are some regional specifics too (Annex 1, table 9.4): the highest share of respondents mentioning Police as the most problematic inspection is registered in Kaliningrad (36%), while Tomsk respondents single out Fire inspection (30%) as the most problematic, their colleagues from Leningrad region as well as Rostov region SES inspection (30% and 34% respectively), and Irkutsk respondents Tax inspection (37%).
10. PROBLEMS, ATTITUDE OF AUTHORITIES
Administrative procedures
In an attempt to grasp the volume of administrative procedures companies face in their operation, as well as to put administrative procedures related to “locating” procedures in a broader perspective of other administrative requirements, respondents were asked to name the procedures they aced in 2004, as well as to evaluate whether, and if so how much are these procedures an obstacle for the operation and growth of their business.
On average, the companies under the survey have faced 3,74 different administrative procedures in 2004. In general, larger size companies (joint-stock societies) face bigger number of administrative procedure than smaller companies (limited liability societies and entrepreneur without forming legal entity).
The most frequent administrative procedures in 2004 for the companies under the survey were procedures concerning taxation and bookkeeping (see Annex 1, table 10.3). It is quite surprising, however, that this percentage was significantly below 100% since, according to the legislation, tax reports must be submitted by every company. The probable explanation can be either usage of outsourcing when reports are filled in and submitted to the tax inspection by outside accounting firm or the director’s psychology (he (she) is not dealing with these procedures since the accounting department does this job).
The second highest percentage is shown by the Procedures having to do with the lease of land plots, Procedures having to do with the connection to production infrastructure (telephone, electricity, water supply), Procedures having to do with the lease of buildings, structures and premises for your business. This is also absolutely logical since it was predefined by the conditions of the survey (companies that attempted to carry out locating procedures were interviewed). Joint stock companies (open and closed) have encountered the procedures related to the lease of land plots, obtaining the permission for the construction and to the connection to production infrastructure. This is also very reasonable since construction works are likely to be performed by larger-size companies.
The least number of respondents have faced the procedures of Antimonopoly regulation and Registration of intellectual property rights. The procedures of
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antimonopoly regulation apply only to the market leaders and one could expect that their percentage will not be high. It’s worthwhile to note that the highest share of companies, that had to do with antimonopoly regulation procedures, (20%) was observed among open joint-stock companies that normally have bigger size and turnover.
Having in mind the nature of this project, and the fact the respondent selection criteria was conditioned by at least an attempt to undergo any of the “locating procedures” it was to be expected that these procedures will be close to the top of the list of problematic procedures. The results show indeed that “locating” procedures lead the list of problematic administrative procedures by far. More detailed inspection of data from the same table shows one interesting fact, and that is that in only one region this pattern does not exist, and that is Rostov Oblast. There, “locating procedures” seem to be perceived as no more problematic than the other ones. In Moscow, and Moscow Oblast, on the other hand, “locating procedures” seem to be perceived as even more problematic than in the rest of the regions.
The data also indicate that the most frequent procedures of bookkeeping and taxation do not cause serious problems, the respondents have evaluated this procedure as only a the moderate problem for their business and as the easiest ones among the procedures they have faced (see Annex 1, table 10.4). Taxation and bookkeeping procedures are quite standard issues for any type of business and companies have got used to dealing with them.
The share of ARCS companies that have faced different administrative procedures also depends on the region. The strongest cross-regional variation is observed for the procedures related to “locating”, such as Procedures having to do with: · The lease or purchase of land plots, · Obtaining a permission for construction and · Procedures having to do with the connection to production infrastructure
According to survey’s findings, Moscow Oblast is a distinct leader in a share of companies that faced all of these procedures. The share of companies that reported having experiences with these procedures in Moscow Oblast was 1,4-2,4 times higher than the average percentage for all regions under the survey. 67% of respondents in Moscow Oblast have faced the procedures having to do with the purchase of land plots (average value for all regions under the survey 27%), 78% of respondents in Moscow Oblast have faced the procedures having to do with the lease of land plots (average value for all regions under the survey 45%), 61% of respondents in Moscow Oblast have dealt with obtaining a permission for construction (average value for all regions under the survey 26%) and 61% of respondents in Moscow Oblast have encountered procedures having to do with the connection to production infrastructure (average value for all regions under the survey 44%). An extreme from the opposite side was Tomsk Oblast where minimal share of companies dealing with these procedures was
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observed. For most other regions, the shares of respondents that reported about these procedures, are around average Russian values.
A possible explanation of Moscow Oblast phenomena is that the region is the closest one to Moscow City. Since there are very few vacant land spots left for construction in Moscow itself many companies try to obtain land as close to Moscow City as possible. It’s worthwhile to note that the observed share of companies that were obtaining permission for construction in Moscow Oblast was more than 2 times higher than similar value for Moscow City (61% vs. 21%)
Although the problems created by the procedures having to do with the purchase of land plots, having to do with the lease of land plots, and having to do with obtaining the permission for the construction were evaluated on the same level, the procedures having to do with the purchase of land plots were named as the most problematic ones more often than others. This procedure was especially often mentioned as the most problematic one in Moscow City, while in Rostov and Novosibirsk Oblast very few respondents consider it as being most problematic.
Other obstacles
In order to determine the relative importance of administrative barriers (including “locating” procedures) compared to other types of barriers to business activity, the questionnaire offered respondents a list of potential obstacles and asked them to rate whether a certain issues is an obstacle for their company’s operation and growth, and if so, how severe it is.
Thus, other major obstacles to the development of business reported by all types of respondents belong to either financial limitations (tax rates, access to financial sources, interest rates of raised funds) or to problems with personnel (qualification of employees, labor regulations). For Joint-stock companies problems with people seem to be more serious that the problems with financial resources. The influence of these two obstacles also depends on the region. For example, problems with labor force seem to be the toughest ones in Moscow Oblast and in Nizhny Novgorod region while in Tomsk Oblast their influence is minimal. In Moscow Oblast the financial obstacles (access to financial resources, interest rates, tax rates) seem to have the strongest influence.
About one third of respondents consider corruption as an obstacle to their business. Generally, respondents that report facing corruption, consider it as a most serious obstacle to their business. In most of the regions, corruption was assessed as a medium (between minor and big) problem. However, in some of the regions the corruption problem is pointed out as extremely strong. For instance, in Moscow Oblast the problems with corruption are named as much more serious problem than in other regions under the survey.
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Procedures related to the foreign economic activity and to currency regulation are mentioned by the smallest share of respondents, which is probably caused by the fact that not many companies in general have direct transactions with foreign countries.
The companies under the survey interact much more often with local authorities than with regional or federal ones. The share of the companies interacting with local authorities is on average 94%, while the share of companies that interacted with federal or regional authorities is 37% and 47% respectively. This result is quite logical since most of problems of the business should be solved on the spot. The highest influence of federal authorities was observed in Moscow, Novgorod and Irkutsk Oblasts. The evaluation of authorities’ attitude toward business is more or less the same for all regions and for all types of authorities – they neither assists nor impedes business activities.
11. FINAL QUESTIONS
According to ARCS survey results, the share of time spent by the directors of the companies for solving different kind of administrative and regulatory problems is quite significant and also quite consistent for all regions (18% to 37%). Minimal percentage of time spent by the director for solving administrative problems was registered in Rostov and Novgorod Oblast while maximal percentage of time was observed in Tomsk Oblast.
For other senior employees, the variation of the share of time spent on administrative and regulatory procedures is higher than in the case of directors, and reaches its maximum in the case of lawyers in Novosibirsk Oblast (55% of the working time). On average, time spent on compliance with administrative and regulatory procedure is between one fifth and one third of the working time of different level managers.
The ARCS estimations of the share of the turnover not legally declared also vary strongly depending on the region under the survey. For example, according to ARCS estimates in Nizhny Novgorod Oblast, only 9% of the turnover is not declared legally while respondents in Leningrad Oblast claim that such share may be around 50%.
One can also see some evidence of “patriotism” of ARCS companies with respect to their region and recommendation of it to potential investors. For example, 94% of ARCS respondents of Kaliningrad Oblast have recommended it for potential investors. Least patriotic turned out to be ARCS respondents in Novgorod and Rostov Oblasts, which is quite surprisingly due to the generally favorable situation in these regions. Perhaps, the companies there do not want additional competition.
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