Problems of the real estate market at a regional level

Materials of round table in Vladimir
April 24, 2000

In view to study regional problems of the real estate market, regional experience of management of the real estate and extension of creative contacts with business communities of the entities of the Federation, the editors of the journal conducted a round table on April 21-23 in Vladimir, where the subject of " Problems of the real estate market at a regional level " was raised.

Local authorities of Vladimir district were actively involved in this conference.

The representatives of local authorities, Ministry of State property, Russian guild of the realtors, Russian society of the valuators, managers of state companies, businessmen, leading Russian scientists participated in this conference.

In his speech, the editor in chief of the journal S.O. Bochkov emphasized the special role of shaping a legal field of the real estate market as one of basic elements of investment process in regions. He also marked, that the store of time on improving normative - legal base and law enforcement practice, on improving the operation of executive and judicial authorities practically is exhausted. During the years of reforms the country suffered heavy losses on the volume of industrial output, on the state of fixed capital stock, on personnel resources. Today, the problem of establishing a standard legal field for the development of economy becomes a problem of economic safety of the country.

The reporter also informed about the creation of an information base of investment projects on the basis of the journal in regions for rendering legal and organizational promotion in raising the finances.

The academician of RAS A.S.Zholkov stated the importance of improving the real estate management. It was emphasized that the solution of this multifaceted problem at a regional level has an important value. Not less importance has the regulation of normative - legal base that operates with the real estate. Also it was stated that the antinomy between the local legislative base and the federal legislation is impermissible.

1 Unfortunately, such cases became more and more spread.

In his performance, A.S.Zholkov argued for the necessity of perfecting the federal legislation. The practice indicates a series of directions of the real estate management, which are not regulated at the federal legislative level yet. Such gaps stimulate local "initiative".

We offer to acquaint with a part of the performance, which deals with the regional policy of Russian Federation:

"Under the regional policy we mean a system of actions by public authorities on regulating political, economic and social development of territories, harmonization of interests of the federal center and locales, and also the way of their realization. Its primary goals are:

• to create the legal, socioeconomic, financial and organizational basis of federalism; to provide the integrity of the country and to form a unified environment for all types of activities;
• to form general minimal social standards and equal social protection for the citizens, to observe their social warranties, established by the Constitution of Russian Federation;
• to develop top-priority regions, which have important strategic and geopolitical value for the country;
• to support regions with special geographical setting, severe climatic conditions, complicated economic, financial, social and demographic situation on the governmental level;
• to assure the development of local government;
• to provide ecological safety.

In recent years there is the development of legal basis of the federal relations, which is accompanied with the decentralization of lawmaking. On the one hand, that enriches the system of lawmaking, allows to consider territorial singularities more completely, to cope with regional legal problems more efficiently. On the other hand, that creates many acute problems concerning the relation between the federal and local legislation. The problem of conformity between the legal acts, created in regions and the federal legislation is rather actual till now. Especially there are a lot of contradictions in the question of civism, tax collection, safety and defence potential, judiciary, and introducing the state of emergency. All these violations are appreciably called by the lack of model laws, which development would allow

• to provide a common conceptual basis of acts on similar problems received at the regional level;
• to compound standards gravitating towards unification;
• to overcome unjustified difference in the twin legal problem solution.

In each federal act, passed on joint tenancy, it is necessary to provide standards, which define exact terms of reference of both federal and local authorities, which should guarantee the independence of the last.

The normative - legal base of local policy is of great importance. It should harmonize relations between the federal center and the subjects in conversion of the Russian statehood, and in reforming national form of government, completely actualize its constitutional basis, protect the reasons of the state, guard its unity and territorial integrity.

The federative relations in Russian Federation are regulated by the Constitution and are established by appropriate federative agreements on differentiation of the terms of reference and authority. Unfortunately, up to date the problems of interaction between public and local authorities, municipal property and land tenure, development of federative relations, regional economic policy, state regulation of international and foreign trade activities of the subjects, regional social policy, employment policy, improvement of living standards, ensuring ecological safety, conservancy, regional aspects of the national-ethnic relations are not solved yet.

The reforming of interbudgetary relations should be accompanied with a system of measures, which could provide to the federal, regional and municipal authorities financial conditions necessary for execution of their functions. During the reforming of interbudgetary relations the following problems should be solved:

• precise differentiation of executive bodies’ account authorities and duties on all levels;
• creation of such financial conditions, when the authorities of all levels would be able to execute their functions at the expense of the current incomes, to use a normative method of shaping regional and municipal budgets.

In Russian Federation there is a series of serious problems in the field of regional policy realization. Among them:

• incompleteness of the process of legal settling the differentiation of the terms of reference and authority at each level. Up to date, the place and the role of legislative differentiation of the terms of reference, agreements between "the Center" and the subjects of the Federation are not defined sufficiently. Procedures of preparing and signings normative acts cause a lot of contradictions;
• imperfection of the system of interbudgetary relations. Despite the fact, that a series of fundamental documents were passed (Budgetary Code, the first part of the Tax Code, the Concept of reforming the interbudgetary relations), the system of liability for the realization of interbudgetary relations is not formed;
• indeterminacy in using the program - target methods in the system of the resources of state (federal and regional) programs. In the context of lack of real possibilities to find necessary financial investment resources, shortages of their extra-budgetary funds the constant increase of the federal development programs of regions has reduced the financing of the programs and their realization. There is no system of regional forecasts to provide the solution of federal problems of perspective development and to create objective reasons for solving specified problems. Such problems need a complex target approach and an address federal support to accomplish structural reorganization of territorial formation economy on different taxanomical levels.

Follows:

• Wide usage of conciliation procedures at the stage of preparing normative legal acts. On key problems it is necessary to create groups of developers, and also deliberative and consultative organs at the Government of Russian Federation and at the ministries and departments, which include all interested parties of rule-making process.
• Developing the ways of monitoring law abidance of federal legislation standards and the increase of liability of public authorities for violation of these standards. Such activities should be conducted simultaneously with matching federal legislation with the Constitution of Russian Federation.
• Continue to operate on normative implementation of interbudgetary relations within the Concept of reforming interbudgetary relations. Defining prior the promotion of principles of the interbudgetary relations reforming Concept on the budgets of the subjects of Russian Federation and organization of the authentic database of financial and socioeconomic state of regions. In this aspect it is important to organize a system of monitoring local and regional finance.
• Implementation of differentiation of account authorities on all levels of the budgetary system by normative acts. It is especially important to shape the supply on the basis of the state minimum social standards and stable financial standards. It will allow making the process of regulating the profitable part of the budgets of all levels transparent and justified.
• With a view to develop harmonically all Russian regions and to create the reasons of raising their investment attractiveness it is necessary to give primary attention to the federal target development programs of infrastructure branches of the economic complex. It is necessary to give the federal status to the programs of complex regions’ development, which include territorially and economically interdependent subjects of the Federation. The federal support can be rendered to the limited number of local territories, which do not posses their own financial resources. The development programs of available nature-economic resources of the subjects of Federation should be referred to the programs of regional value with financing by the subjects of Federation, local budgets and extra-budgetary sources.
• Working out the concept of development of northern territories. It is especially important to provide its complex character.
• Organizing the financial-credit institutes, which provide the development of investment process in regions and municipalities. The examples of similar organizations can be the European and World banks of reconstruction and development, and also the Bank of the municipal credit, which existed in Russia till 1917.

• Ensuring methodical help in creation of favorable investment climate in regions, also through organizing the system of consulting both on private, and on the state level. It is especially important to develop a training system for state and municipal employees. Implementation of the engineering and expert help program for both regions, and municipalities at a federal level.

***

The deputy chairman of the Vladimir area L.D. Badalyan presented a detailed report. Special attention was given to the problems of the real estate control in the Vladimir area.

1. Components and structure of property in the area are characterized by the following data:

The federal property all —	14.102 mln.rub;
Regional -“- —	2.043 -“-;
Municipal -“- —	32.080 -“-;
Private -“- —	40.964 -“-;
Mixed -“- —	15.384 -“-;
-“- with foreign involvement —	6.606 -“-;
Public organizations —	797 -“-
In total	112 mln.rub

In percentage terms we have:

The concept of the state-owned property management and privatization in Russian Federation favored by the governmental Order of Russian Federation from 09.09. 99 ¹1024, as the prime goals and problems considers the increase of management efficiency of state property.

One of the methods to increase the efficiency of state-owned property management is the method of its registration and the creation of Registries of federal assets and state-owned property of Vladimir area.

Practically the state-owned property of the Vladimir area control Committee, which has the authority of Ministry of State property of Russia, completes the organization of the Registry of the federal asset according to the governmental Order of Russian Federation from 03.07.98 ¹ 696 "On the organization of the registration of federal asset and support of the registry of the federal asset".

So, as of 15.04.2000 in the Vladimir area 554 managing subjects have federal asset, including 68 state unitary firms, 414 state institutes, 664 joint-stock companies, other 8 legal entities (religious and public organizations). 100% of registered legal entities, which have federal asset, have filed applications to the Committee on receiving certificates about including accountability units in the Registry of federal asset.

503 managing subjects (90.8%) have received the certificates, and inclusive of appropriation of the temporary numbers — 550 managing subjects (99.3%). The registry is carried on both on paper, and in electronic form.

Ministry of State property of Russia has spread the experience of the Committee of conducting the state-owned property registration and the creation of all subjects of Russian Federation Registry.

A lot of work was conducted on the registration and organizing the Registry of the state-owned property in the Vladimir area. As of 15.04.2000 278 legal faces have regional assets, of them 37 — of federal value and 241 — regional property.

Among 278 managing subjects who have the state-owned property of the Vladimir area there are: 77 state unitary firms, 140 official bodies, 60 economic societies and partnerships and 1 public organization.

At the same time, there are serious problems in creating the registries of the state ownership. The software "the Registry of the federal asset" is practically unsuitable for updating the state database, modify it from 01.01.2000 on, though enormous work was conducted on its loading during 1999.

The Vladimir area state-owned property registry is still carried on only on paper — 266 matters (there is no necessary computer technology: computers, printers, workstation and application equipment). It essentially constrains creation of the registry and has a negative effect on operating usage of the register information about the property accounting units of the subject of Federation.

The most complicated moments in the registration and support of the asset registry are:

• Lack of asset rule documents;
• Difficulties of processing the technical passport on the subjects and documents of land use;
• Particular legal entities exist only on paper, they went out of business, the balances haven’t been surrendered in tax inspection for more than 3 years;
• On-hand property of the legal entity acquired from different finance sources, i.e. different levels of property. For example — All-Russian TV and Radio Company.

2. A lot of positive practice on differentiation of state ownership is accrued in this field. For 8 years, from the beginning of differentiation of state ownership on the federal, state of the subject of Federation and the municipal, Vladimir area has received hundreds of firms and institutes and thousands of welfare and domestic organizations in its property, which main bulk is transmitted to the municipal property of cities and districts of the area.

However in this field there are problems, which are not decided for many years, even on higher state level.

3 Up to date the problems of differentiation of a state ownership in Russian Federation on the federal, state of the subjects of Russian Federation and municipal are solved by realization of the clauses of the Supreme Body of Russian Federation from 27.12.91 ¹3020-1, Order of the President of Russian Federation from 18.03.92 ¹114-ð and a series of the governmental orders of Russian Federation (from 07.03.95, from 17.07.95 ¹724 etc.).

At the same time in paragraph 3 article 212 of the Civil Code of Russian Federation it is stated, that the singularities of acquiring and ceasing of the asset property right, possession, use and order, depending on the kind of property (the property of Russian Federation, subject of Russian Federation or municipal formation), can be established only by law, instead of subordinate legislation, as it is taking place today. It results that different normative and legal acts, administrative documents of the Government of Russian Federation, Ministry of State property of Russia make the procedure of differentiation of the state property very complicated.

Practically, during the recent 2-3 years it became impossible to make the property of the Vladimir area welfare projects, which are on the balance of nonprivatization state firms and establishments, with the purpose of their consequent transmission to the municipal property. Such long-term lingering procedure of transferring the property, especially socially cultural and domestic organizations doesn’t stand to anyone credit. And on the contrary, aggravates the situation and heats undesirable social strength.

Living-space fund decays and fails without the support of the companies (organizations), on which balance it is found, and without the support of local authorities.

Primary, the State Duma should pass the federal Act "On the order of transmission the federal property in the property of the subjects of Russian Federation or municipal property", which would legitimate singularities of acquiring and ceasing the property rights on possession, use and order, and also would define kinds of assets, which can be only in non-exclusively federal property, state or municipal property.

3. One way of managing (monitoring) the real estate property is the demise.

At the local level the law on the order of demising is passed, the order of enumeration of the remedies from rent is defined which does not change during a long period of time. Part of the remedies from rent is enumerated to the firms.

At the level of Russian Federation the technique of the final pay of the rent charge for the real property is affirmed, but the order of enumeration annually changes by the law " On the federal budget for the next year ". These clauses of the legislation are realized practically not at the beginning of the year, but only at the end.

For 1999 the remedies from rent amounted:

In the federal budget —	2936 thousand rub. ;
In the regional budget —	2353 thousand rub. ;
In total: —	5289 thousand rub.

It is necessary to mark, that concerning the regional property practically all amount of finance from the rent of property on the balance of the organizations for 1999 was transferred to the budget, though the solution about the modification of transfers was passed in August 1, 1999, that has given the excess of actual sums over planned on 45 %.

Concerning the federal budget the set up of bank-books for the organizations under the governmental Order of Russian Federation from 24.06.99 ¹689 began only in October, in this context, the major amount of finance from rent on these groups of balance holders is not taken into account in the budget.

More than 70% of space is used by budgetary organizations, which have privileges under the law.

There is a series of problems on demising the personal property.

Firms are given the right to demise the personal property for the term of 1 year by themselves. The establishments do not have such rights.

Because of heterogeneity of the personal property composition there is no general (as on immovable) technique of the final pay of the rent charge on the personal property up to the present moment. It is necessary to have the federal order.

4. The draft of the new federal act on the privatization is being developed.

For the first time in the draft of the federal law there is a clause "Singularities of privatization of welfare and domestic property" with the separation of this property into 4 groups:

1) property forbidden to the privatization;

2) property on the balance of privatized firm, permitted to the privatization and included into the composition of property complex of the firm during the privatization;

3) property on the balance of privatized firm, not included into the property complex for the purposes of the privatization and subjects transmissible in the order established by the local law to the regional property;

4) property on the balance of privatized firm, permitted to the privatization, but not included into the property complex of privatized firm.

During the analysis of privatization materials of the state-owned property in order to include the state property in the registry of the state-owned property, the state property control Committee of the Vladimir area detected more than 200 units of real property of the 4-th group on the balance of the privatized firms, included into the chartered capital of economic societies, which were created during the privatization.

In general these are welfare organizations: clubs, cultural centers, camp site, rest houses, restaurants etc. The indicated property is usually used by labor collectives of the privatized firms, and all the expenses for its maintenance bear these firms, who express availability to redeem the real estate at market cost.

Taking into account, that in the draft of the federal law there is a clause "The sale of asset to the leaser under the rent contract with the right of redemption" the federal asset control Committee of the Vladimir area offers to supply the indicated clause with the item of following content:

"The Redemption of the welfare and domestic property, permitted to the privatization, but not included into the property complex of privatized firm, can be accomplished by the firm at the market price according to the rent contract with the right of redemption of state or municipal asset. The rent contract with the right of redemption is negotiated with the privatized firm without conducting a competition on the right of making the indicated rent contract".

***

The multifold analysis of the conjuncture evolution of the real estate on the Russian market was given in performance of the President of the Russian guild of realtors A.F. Guseev. He has marked some positive tendencies and the necessity of involving the professionals who operate on the market into the legislative process.

In the discussion of the state firms’ problems he has marked, that ensuring the effectiveness of property usage is the first problem of the owner, which should not be completely sidestepped on the management staff.

The active participant of the round table was the chairman of the building co-operative "Vklad" M.G. Salkov.

Based on the 10-year's experience of successful management of his organization M.G. Salkov has stated a series of interesting reasons of improving the revenue code and organizing the program of building firms. In his opinion, the present fiscal policy causes the honest businessmen to search the ways of drifting from excessive tax burden. The tax load should be optimum, simple and stable. It is also necessary to simplify and to democratize the order of involving the original contractors in the competitions.

The chairman of the "Georgia" corporation G.M. Inashvily has shared his practical experience of development of the real estate in Moscow. In particular, he stated that awkwardness and complexity of coordinating the operations with urban authorities beats off any desire to work with new construction and reconstruction. Sometimes settings of urban departments, such as ÄÃÌÈ and Moscow committee on land, are not coordinated with each other. On most simple and obvious problems much time is wasted on numerous matching and getting permissions.

In his estimation, G.M. Inashvily stated that it is necessary to examine carefully all passed normative - administrative documents for corruption, and thus limit the self-will of officials.

Candidate of philosophical sciences, the general director of "Center of social expertise" V.M.Ivanov commented the problems of the federal property rent. He emphasized that "among numerous problems of legal ensuring of real estate operations the problems of federal property rent are especially important.

Till September 1, 1998 the rent charge for the usage of the federal property was paid in rubles. After the August crisis Ministry of State property has issued a decree that now the rent charge will be paid in US dollars at the course of the Central Bank of Russia at the day of payment, but this rate in US dollars was defined by division of the former sum in rubles on the course of the dollar as of September 1, 1998, i.e. 9,33 rub. per dollar.

According to the dollar dynamic in the 1999,which has reached 27 rub. per dollar at the end of the year, it is easy to understand, how serious was the situation in the companies, which suffered on top of that of crisis and blow-up of the bank system. The real rent charge has grown on 300% on the understanding that the official rate of inflation was 40%!

It is paradoxical, but during the 2000 the dollar course does not grow strongly, and even falls, and though general resuscitation of economy and industry, and the growth of prices allow organizations and firms pay more for spaces, they can save paying on former, though overcharged level.

Such situation is certainly abnormal. If the government wishes to receive proportional payment from the leasers, it should take care of the correspondence of these payments to economic parameters of real economy, instead of random fluctuations of foreign currency, which is officially forbidden in the country. It is necessary to convert to the law on estimation activity and develop the institutes of appraisers.

Especially it is necessary to pay serious attention to executive discipline in the ministry. A lot of organizations for many years can not negotiate the contracts on the federal property rent by virtue of appreciable bureaucratic complexities and reorganizations. Moscow and other regional Ministry of State property departments were created long ago, but still all rent contracts are signed personally by the deputy minister.

Do not add enthusiasm both numerous contradictions and disputation between the federal and Moscow authorities. For example, the necessity of coordination and registration of the rent agreements in the Moscow real property registration Committee prolongs the procedure on one half-year.

In general, the ministry is renamed, and if it has the goal to develop the property relations in a macroeconomic way, it is necessary to pay attention to all unsettled problems and contradictions to increase the effectiveness of the federal property exploitation.

***

Also the president of the Russian Society of Appraisers I.L.Artemenkov has presented his report. He has marked, that an important aspect is the question re-estimation of the fixed assets of the companies, that will allow to coordinate the taxable base under the asset tax with the real asset cost, and also will make capital costs proportional to the expenses on maintaining the fixed assets.

In the discussion of Artemenkov’s report it was pointed out that the directors of state companies do not trust the objectivity of rating conducted by non-governmental departments. It was marked that not only active involvement of the government is needed for regulating estimation activity and refinement of normative documents, but also the operation of self-organizing appraisers for the making of the market.

On the round table conference also reported the director of FKP "VGKAZ" V.A. Kopnenkov. In the presentation he has marked, that the directors of defence firms are stumped: the state does not provide sufficient defence orders, but thus restricts the initiative of searching the orders on the side and even does not allow to earn income from demising a part of area, which the firms use on the right of operating control.

In the discussion participated the chief of a legal office of the real property department of Ministry of property, E.V. Ryss. She told about the activities carried by the Ministry concerning the solution of mentioned problems. She also marked, that in the basis of these activities there are many contradictions with other ministries and departments and imperfection of the local law. She called public organizations of the market participants, directors of firms to undertake active support of drafting actual laws and other normative documents, detection of "narrow" places and development of law enforcement practice. Also it is necessary to activate the system of judicial authority for elimination of encumbrances in operation.

All participants of the round table marked the importance of the conference, where there was a verification of positions of representatives of the executive authorities, professional market participants and the directors of companies.

Most of the suggestions and emphasized problems will form the basis of new publications in the journal, and also will be used for the development of proposals, which will be directed to the legislative and executive bodies.