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A battle for cadastral registration: who will win?

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A battle for cadastral registration: who will win?

The Government is carrying out a reform of cadastral registration. Another bureaucratic structure may arise as the result of such innovation.  

The Government has started one of the most large-scale reforms since the 1990s, and the majority of citizens have heard nothing about it. But very soon these innovations will be of concern to almost every resident of the country. They are about the cadastral valuation of our realty, and as the authorities’ intentions become clearer, arguments for the pros and cons of the governmental plans are becoming more and more heated.  

 

A powerhouse of officials

The roots of the reforms are clear. In these conditions of economic and financial crisis the authorities are looking for new ways to replenish the state budget. Realty is one of the most beneficial sources, and from the standpoint of our do-gooders it has insufficiently refilled the public purse. So they have now decided to correct it.  

On the whole, the authorities’ intention is unexceptional. All over the world, realty is one of the principle sources of taxation.  Besides this, the current cadastral registration and taxation model does not correspond to the new market conditions, as it has a lot of drawbacks.   

The bill draft provided by the Ministry of Economic Development specifies that realty cadastral valuation be carried out by state valuators. All the work on collection and processing the information will be carried out either by the existing state-financed institutions or by new budget organizations to be created in the regions.  In other words, in a country suffering from monopolism, the state has decided to create another monopoly.

 

Raze and then

The majority of the business community related to realty evaluation does not agree with such an approach. As the president of the non-commercial partnership “Self-regulating organization of evaluators “Expert council”” (NP SROE), Alexei Kaminsky thinks that those who promote such reformations have the aim of managing the whole process.

 

On February 16th, 2016, the RF President charged the Government with looking into the matter of cadastral registration. But nothing was said about the development of the bill draft or the creation of specialized budgetary institutions.

Yes, realty tax assessment is the state’s prerogative, but experts doubt that the state should carry out property valuations. All over the world, including in Russia, this job is done by market evaluators. And now, according to an old Russian tradition, attempts are being made to break the existing system and to build a new one on its ruins.  

Alexei Kaminsky wonders why the new law prepared by the Ministry of Economic Development is needed. The document does not solve existing problems but creates new ones, and a significant valuation quality increase may be achieved within the existing model.  

Anyway, first the President’s task should be fulfilled, i.e. all the aspects of the planned reformation should publicly discussed, and a decision should be taken as to whether a bill draft should be introduced.

 

One mistake after another

I think one may partly agree with this opinion. Russia needs cadastral reformation. The existing system is not efficient, and there are a lot of drawbacks in the system of cadastral registration. A significant part of realty is not registered.  

For example, the Governor of the Ulianovsk region, Sergei Morozov, has refused to carry out cadastral valuations in the region, as 200,000 (!) mistakes have been found.

Making a speech at the 6th forum for cadastral activity participants, the Moscow region’s minister for property matters, Andrei Averkiev, voiced the following data: lately, the Moscow regional authorities have received more than 85,000 claims from citizens complaining about incorrect property valuations.  The analysis of complaints showed that 90% of cadastral registration was performed incorrectly.

One typical mistake is an improperly specified realty object. For example, a small cottage is located on a plot of 15 acres. In the cadastral report, it is described as being a possible site for a high-rise building, but the tax amount depends on the size and purpose of an object. And the difference may be 100-fold…

In the Moscow region, 46% of land plots do not have boundaries, and there are objects that are not included in the cadastral (and, consequently, the tax) registration. Only 10% of such estates have been discovered recently.

Another widespread mistake in the cadastral plan is the wrong address of a land plot. 30%–40% of land plots are not assigned geographical coordinates. Very often, cadastral engineers do not take a building’s wear-out rate into account.

These drawbacks are mainly explained away by the human factor, i.e.  specialists’ insufficient qualification level. According to the Moscow regional minister, there are also conceptual methodic gaps. The objects’ full description parameters are lacking, the construction and structural materials the objects are built of are not taken into account, etc.

And this happens not only in the Moscow region but all over the country. One should know that as of January 1st, 2018, any operations with land plots without legal boundaries will be prohibited. Currently in Russia, these make up about 35% of households (about 20m families), and 40% of plots have no legally fixed boundaries.  

These plots are mainly located in gardeners' non-commercial partnerships or in villages. Their owners have to register the location of their plots, but it is not that easy because of cadastral mistakes. According to the experts’ opinion, in the coming two or three years, about 2—3m of owners may be involved in legal actions concerning land, which may result in the collapse of the court arbitrage system.

A battle for cadastral registration: who will win? 

From 600m to 600,000

Neither are businessmen satisfied with the current condition. According to the Vice-President of the All-Russia public organization “OPORA ROSSII”, Marina Bludian, cadastral registration is very important for business. At present, entrepreneurs do not understand what to do: one system is being cancelled, but the other has not been created yet. Besides, it is not clear how efficient the new system will be if the state is its main operator.

Meanwhile, there is positive experience worldwide, based on the separation (distribution?) of roles between state and business. For example, in the USA cadastral engineers work according to a customer’s order, and special inspectors monitor the situation on a constant basis, sending the latest information to the corresponding databases.  

Business is very much interested in fair valuations of property, which is necessary for both tax declarations and banking credits. A bank is known to acquire and assess objects only according to their fair market value, which may be calculated correctly only by professional evaluators.  If another approach wins out, it may result in negative consequences for the economy.

Another aspect of the issue is also worrying business: the complex valuation of property is important for its representatives. And at present, buildings, land plots, and equipment are assessed separately, which artificially decreases the value of the assets.

What does this look like in practice? According to Marina Bludian, there was a case in a region when the land on which a plant was built was evaluated at 800m rubles, but when it came to court it was evaluated at only 46,000 rubles. A year later, follow-up expertise was carried out which resulted in an alleged price of 600m rubles for the same land plot, but the court did not admit this figure, having replaced it with its own – 600,000 rubles. The question is, what should the owner of such a “vague” asset do?

 

Barking up the wrong tree

Meanwhile, taking the floor at the round table event dedicated to cadastral valuation reformation, the Deputy Director of the Ministry of Economic Development, Nadezhda Babicheva, reproached businessmen, saying that they themselves are to blame for the state deciding to take cadastral evaluation under its control, i.e. they could have appreciated their opportunities and powers in collecting and classifying the information in 2010, when the law on professional evaluators was adopted and the state would not have interfered in the process.  

Well, everything is now turned upside down. Isn’t it the state’s prerogative to create the system for business to work efficiently? But first the state distanced itself from this activity, having eliminated Technical Inventory Bureaus, and now it hogs the limelight, creating new difficult-to-understand structures.

And the most difficult-to-understand point is why the new bill draft developers think that state valuators would be more professional and highly qualified than their “market” colleagues. Life proves that the reverse is true.  

We may agree with Nadezhda Babicheva that there is an acute need for a cadastral information quality increase. This is the point the state should worry about, and the rest should be given to business. And yet, the Ministry of Economic Development is crying out for the state’s enormous number of functions and is multiplying them at the same time!

The only explanation is a very simple one: Russian officials have understood that one may earn well here, and have started to create a system for themselves. One can’t but remember the Russian writer Saltykov-Schedrin: “Everything changes in Russia over the course of 5 years, and nothing in the course of 200”.

Vladimir GURVICH

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