In October last year, Ukraine began an experiment on trading rights to lease state-owned farmland through an electronic auction system. The system allows Ukrainians to become tenants online. This idea is alive and working, although not everything always goes the way Viktor Vyshnev, State Enterprise "System of Electronic Bidding for Seized Property" (SETAM) General Director, would like it to. In our interview, he said that this system is ready to sell millions of hectares of state land as soon as the moratorium is lifted. Here's how it works.
- How many land auctions have been conducted through your system since last October, and what did you sell?
- More than two thousand successful auctions for the sale of lease rights of state agricultural land were made. .
- What was the purpose?
- This is our pilot project with The State Service of Ukraine for Geodesy, Cartography & Cadastre (State Cadastre) and the Cabinet of Ministers. Firstly, we tried to create an effective mechanism that would allow us to sell rental rights. In the Land Code there is no concept of electronic bidding at all. And the pilot project should show that they are effective, absolutely open, honest and convenient for participants. The tender announcement is placed on our website and on the website of the State Cadastre. We started this work in October 2018, and we are already seeing very good results. We expect the moratorium on the sale of agricultural land to be lifted.
- What were the financial results for the pilot project?
The existing Land Code does not always correspond to today's realities.
- We sold rental rights for 140 million hryvnias, that's the amount tenants will pay to the state budget annually. In general, 90,000 hectares were put up for auction, of which only 36,000. Many auctions either failed, or did not occur at all. The existing Land Code does not always correspond to today's realities. For example, an auction winner may refuse to pay money and sign a contract, and then the auction breaks down. So, the participant loses guarantee fees, but they, according to the legislation, are small. This is a registration fee (about UAH 960 hryvnias) and a guarantee fee (a few percent of the initial price).
- What and how much can you buy at your electronic auction?
- This is land for various agricultural purposes in almost all regions of Ukraine.
Large lots are in great demand. You can buy several hundred hectares in one array of land plots, and you can also buy 1 to 2 hectares. Each lot during the implementation corresponds to one cadastral number of the land. The maximum we put up for sale was about 400 hectares in one array under one cadastral number. It is difficult to find such a large array, that is, several thousand hectares under the same cadastral number.
- How does the price change during the auction?
- The state price is set by the State Geocadastre. It is about 8.3% of the normative-monetary value of land. Previously, when land was sold at ordinary auctions under the hammer, the price increased by 12% from the normative-monetary value. Now it increases by more than 18%. Some lots go up several times. We even had cases when the rental price exceeded the regulatory monetary estimate.
- Speaking in absolute terms, can we say how much a hectare is worth?
- The total hryvnia amount that we set out for the rental of these 36.5 thousand hectares was UAH 52 million hryvnias. We wound up auctioning them off for UAH 140.5 million.
- How much does this reflect the market value of land leases in Ukraine and the range of rental rates per hectare?
- The most expensive that we sold is 150 hectares of land in the Kirovograd region. The annual lease of the plot is UAH 1.9 million. That's about UAH 12.7 per hectare, that is, about $500 per year. It’s hard to say more precisely, since it all depends on the characteristics of the lot.
- Who can take part in such auctions?
- Today it is not regulated by law, that is, by any law. When the moratorium is lifted, the situation will also change.
- For how long are rental rights usually sold?
- As a standard, the State Geocadastre leases lots for seven years. Although there are no regulatory documents on such regulation, that is, they can be put up for any period of time, and you can even realize not only lease rights, but the right to sell.
- How much is it planned to sell this way? What pool of land does the state have for such a sale?
- If the moratorium is lifted and a decision is made to sell state-owned land plots, then it should also be sold on competitive terms through electronic auctions.
- Today in state ownership there are about 10 million hectares. But not all of this land can be leased. If the moratorium is lifted and a decision is made to sell state-owned land plots, then it should also be sold on competitive terms through electronic auctions. In the conditions of an unformed land market, we actually have no understanding of who and how much will be given for a particular piece of land. As for electronic auctions, the initial price is not so important.
- In your opinion, is the system ready to open a land market?
- Technically, it is absolutely ready. We are waiting exclusively for a legislative settlement of this sphere.
- Could handle the sale of several million hectares?
- There are no questions at all. We have no scaling problem. If it will be necessary to conduct several thousand auctions daily, then we can do it. The question is economic feasibility. You understand that if you open the market and throw all the volume to the auction, the price will fall. Everything must be done sparingly, over a protracted period of time. And you also need to decide which land to sell, and which is better to rent out. And then decide how and who will do it.