On July 1, the land market was launched in Ukraine. For the next few years, agriculture and agribusiness will face a difficult period. However, if we approach the process competently, the complexities and challenges can lead to success in 10-15 years.

The first question which is asked by experts «How much land will be sold and when?”. To be honest, no one knows for sure. Nevertheless, what can be said for sure - the land market will start quite slowly. In addition, there are several reasons for that.

1. The law establishes the primary right to purchase land by its tenant. It is no secret that most of the land plots that are legally cultivated are leased. In addition, the landowner is obliged to give the tenant a month before the sale to make a decision - whether he is interested in the purchase and whether he is willing to pay the price that the seller wants to get. If not, the seller can sell to anyone, but not below the price offered to the tenant. As a result, the sale of land will take some time, not in 1-2 days, so spontaneous sales will be just a few, which is good.

2. Let's be honest. Those who needed it - have found a way to sell the land a long time ago, or just handed over as emphyteusis for a long period, or they exchanged land plots - they changed theirs for a small one, until this scheme was banned. In addition, such formal owners will not participate in the sale. Those who took the land as emphyteusis will finally buy it in 2.5 years, when legal entities will be allowed to buy agricultural land. In addition, many people value the passive income that land brings, and therefore do not hurry to sell it.

3. The rule of law that for the first 2.5 years only individuals can buy land is another deterrent that will prevent the sale of land from becoming widespread. To get a loan to buy land for individuals is much more difficult than legal entities. The reason is that it is risky for banks to lend to individuals. Because, firstly, individuals do not have a business plan, financial statements, and often credit history - consumer lending is not taken into account. Secondly, it is very difficult to predict how the price of land will change. In the most cases, after start of the land market and the initial growth, there was a sharp drop in prices, and then a slow rise again. Given that the law requires a bank to sell the land within 2 years of collecting the mortgage, it risks that the sale may occur at the moment of price failure. As a result, a bank will either underestimate the value of mortgage cost, or avoid mass lending, issuing loans only to secured borrowers who have other assets.

4. The reason for the slow launch of the land market can be the lack of farmers’ interest. On the one hand, it is not profitable for them to withdraw money from business. On the other hand, it is better to wait until the moment when they can buy land for theirs company than to buy land now as individuals. As a result, farmers will buy land in order to keep their land bank (if the owner wants to sell now, so that the land does not go to someone else). On the other hand, if they expect an increase in its price. If you buy land for yourself, in addition overcoming difficulties with lending, you will also have to lease it to your own company, which means to pay 18% of the personal income tax plus 1.5% of the military tax (MT). If you re-register it to a legal entity, in 2024 you will have to pay another 5% of the sale price, and in the case of the adoption of the "antiakhmetov" bill № 5600 pay all 19.5% (18% PIT + 1.5 MT).

Of course, we should understand that the first sales operations will serve as a catalyst for market development. But in order for the sale of land to become a fashion trend, it also takes time.

Anyway, the market is going to work - all the prerequisites for this are there. The main risks mentioned by the experts have been eliminated. For example, it’s too difficult now to carry out raider attacks by transferring property to third parties. Therefore, the risk is minimized. As well as the danger of mass sale of the state and communal land. The law prohibits the sale of such type of land.

If we talk about the pros and cons of the land market start, we have changes that are more positive. The emergence of land ownership, the ability to buy it, solves several problems. When a farmer becomes the landowner, his attitude to it changes. Land becomes his asset, and he treats it more carefully, making long-term investments to protect soils and increase their fertility. In addition, land market start will give an additional impetus to the development of irrigation, horticulture, berry growing, construction of greenhouses - all that requires large investments, often exceeding the value of the land itself. After all, it is one thing to invest 10-60 thousand dollars per hectare in someone else's land, and quite another - in your own.

There will be negative effects. The first lies on the surface. To buy land, farmers will reduce investment in technology, processing and new types of production, and this will be quite a long-term effect, because a lot of farmers cannot pay back loans for buying land in a couple of years or not take them at all.

It is worth noting that in order for the land market to give positive results, it is necessary to adopt a new law on land consolidation. The relevant document, submitted by the Head of the Agrarian Committee, and waiting for its consideration in the Verkhovna Rada. The point is that no one will invest in the reclamation of a field that looks like a patchwork quilt where your land is interspersed with someone else's. It is also a difficult task to cultivate it - the cost of its cultivation will be 30-40% higher than the cost of cultivating the same area of ​​land, if it is consolidated into a single land plot of the correct shape.

Summing up: the land market has started, but those who expect a boom in sales and quick results (positive or not) - will be disappointed. Moreover, if the level of land sales will fluctuate about 1-2% per year, it will give the best result - farmers will not stop the development of technology and, at the same time, will faster develop areas with high added value and investment per hectare. If, as the Ministry of Economy predicts, sales reach will be 10% for the first year, the problems I mentioned above may begin - farmers will take out loans and stop investing in the development of production. The first option is more evolutionary and reliable. The second one is risky, but, on the other hand, there is a chance to get a powerful long-term positive effect faster.

Interfax-Ukraine