Sand grains, stones and blocks of the land market

Iurii Diachuk, CEO of the Investment Company INTELEVRAZ

Everyone worries about the land market as everybody worries about a phenomenon that no one has seen and no one knows anything about it for sure. As in a horror movie. Everyone freezes and shakes until the horror appears on the screen. But when everything is visible, it turns out that there is nothing to fear.

We are talking about the land market, great and terrible, which is inevitably approaching, with the CEO of the Investment Company INTELEVRAZ, Iurii Diachuk.

– Yes, some preparation for the market, which will start in July, is held, – Iurii says. – Market places are being created for the land market deals, also some groups are founding clubs in which are trying to attract capital managers for land investments. There is a third audience that creates the land platform.  The big capital is looking in this direction with interest, but it has not understood yet, how it will be able to participate in the market after 2024 when the big market opens.

– How is it? No understanding of what to do with 10,000 hectares, but there is an understanding of what to do with 100 hectares?

– This is a clear question. After all, someone has to manage these assets. Let us take the average well-off individual, who has from 100,000 to 200,000 dollars. If in the south, 100 hectares will cost about 100,000 dollars, in corn-soybean belt – it will be 200,000 dollars. This person has the main employment and cannot be distracted to manage his investment, that is, we need people to manage it.

We are also thinking about these services. An investor who is not going to cultivate his own land needs to find a tenant who will clearly fulfil the obligations, negotiate with the farmer… Moreover, there will be three markets in the future. The first will be the market of sand grains which will be 2 hectares per one share, then it will grow into the market of stones which will be 100 hectares, and then – into the market of blocks which will be 1,000 and more hectares.

When the stone market turns into a block market, it will be interesting for big capital. These will be citizens of Ukraine who will be able to buy land or enter large investment projects. However, they will need to know from whom to buy this land.

And the land should be consolidated. Because it is much easier to manage consolidated land, but its cost and rent will also be higher. Therefore, it will be necessary to consolidate the land purchased by the investor at retail, and this is also a long process, as it is connected  with a long-term lease. However, in the end, it will give some capital gain, the land can rise in price without any operations, simply because of the consolidation factor effects.

– However, will it be possible to consolidate land for sale? Moldova’s experience shows that this is a stumbling block – in 30 years there has not been possible to overcome the stubbornness of the owners of “grains of sand”, and the largest land ownership there does not exceed 500 hectares…

– I envisage the creation of a market of speculators in Ukraine, who will buy first and then consolidate the plots. Yes, some are selling and some are not selling their land, but this is a conservative market, this is a slow process.

The rate of return on land investment will not be too high. Because the market is new, prices will rise, but not on the scale that most players expect. It needs to realize that at the initial stage we will work only with the local Ukrainian capital.

Rental prices in Ukraine have already risen to the French, but we have no dotation. As a result, the Ukrainian farmer earns less than in France, but he is saved by the fact that he has more land.

On the volume, he earns what the French give a subsidy per hectare.

If the situation with the decline in the profitability of the traditional sectors of the economy continues, interest in land will be not only for 15% yield, as it usually is in Ukraine, but even in case of 5% yield. Because the land is an asset that people perceive psychologically: “I have a certain plot of land, it is motionless and eternal.“

Why does a lot of people invest in flats in Ukraine? After all, if the yield is 5%, it is considered good and profitable. So is the land plots. The main questions are who manages it and how. Here we can help, find a tenant for the land, properly draw up leases, work out a business model.

– These are marketing and psychological market preconditions. And what legislation is missing for its full start?

– We have many important issues in the legislation interpreted ambiguously. It seems to me that the most important issue for the future market operators is the consolidation of land within one field. And the exchange system shall be simplified. These norms exist, but they are designed for production and land using, but they should be adapted to the needs of buyers and sellers of land. It would be really helpful for investors to transfer land purchase and sale agreements online. I predict an excessive burden on notaries, this can be a bottleneck. There are people who want to sell, and there are people who want to buy, now it’s mostly those who cultivate the land. Almost 6% of all leases expire in 2021. And among them exactly those who have already decided to sell their shares. They want the highest price, but their expectations will not be met. According to our estimates, about half of this 6% are those who will enter the market in July.

Source: Magazine “ZERNO”, 2021 №3 (180)


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