Ukraine: agricultural land market

On the 1st of July 2021, the agricultural land market is opened in Ukraine. This is a historic event, the culmination of land reform.

Field
©UAgroNL

After a more than 20-year moratorium on the sale of agricultural land, more than 6 mln. Ukrainian landowners will be free to use their right to dispose of their property and, if they wish, to sell it.

Private ownership for land became the basis for market relations and economic development in Ukraine. It contributed to reforming agriculture in the country, establishment of more than 40,000 farmers who ensure food and economic security of the country, create jobs and support rural development. The opening of the land market is a logical and necessary step to continue these processes and ensure the rule of law in the country.

Who will be able to buy and sell?

In the beginning, the market will be quite conservative and limited. The following parties will be able to participate in the transactions of agricultural land:

In the period from July 1, 2021 to December 31, 2023, the circulation of land between citizens of Ukraine will be allowed.  During this period, the alienation of privately owned agricultural land will be allowed between citizens of Ukraine, no more than 100 hectares in "one hands". Consolidation of agricultural land by a citizen of Ukraine in the amount of 10,000 hectares will only be possible after January 1, 2024.

Starting from January 1, 2024, legal entities established under the legislation of Ukraine will have the right to acquire ownership of all types of agricultural land within 10,000 hectares. The consolidation restrictions will also take into account the total amount of agricultural land owned by the ultimate beneficial owners of such legal entity. There will be special requirements to the corporate structure of legal entities intending to acquire agricultural land. They should be transparent, not contain any "intermediate links", and include only citizens of Ukraine and / or the state and / or territorial community.

Ukraine land Europe
©Arzinger, Oschadbank, Agropolit

What can foreign investors expect?

Foreign legal entities and individuals (except for residents of the aggressor or occupying state, and other states under sanctions) will be able to acquire ownership of agricultural land only after approval of such decision at the national referendum.

When such decision is taken, the law will provide almost equal opportunities for foreigners and domestic businesses.

What agricultural land will be available for sale?

Total area of agricultural land in Ukraine is 42 million hectares. The moratorium on sale applied to the vast majority - 41 million hectares - from 2002 until July 1, 2021.

Two-thirds of the total agricultural land – 27.6 million hectares - are land plots (shares) that were distributed in the 1990s among 6.9 million active and retired collective farm workers. This land that can now be sold and bought.

According to a survey, conducted by the Ukrainian Institute of the Future, only 3% of owners were willing to sell their land without hesitation. Decision of the 10% would depend on the proposed price, and 22% would think about selling, but are not in a hurry.

The ban on the alienation of land in the state or communal property remains in force. Exception will be the lands of agricultural enterprises in the state and communal property, which are in the permanent use or lifelong inherited possession of the Ukrainian citizens.

Conditions for privatization of state and communal lands will remain unchanged. In addition, the land fund in the state and communal property will be available for rent at the land auctions.

Another important change is lifting of the ban on changing the purpose of land. It will be possible to change the purpose of land, in line with the legislation to meet the needs of other industries.

Ukraine land market distribution
©Arzinger, Oschadbank

What are the expectations of the price?

Many farmers would be interested in buying land plots but they do not have the resources. Government policy to support small farmers in their efforts to acquire the land they are using, will be very important.

Bigger agricultural producers who cultivate large areas, are not always ready to pay high price and seem to be more interested to rent land plots.

There is an interested group of private investors who work in different sectors, and who expect to invest their money in purchasing the land plots for further renting them out. They hope for 10-15% profitability of leasing their land plots. For such investors service Land Club was founded, who act as a broker between agricultural companies, land sellers and buyers.

Land plot owners who were polled by the Land club, would be willing to sell their plots at the price 1500-2000 USD/ha. Based on the experience of neghbouring countries, it is expected that during five years after opening the market the price will raise till 4000USD/ha.

Expected price: is about $ 2,500 per hectare on average in Ukraine. In some places it will be more, and somewhere it will be less. The price increase is expected to be insignificant due to the lifting of the moratorium - up to 10%.

An additional factor that will work to increase the value of plots is the availability of loan opportunities. "Loans secured by land are less risky than secured by goods," according to the First Deputy Chairman of the NBU Kateryna Rozhkova. "That's why banks are ready to work with them." At the same time, the banks will not rush to enter this segment until market participants decide on the market price, she said.

By the law, banks that have acquired land must sell it at the auction within the two years.

You can read more about agricultural land as investment instrument in the article in Forbes.

What impact will this development have ?

According to estimation of Oleg Nivyevskyi, the associate professor of Kyiv School of Economics, the expected effect will be from zero to 1.7% of additional GDP over the next 3-5 years. A lot will depend on the  access of small farmers to funding and support from the government. Estimation of economic impact of lifting the moratorium is presented in the paper.

The lending market secured by agricultural land as mortgage will be considerably strengthened.

Lifting the moratorium is only one, although very important step in current land reform. There are many other significant steps. Broader picture is in the White paper Strategy for the Development of Land relations  The Paper was developed under the leadership of the Ministry of Agrarian Policy and Food and the Ministry of Economic Development and drafted with support from experts of the Kyiv School of Economics and with the assistance of the Project “Supporting Transparent Land Governance in Ukraine”, funded by the European Union and implemented by the World Bank.

Finally, the landowners will have the full right to dispose of their property and obtain its fair value.