Georgia Country Paper/Land Policy Action Plan

 

 

Prepared for the South Caucasus Regional Land Policy Conference

Tbilisi, February 24-26, 2003

 

 

 

 

 

 

 

 

 

 

 

 

© Association for Protection of Landowners’ Rights

2003

Tbilisi

 

 

 

 

Acknowledgements

 

This paper was prepared for the South Caucasus Regional Land Policy Conference by the Association for Protection of Landowners’ Rights (APLR) from Tbilisi, Georgia.  The Conference was organized by the APLR in cooperation with Agro-Meslehet of Azerbaijan, and the Community Finance Officers’ Association (CFOA) of Armenia.

 

Major funding for the Conference has been provided by the United States Agency for International Development (USAID) through the Eurasia Foundation's South Caucasus Cooperation Program.  Additional support for the Conference has come from FAO, International Land Coalition, UNDP, World Bank, and British Petroleum.  However, the views and opinions expressed in this paper do not necessarily represent those of the Foundation and the United States Agency for International Development, or of the other co-sponsors of the Conference.

 

Table of Contents

 

 

Part I. Introduction

 

Part II. National Land Use patterns

1.2.1.     Historic Trends

2.3.           Current Conditions

 

Part III. Legal/Institutional Framework for Land Ownership and Use

3.1.           Land Privatization Policy and Experience

3.2.           Legal Framework of Land Use and Secured Property Rights

3.3.           Land-Use Management Institutions

 

Part IV. Identification of Key Land Use Policy Issues and Problems

4.1.           Adequacy of the Land Registration and Titling System

4.2.           Coverage and Quality of Land Information Systems

4.3.           Planning and Urban Development

4.4.           Strength of the Land Market, and Supporting Professional Services and Institutions

4.5.           Land and Real Property Taxation Policy

4.6.          Credit and Investment Policy Supporting the Development of Real Estate Market

4.7.          Environmental and Natural Resources Protection

 

 

Part V. Conclusions

 

Part VI. Identification of Priority Areas for Action

 

Annexes

I.                    Key statistics about Georgia

II.                 References

 

Part I. Introduction

 

Next to human resources—its people—land is every nation’s most valuable asset.  By land, we mean not just the surface, but also the natural resources that grow on it or exist below, as well as the man-made structures that we build to house our families, factories, businesses, and religious/cultural activities.

 

The land (or “real property” in its broader sense) is truly the foundation and base of all daily activities.  It produces our food, confines our water resources, supports our industries, and provides for our recreational enjoyment.  It defines our national identity, not only in a physical sense, but also in a cultural and psychological way.  Land is integral to our definition of governmental responsibilities and boundaries, from the national, to the rayonal, to the sakrebulo and village.  And land and other real property are essential elements of basic social and familial relations, at the farm and household levels.

 

It is critically important, therefore, to recognize that real property is not simply a physical asset, but that it has other important social, ecological, legal, economic, and financial functions. Secure land tenure encourages investment. Land with clearly defined, and easily transferable ownership rights is ideal collateral. Access to land opens up productive opportunities for the poor, and increases their ability to be self-sufficient. Accurate recording of property rights is an important precondition for property taxation, which supplies local governments with their major revenue source.

 

Historically, land has been a major capital asset for Georgian households. Ancient Greeks identified old Georgians (Colchs and Iberians) as people whose lives were specifically connected with land cultivation. Land has been a major source of income for families, while also determining their social identity and increasing their economic security.

 

" Without doubt our country is an agrarian country and its only product is agriculture, i.e. products that are directly connected to the land. We need credit assistance in order to strengthen this output since it is the only source of our wealth…

 

“Land is our strength, the foundation of our life and identity, our welfare and wealth. Countries strive for equitable allocation of this asset naturally available gratis. Nations that failed to accomplish this no longer exist." – so says a distinguished public figure of 19th century Georgia, Ilia Chavchavadze.

 

Chavchavadze goes on to mention problems associated with leasing land from the state. These problems emerged as a result of inequitable access to land for peasants, and an overly bureaucratic leasing procedure, which discouraged the very people who had an interest in leasing land.

 

Perhaps because Georgia is a small country, land ownership has been equated with material well being.  In spite of foreign aggression and devastation, the country had always managed to supply its people with all the food they needed.  But at the end of the 18^th and beginning of the 19^th centuries, Georgia was no longer able to achieve this end.

 

Beginning in 1864, serfdom was abolished in Georgia; first in Tbilisi and then throughout the rest of the country.  Until 1917, peasants were able to purchase land.  The result was a three-tiered differentiation of the peasant class.  The first group, the kulaks, were wealthy peasants.  They purchased land for agricultural production that supplied the country with food products, as well as having enough left over for export.  The second tier was able to purchase only family plots, and the third tier—unable to purchase any land for themselves—found it necessary to work for other farmers.

 

Georgia was independent from 1918 until 1921, but it was a period of political instability.  Nevertheless, Georgia’s farmers produced enough food for the entire country.   In 1921 private ownership of land was officially terminated. Land sales were prohibited; owners were deprived of land plots; and so-called land committees initiated land allocation among peasants. By 1925, however, as compared to 1914, the outcome of this reform was a decrease in agricultural production.

 

During the 1920s,  in rural areas,  private land ownership still continued to exist.  During this period collective farms began to be established. In 1928 land ownership in rural areas was forcibly abolished.  Beginning in the 1950s, a large number of the collective farms was transformed into state-owned soviet farms.

 

During the Soviet era, Georgia was one of the main suppliers of a wide variety of high value agricultural products, including tea, wine, citrus fruits, mineral waters, brandy, canned and fresh vegetables and fruits to the markets of the former Soviet Union. In the period from 1950 to 1990, the level of production for grain, vegetables, tobacco and sunflowers decreased, while production of grapes, tea, fruits, citrus products, potatoes and livestock increased. In the second half of the 1980s, Georgia’s contribution to the food supplies  of the Soviet Republics was 10%. The total amount of exported food was 1.7 times greater than that of imported products. But other Soviet Republics were supplying Georgia with grain, meat and milk products, fodder etc.

 

During Soviet times, most decisions about the use of land, and other forms of real property, were the exclusive responsibility of the State.  Individuals and legal persons had access to real property only on a highly restricted and regulated basis. 

 

As a result, it was difficult for individuals and legal persons to realize the full potential of real property.  Moreover, the development of policies for the planning, allocation, and management of real property resources was largely done in a vacuum, by governmental officials.  And finally, the expert farming class was virtually destroyed by a failure to keep up with new developments in agriculture.  In recent history, land has been subject to core reforms every twenty to thirty years.

 

In 1992 the Georgian government distributed agricultural reform land parcels to Georgian households.  The aim has been to promote the social security of the population despite an environment of political destabilization and economic crisis.

 

Over the past decade, a new property system has arisen in former Soviet countries.  A considerable amount of land and other real property has been privatized (though much remains to be distributed).  New legal concepts have been formulated.  Financing mechanisms have been created that allow owners to ‘capitalize’ on the hidden economic potential of their properties.  Property taxation systems are being formulated to allow governments (especially local self-governments) to obtain the revenues needed to pay for their operations.  Much remains to be done, as well, in all of these legal and financial arenas to perfect the new systems, but measurable progress is being made.

 

Now, there is a need to develop a broad policy framework and guidelines for the further development of a new property system.  Individual components should not be taken in isolation and developed without consideration of their relationship to other factors.  A broad and long-term perspective must be applied to the problem of land policy, and strategies must be developed that allow for effective and coordinated action.

 

The process of policy development must be inclusive, involving active and meaningful participation not only by the central government, but also by local self-governments, private sector businesses, environmental groups, economic development and poverty alleviation agencies, academic ‘think tanks,’ and a wide range of other civil society interests. 

 

Policy development is, above all, a political task, not a technical nor a technological one.  ‘Experts’ are needed, but primarily as advisors to assist policy-makers, and as technicians to assist policy implementers.

 

As Hernando de Soto states in his thought-provoking work, The Mystery of Capital:

 

            Creating a property system that is accessible to all is primarily a political job because it has to be kept on track by people who understand that the final goal of a property system is not drafting elegant statutes, connecting shiny computers, or printing multicolored maps.  The goal of formal property is to put capital in the hands of the whole nation.  (page 205)

 

The Land Policy Dialogue Project, being undertaken at a regional level by three national NGOs and funded by the Eurasia Foundation and other organizations involved in land policy development, is designed to encourage and facilitate this policy-making process. 

 

We will attempt to identify the practical and operational constraints to effective land planning, allocation, use, and management. 

 

We will seek to articulate new ideas and concepts that policy-makers can use to formulate better programs, and to create better institutional structures for dealing with land and other real property resources. 

 

We will consider innovative strategies and approaches to unleash the power of the land as a force in the social and economic development of Georgia, and its neighbors in the South Caucasus region, while preserving its physical and cultural heritage.  

 

Finally, we will articulate a series of proposed national Land Policy Action Plans, with both short-term and long-term elements, which will serve as a guide and benchmark for evaluating success in reaching these objectives over the coming months and years.

 

This Country Paper/Land Policy Action Plan aims to research the state-of-the-art with regard to land policy development in the country and to propose an action plan in order to facilitate a coordinated approach to improved land use and management.

 

 

Part II.  National Land Use Patterns

 

2.1 Historic trends

 

Agriculture has historically been one of the most important sectors of Georgia’s economy.  Agriculture has thrived due to the country's diverse climates and relatively good soils. Traditionally, land has been one of the major capital assets for households. In rural areas of Georgia and in small towns, land is an essential productive asset and a means to sustain family livelihoods. Access to land allows the poor to make productive use of family labor, improve their nutritional status, income, and well being.

 

During the Soviet period, Georgian commercial farming was conducted through collective and state-owned large-scale farms, both subject to centralized management and control. In 1988 they encompassed 87 percent of all agricultural land while auxiliary family plots accounted for 5.5 percent. In the Soviet system of farming, a typical family in a village was allocated 0.25 hectares for family production. Nonetheless, all land was owned by the state. According to the UN, in the early 1990s Georgia had 781 collective farms each with an average of 1,800 hectares of productive farmland.

 

State-owned farms received land, which they occupied free of charge and for an  unlimited term. The system of property relationships between the state and the land users was based on a process of issuance and withdrawal of rights to use land plots.  Land parcels were transferred to citizens for auxiliary farming, gardening, horticulture and individual housing.

 

A portion of the income obtained on the most productive farming plots was recovered by the state in a form of rent, through specially fixed prices for produce varying from zone to zone. As a result, those who worked harder had to pay more.

 

Land was classified into six categories:

 

·        Agricultural land encompassed land allocated for agricultural needs or targeted for such purposes;

·        Settlement land covered land in cities, city-type settlements, and rural settlements;

·        Non-agricultural land was for industrial, transport, communication sector, resorts, reserved territories and other non-agricultural purposes;

·        Forest fund land included land under forest cover, or deemed necessary for forestry needs;

·        Land of water fund was subdivided into land covered by water and land not covered by water;

·        State reserve land was land not transferred under unlimited and long-term use right.

 

This pattern of land management began underwent a radical change in 1992 with the initiation of land reform. The process of land reform began with the Decree #48 of the Government of Georgia, dated January 1992, splitting up the collective farms as one of its first priorities. The transfer of land to private control was regarded as one of the most important actions for alleviating poverty.

 

Early in the reform process, ownership by individuals or corporate structures was impossible since all land in the country still belonged to the state. That changed in 1996 when a law was passed declaring the previously subdivided and assigned land parcels to be private property.

 

 

2.2 Current Conditions

 

In Georgia, land is now classified into two categories: agricultural land and non-agricultural land. The total agricultural land amounts to about 3.02 million hectares, and makes up about 43.4% of country’s total land area. The distribution of the agricultural land according to predominant use in 1985 and 2002 is shown in Table 1. By 2002 there were nearly 795,300 hectares of arable land (26,3% of the total agricultural area), and 267,900 hectares under perennial crops (8,9%). The rest is devoted to pasture (nearly 1.8 million ha, or 59,5%) and meadow land (0.14 million ha, or 4,7%). About 19,800 hectares are held in house and garden parcels. The country also has substantial forest reserves: roughly 43% of the country’s territory (2.75 million ha) is under forest cover.

 

 

Table 1:  Land Use in Georgia

 

	Total area 1985	Total area 2002		Privatized 2002		Leased 2002		Remaining State Land 2002
	000 hectares	000 ha	%	000 ha	%	000 ha	%	000 ha	%
Agricultural Land	2,981.4	3,022.7	100	763.0	25.2	903.0	29.9	1,356.7	44.9
Arable	783.2	795.3	26.3	434.6	54.9	230.5	29.0	128.2	16.1
Perennial	357.0	267.9	8.9	181.1	67.6	26.7	10.0	60.1	22.4
Meadow	173.3	142.5	4.7	41.9	29.4	45.8	32.1	54.8	38.5
Pasture	1,652.5	1,797.2	59.5	83.6	4.7	600.0	33.4	1,113.6	61.9
House parcels	15.4	19.8	0.7	19.8	100.0	0	0	0	0

 

Sources:  State Department of Land Management, Land Balance for April 2002

               State Department of Statistics (2002). “Georgian Agriculture 2001”, p.18

 

The change in the status of agricultural land between 1985 and 2002 is explained by a variety of reasons. Over time, some perennial crops have been removed and the land turned into arable land. Meanwhile during the reform 30,000 hectares of arable land were dedicated to access roads. In accordance with Presidential Decree #182, dated February 24 1994, some arable land adjacent to farms became pasture. In Kolkheti Valley, some land turned into bogs because of environmental changes due to poor management. This was also the reason that some land in the eastern Georgia turned into desert.

 

According to official data, by April 2002, only about 25 percent of all agricultural land is now privatized, including 54.9 percent of the arable land, 67.6 percent of the perennial land, 29.4 percent of the meadowland but only 4.7 percent of the existing pastures. 30 percent of the agricultural land is leased under long-term contracts and the rest (45%) is neither privatized nor leased. According to the above table, the majority of the land under perennial crops and arable land is privatized. Most of the land that is not privatized is classified as pasture and is not suitable for farming.

 

But it is common knowledge that influential people through the initially corrupt procedure of land privatization and leasing got control of many of the most fertile land parcels in large blocks. The privatization of those fertile large parcels of land will be beneficial for a range of stakeholders who have an interest in farming or who are more capable of using the land in the most effective way possible.

 

In general, interest in owning and farming land in Georgia is high. Land has a special importance for rural households, since it contributes two thirds of their income. This source of income is also important for the residents of small cities whose mode of life does not significantly differ from that of rural residents. Nearly one fourth of their income is received from farming. Moreover, approximately 90 percent of the country's households receive some income from land. As shown in Save the Children’s Nutritional Status Report, 2000-2001, among the most important predictors of household food insecurity was ownership of little or no land. As the study revealed, households owning more land were more food-secure than households owning little or no land for cultivation.

 

Farm Structures

 

Three main types of agricultural land tenure have emerged in Georgia since 1992.

 

Table 2: Agricultural Land Tenure Form[1]

 

Tenure type	Number of entities	Total area in Ha	Average area in Ha
Families with privately owned land	1,055,200	762,100	0,72
Families and groups with leased land	31,900	352,000	11,03
Legal entities with leased land	6,300	587,600	93,27

 

 

 

The largest tenure type is the small-scale farmer (more than one million families) who own agricultural land. This group includes families living in villages but working in nearby cities, and families who live and work in cities, but who have recently lived on ex-collective farms. The average size for this somewhat heterogeneous category is 0.72 hectares,  and this figure differs from region to region.  Half of these small farmers sell some portion of their crops or livestock, and this represents a significant part of Georgia’s food supply.

 

The small farmers’ average yields for cereals are similar to those of large leaseholders. Small farmers are therefore at least as productive as large leaseholders.  Moreover the productivity of small farms is improved by the diversity of their crops and types of livestock. Many of these small farmers have the capacity to farm more land. Their potential for growth and development is significant.

 

The second group is composed of the larger individual farms of 32,000 families or groups of families.  Most of the families (or family groups) in this group are village residents who have augmented their privately-owned land holdings by leasing state-owned agricultural land. These families and groups control, on average, 11.03 hectares of land from the state.

 

Since only some of the villagers who own land privately also lease state owned agricultural land, it is difficult to estimate the size of the holdings in this category, or what type of land they lease.

 

The third group comprises 6,300 agricultural enterprises or corporate structures (cooperatives, joint-stock societies, limited liability companies and other partnerships). These entities are successors of former state farms or they are legal entities created since 1992. They rely mainly on leased land. The average amount of state owned land, which they lease, is around 93 hectares. 

 

Leasing of State-owned Agricultural Land

 

The State through its districts leases to the farmers land which has not yet been privatized. The size of leased land for each type of leasing arrangements varies: from private farms leasing less than 0.5 hectare to Agro firms leasing several hundred hectares.

 

Type of lessees include:

• Physical persons.  These may be people who lease only a few hectares, or lease large farm parcels, and are similar to agro firms in their activity
• Legal entities (Ltd, Joint Stock Company...) which lease large areas but often sublease the land to small farmers
• Cooperatives, often ex-kolkhoze but whose change remains generally very formal.  In actual operation, many such cooperatives function as groups of individual farmers, cultivating individual small plots without a common system for purchasing agricultural inputs, selling  their  production, or for reinvesting  any profits in the cooperative.

 

Large leaseholders, either restructured former kolkhoze/sovkhoze or new corporations, generally have obtained leases with a term of ten years or more. These large leaseholders often do not directly farm the totality of their leased land.  A frequent  situation is the division of the leased land into two parts:  one part is cultivated by the lessee while the second is “kept in reserve”, very often being subleased to small farmers.

Part III. Legal / Institutional Framework for Land Ownership and Use

 

3.1 Land Privatization Policy and Experience

 

Agricultural Land

 

The process of land privatization began with Decree #48 of the Government of Georgia, dated January 1992. This 1992 resolution is generally known as “the land privatization decree”, although more properly, its objective was land distribution. Following the issuance of the Decree, a privatization land fund composed of about 850,000 hectares of mainly arable and perennial planted land, was set up for distribution, including 200,000 hectares of household farmed plots.

 

Land from the privatization reserve was distributed free-of-charge to rural households. 1.25 hectares was the maximum area of agricultural land transferred into ownership in the lowlands, while up to 5 hectares was distributed to eligible households in the highlands. This privatization was free of charge.  Of all the former Soviet Union countries, only Georgia and Armenia distributed land in this manner.

 

The distribution of land in the lowlands was carried out in accordance with the following three guidelines:

·        Citizens who were directly involved in farming were entitled to receive 1.25 hectares of land per household.

·        People who lived in rural areas but were not involved in farming were entitled to 0.75 hectare.

·        People now residing in urban areas but having an historic tie to the village, were entitled to 0.25 hectare.

 

The application of these guidelines was not, however, consistently implemented. If land was available, some people from the second category were moved to the first one in order to have access to more land. Household land plots that were used by individuals prior to land distribution were counted as part of their 1,25 hectares As a result of this flawed distribution process, each family was allocated 2 to 5 land parcels located in different areas.  Consequently, uneconomic fragmented land units were created. 

 

In some districts, beneficiaries received very small plots of land (less than 0.3 hectare) if the land was less than 21 km from the frontier. The Law on Georgian State Borders specifies that a border zone of 5 km including a borderline of 500 m be excluded from the land privatization process. Another reason given by the local authorities in order to explain the low level of privatization in this area was the very good fertility of the soils in the district. "The quality of the land is so good, that 0.3 hectares of land is equivalent to 1.25 hectares in another district." However ethnic bias may also explain some of these variances, since many non-Georgian ethnic groups reside in border raions.

 

The distribution process was conducted by Sakrebulo Land Commissions composed of villagers, but supported by district committees involving Sakrebulo mayors and local government administration.

 

In Georgia, the process of privatization included two forms of land management (and ownership): the first being the allotment of land parcels of up to 1.25 hectares per rural family, the other being the leasing of the remaining state-owned agricultural land to physical or legal entities. This process was intended to create two main agricultural sectors: a self-sufficient sector for small farmers, and a market-oriented sector controlled by large leaseholders.

 

In Georgia, privatization of state real property and its management involved four state agencies:

1.  The State Department for Land Management was vested with complete authority over the land fund, including urban land.

2.  The Ministry of State Property Management was made responsible for the privatization of industrial, educational, administrative, healthcare facilities, and the transport-communication infrastructure.

3.  The Ministry of Urbanization and Construction –was placed in charge of the housing fund and the communal economy.

4.  The State Forestry Department –was given charge of the forest fund.

 

The initial privatization of agricultural land began somewhat spontaneously and lacked the necessary clarity and legal guarantees.  To rectify this situation, on June 28 1993 the Georgian Cabinet of Ministers adopted Decree #503.  This Decree authorized local land reform committees to issue the Receive-Delivery Act, which to this date is considered the main document for granting ownership of agricultural land to households.

 

The first stage of land reform coincided with political and economic crises, civil war and a difficult criminal situation and took place without a clear legal framework. Only in March 1996, did the Parliament of Georgia legitimize the Decrees issued by the Government of Georgia, by enacting the Law on Private Ownership of Agricultural Land. According to this law, all governmental resolutions granting agricultural land ownership rights to the citizens of Georgia were deemed legitimate. 

 

By 1996, nearly four million land parcels totaling 930,000 hectares had been allotted to 1,040,000 households. However, the majority of new owners have not gotten their Receive-Delivery Act, because they have been unwilling or unable to pay for it (26 GEL[2] per parcel).  This hindered the initial registration of land and has hampered the development of the land market. In addition, the Government has been unable to finance the preparation of surveys and other legal documents necessary for the registration of land ownership.

 

Non-Agricultural Land

 

Private ownership of nonagricultural land did not exist prior to November 1997. Non-agricultural land parcels possessed by private persons were deemed to be owned by the state.

 

The initial phase of privatization of nonagricultural land included land parcels with apartment buildings and individual houses. The Civil Code (Article 208.3 and Article 1513) established that the residents of individual houses and apartment buildings owned the land underneath these structures:

 

Article 208.3. The tract of land, parts of the building, structures and equipments not designated for individual ownership shall be under the common ownership of the appartment owners.

 

and

 

Article 1513. The tracts of land being in the rightful use of natural persons and within individual houses built on them shall be deemed to be in the ownership of these persons from the effective date of the Civil Code, and the rules prescribed by the Civil Code for immovable things shall apply to these tracts of land.

 

The second phase of non-agricultural land privatization covered industrial land.  Parliament issued a special law in 1998, Declaration of Private Ownership of Nonagricultural Land in Use by Physical and Private Legal Persons, which declared private ownership of nonagricultural land underneath and related to privatized commercial and industrial structures. The law established a one-time symbolic payment for obtaining ownership rights that was equal to the annual land tax. Initial registration of ownership accompanied the process of privatizing industrial land.

 

The 1998 Law on the Administration and Disposal of State-owned Non-agricultural Land established that urban land underneath and related to state-owned enterprises has to be privatized by public tender.

 

Although some negative aspects resulted from enterprise land privatization, the process has also had significant successes. The conditions that allowed successful results included effective use of already existing documentation, avoidance of unnecessary bureaucratic steps, and the establishment of an affordable fee for initial land registration.

 

Future of Land Reform

 

The land reform process is now at the beginning of  the second phase of privatization.

 

The existing set of laws on privatization of real property excludes a legal basis for privatization of agricultural holdings that are presently held under government leases.  A draft Law on the Privatization of Agricultural Land Remaining in State Ownership has been prepared and is presently being discussed. This law seeks to avoid the fragmentation that resulted from the first phase of privatization.  Its provisions include a recognition of present leasing agreements (priority purchase privileges extended to present holders of valid leases), a participatory approach to privatization on the lowest level of self-governance (the Sakrebulo/community), and a number of other features that form part of a more sustainable land-use management strategy. However this law has not yet been approved, and controversy remains about the future strategy for privatization in Georgia.

 

 

3.2. Legal Framework of Land Use and Secured Property Rights

 

Private property ownership rights are acknowledged and protected by the Georgian Constitution.  Private property is considered inviolable. Article 21 of the Constitution states:

 

Article 21.  The right to inherit and own property is recognized and guaranteed. The abrogation of the universal right of property, its acquisition, transfer and inheritance is prohibited.

 

The Civil Code adopted in 1997 regulates key issues that impact on ownership and ownership rights. As defined in the code:

 

Property is any thing*, as well as any intangible property benefit, which may be possessed, used and disposed of by natural and legal persons, and which may be acquired without restriction, unless this is prohibited by law or contravenes moral standards.

 

*A thing may be either movable or immovable.  Immovable things include a land parcel with its subsoil minerals, the plants growing on the land, and buildings and other structures firmly attached to the land.

 

Out of the entire "bundle of rights" applicable to the land in accordance with current legislation, the state retains ownership of all subsurface resources even if the land surface is privately owned. The right to exploit subsurface resources is permitted only under a special license from the state. 

 

The Civil Code defines several types of possession and ownership, and regulates ownership rights on both movable and immovable property.  It defines cases of limited use of property belonging to another person in terms of the right to build, usufruct, and servitude (easement). It legally ensures the right to trade property and legitimizes the use of property as collateral. Finally, it envisions the inheritance of ownership rights.

The Law on Privatization of State-Owned Property of 1997 determines legal, economic, organizational and social principles of privatization of state-owned properties; defines the basic terms of privatization; and ensures the purchase of state-owned property by physical and legal persons. The aim of the law is to ensure the formation of ownership structures that promote an efficient and socially-oriented market economy. It does not  regulate the privatization of land and state housing funds.

 

Various laws enacted by Parliament further protect land ownership rights.

 

The Law on Agricultural Land Ownership (1996) regulates ownership of agricultural land. The law determines:

 

a)      the rule for acquisition and alienation of agricultural land parcels and farms, and

b)      b) participation of the state in regulation of relations regarding agricultural land parcels.

 

According to this law, only a citizen of Georgia may own agricultural land.  Foreign citizens may only lease land.  Foreigners may, however, establish legal corporations in Georgia that are entitled to own land.  Thus, indirectly, they may become land owners.

 

The Law on Land Registration (1996) establishes the rules and terms for registering origin, transfer, and restriction or suspension of rights to a plot of land and the immovable property associated with it. The State Department of Land Management has national responsibility for land registration. The Chief Registrar directs the activities of registrars in each raion who are directly responsible for registrations in that raion.  In addition to the registration of land, the raional Public Registry maintains records related to their function.  These include cadastral maps of the raion; completed land registration cards; copies of all contracts relating to the transference of property rights; certificates of inheritance; topographic plans of the properties; and indices and other tools necessary to access the records.

 

Law on the Declaration of Private Ownership of Non-Agricultural Land in Use by Physical and Private Legal Persons (1998) regulates issues connected with granting rights of private property to non-agricultural land. Under this law, natural persons and legal entities are granted  private property rights to the following categories of state non-agricultural land:

 

a)      Parcels of non-agricultural land owned by privatized (private) enterprises, and

b)      parcels of non-agricultural land allocated for the use of natural persons and legal entities in conformity with applicable rules.   

 

These rights are granted based on certain legal documents confirming the person’s right to use the land.  These documents were issued before the present law came into effect.  A one-time charge, based on the tax rate for non-agricultural land, is levied for such parcels.

 

The Law on Administration and Disposition of State-Owned Non-Agricultural Land (1998) regulates the administration and disposition of state-owned non-agricultural land and defines the competence of state agencies, which represent the state on issues relating to the use and disposition of state land. Appropriate bodies of local government make decisions on the transfer of state non-agricultural land in use or in ownership. Local offices of SDLM working with local building departments publish information about state non-agricultural land to be transferred in ownership or use, accept and register applications, and issue written receipts within two weeks of receiving applications.  A state land parcel can be transferred into private ownership or use via auction, tender, or direct sale. 

 

Under existing law, a landowner may alienate (or in other words, sell, buy, give as a gift, bequeath, mortgage or lease) any land parcel that he or she owns.  Landowners have the right to use the land and related real estate according to their own interests within the boundaries of the law.  As conditions of ownership, each person must pay property taxes, adhere to building and zoning codes, observe environmental protection laws, and avoid unreasonable interference with the rights of neighbors.

 

The Constitution of Georgia, Article 21 and the Law on Expropriation Procedures of Ownership for Public Necessity (1999) outline the conditions for and process whereby property can be declared to be in the public domain.  Both a Presidential Decree and a Court decision in favor of the state agency or private legal entity, which is awarded the right of expropriation are required.

 

Right to Expropriate Private Property in Certain Circumstances

 

Expropriation of private property by the state, or state-authorized agents, is possible under the following circumstances:

·        Construction of roads or highways;

·        Construction of railway tracks;

·        Construction of electrical transmission and distribution lines;

·        Construction of telephone networks; and

·        Other similar projects and activities.

 

An agency or person, who wishes to expropriate land, must notify every landowner whose property will be subject to the proposed expropriation as well as inform the public via notices placed in national and local newspapers.  Agreement on compensation packages must be reached in advance of any expropriation decision.

 

Despite a substantial number of normative acts that regulate land related-issues, current land legislation is sporadic and non-systematic. No Land Code has been drafted that would codify the separate legislative pieces, define land categories and respective owners, or set forth judicial and administrative procedures for changing categories, land use principles, status of city planning documentation, etc.

 

Land Classification Categories

 

Land is classified into two categories. An agricultural land plot is used (with auxiliary buildings or without them) for stockbreeding or cultivation. A non-agricultural land plot is simply defined as a land parcel that is not used for agricultural purposes. This pattern of classification narrows down the range of land categories, but these two categories of do not give a full picture, since other laws define other categories as well.  Some examples are: settlements, forest land, and water fund land.

 

These abstract definitions, however, create legislative problems and are not coordinated with the regulations on land registration or privatization.  A careful review and revision of the classification system would bring needed clarity to this problem. 

 

 

3.3  Land Use Management Institutions

 

The State Department of Land Management (SDLM) is the preeminent  agency in land administration as well as land cadastre.   There are six deputy chairmen under the direction of the chairman.  The functions of the SDLM include:

·        Land registration and cadastre (activities the SDLM is mainly occupied with at present);

·        Land valuation;

·        Land reform, land arrangement (i.e., disposition), and resolution of disputes over property;

·        Control and protection of land use and natural resources;

·        Land Statistics.

 

However, due to budget and staffing deficiencies at the present time, the SDLM is not in a position to actually carry out most of the above responsibilities.

 

The central office of the SDLM is responsible for developing state land management policies, designing and implementing programs, and assisting in the preparation of legislation on land management issues. Decentralized regional and local offices carry out land registration and cadastral operations.

 

In addition to the central office,  SDLM has 9 regional, 58 rayon and 7 urban offices, as well as offices in the autonomous republics of Adjara and Abkhazia.  A zone registrar who is responsible for operations and activities supervises each of these offices.  The assignment of functions between rayon and regional offices is not complete or well defined.

 

This dual responsibility is one of the SDLM’s institutional strengths at present.  It is a favorable combination for coordinating the two information systems on land ownership and ensuring that the registration and cadastral systems function effectively and efficiently.

 

The Ministry of Agriculture and Food is responsible for agrarian reform. It formulates policy, supports the development of effective and sustainable agriculture, and maintenance of food security.

 

The Ministry of State Property Management manages and sells state property, including land and buildings of state-owned enterprises.

 

The Ministry of Urbanization and Construction (MUC)[3] exercises executive authority over: management of the urbanization process; sustainable and secure development of settlements; territorial-spatial organization of the country; engineering and transport infrastructure; land use on urban territories; city-construction cadastre; city-construction and architecture; capital construction; the construction industry and communal services. The MUC, along with State Department of Land Management, participates in decision-making with regard to issues concerning the allocation of state land parcels. The Bureau of Technical Inventory (BTI) is subordinate to the Ministry and maintains an inventory and physical cadastre of buildings and structures.

 

The State Department of Geodesy and Cartography regulates surveying and mapping activities conducted by state organizations and the private sector.

 

Office of the President. The President may approve the direct sale of land under the Law on Management and Disposal of Non-agricultural State Land. The Commission on Land-Use and Land Protection under the State Chancellery is authorized to decide on issues relating to state land, land reform, approval of spatial plans, change of land-uses, and the allocation of land for state and individual purposes.

 

The Parliamentary Committee on Agrarian Issues and The Committee on Sector Economy are legislative authorities involved in a broad range of issues on agriculture and urban land management. 

 

The Ministry of Culture identifies properties and buildings that qualify as historic landmarks and establishes rules and procedures for their conservation and restoration.

 

The Office of the Mayor is authorized under the Law on Management and Disposal of Non-Agricultural State Land to hold auctions of and issue tenders for land plots.  These activities are carried out through local land disposition commissions.

 

Local Architectural and Town Planning Departments are municipal offices reporting to and taking direction from the MUC. They regulate land use and development controls, including building design and city planning; and participate in the preparation of land auctions and tenders.

 

Proposed Reorganization of the Ministry of Urbanization and Construction

 

Abolition of the MUC as an independent agency and its merger with the Ministry of Environment and Natural Resource Protection (MENRP) is currently being debated.  Responsibility for construction issues may be assigned to a third Ministry, the Ministry of Economy, Industry and Trade.. 

 

One draft framework for consideration of the structure of the  proposed institutional change is illustrated below:

 

 

Schematic Structure of the Ministry of Territorial Planning, Environment and Construction Affairs of Georgia

 

There is much controversy around this proposed institutional framework. Some favor the change as they consider the unification of land planning, urbanization, and natural resource protection programs in a single agency will facilitate the development and implementation of sound land policy in Georgia.  Furthermore, the reduction of red tape to be essential for progress.  Others argue that a separation of control over construction and urban planning between two ministries could exacerbate existing problems.

 

One institutional problem that the proposed reorganization could eliminate is the existence of parallel registries that currently results in duplicating information on real estate between the SDLM and Ministry of Urbanization and Construction. That is, information about land is recorded in the Public Registry offices, but information on building construction is recorded in the BTIs. The result is a deleterious situation with regard to the protection of ownership rights and the development of a land market.  For several years now, there has been a dispute among these agencies about their functions with the result that information is not being shared or exchanged as it should.

 

Confusion of Functions within the State Department of Land Management (SDLM)

 

SDLM’s branch agencies report to two agencies. They are an organic part of the SDLM, and at the same time, they are under the local government.  For the past two years, land management regional offices have been established at the regional level.  Their heads are persons appointed and lobbied by the regional proxies of the President and Gamgebelis.  Consequently, local SDLM agencies have more than one they must be accountable to.  (It should be emphasized that this situation is characteristic not only for SDLM but for other institutions as well.)  As a result of this overly complicated bureaucratic structure, decisions dealing with serious problems related to land management, disposition and registration, are often delayed, and made in a biased and non-transparent manner.

 

The chart below can serve as the illustration of described bureaucratic hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The existing organizational framework discourages transparency and creates opportunities for corruption. 

 

Apart from these general institutional concerns, public agencies such as SDLM have serious inner organizational problems, including:

 

• Absence of motivation;
• Scarce financial resources and inadequate equipment and other technical means;
• No mechanisms for achieving self-sustainability;
• Lack of training;
• Insufficient personnel;
• Lack of modern management practices.

 

 

Part IV. Identification of Key Land Use Policy Issues and Problems

 

4.1 Adequacy of the Land Registration and Titling System

 

Initially, when agricultural land was first privatized in 1992, there was no system in place to register the newly-acquired rights to land.  Records were kept in local SDLM and Sakrebulo offices, often in poor physical circumstances.  Moreover, the early record system was static:  it recorded only the initial owners, and did not take account of subsequent transactions (sales, leases, mortgages, inheritances, etc.)   Thus, the initial system failed to meet the needs of a property rights registration and protection system, and was supplanted as a result new laws adopted between 1996-1999.. 

 

Presidential Decree #327 dated May 16, 1999 and entitled Urgent Measures for the Initial Registration of Agricultural Land Ownership Rights and Issuance of Registration Certificates to Georgian Citizens accelerated and systematized the initial registration of agricultural land ownership.  Registration fees were abolished and secondary transactions (sales, leases, mortgages, etc.) became legal and more efficient.  Preliminary land allocation had taken place based on old and often incomplete or inaccurate survey records.  In order to offset these errors, the decree allowed land parcels to exceed the norms by a factor of 15%..  This approach avoided many technical and social problems that would have otherwise arisen.

 

Because the transaction registration fee of 26 GEL was determined to be out of line with the average income of Georgian citizens, it was been reduced to 7 GEL.  Further, to encourage initial registration of ownership (and with the financial support provided by USAID and other donors), Decree # 327 permitted initial registration of ownership to occur free of any charge to the landowner.

 

For initial registration to be transparent, seamless, and less time-consuming, the number of required documents was reduced.  All that is now required are:

 

·        A land parcel Receive-Delivery act, or

·        Lists of owners, along with the plan of the allotment as approved by a local committee created by the 1992 resolution, or

·        An up-to-date list of land possessors from the Tax Inspection Service.

 

As a result of this agreement, the problem accompanying the privatization of agricultural land in Georgia was resolved in a timely, simple, and inexpensive manner.  This simplified initial registration also expedited the formation of a secondary land market in Georgia for sales, leases, mortgages, and the like.

 

In recent years and continuing to the present days,  a number of donor-funded projects have made progress with aerial photography, mapping, cadastre software, database development and registration of land titles, thus contributing to more secure land tenure registration system in Georgia.

 

The initial registration process has not yet been finalized. It is expected that coverage of more territory by cadastral data and its integration into a unique database system will increase the effectiveness of the cadastral system and that the initial registration of already privatized properties can be completed within two to three years.  This will require close coordination and cooperation among the agencies involved, however, particularly in urban areas where the systematic initial registration of urban land and structures (mainly, residential apartment buildings) has scarcely begun.

 

The registration system in Georgia is, today, mainly a paper-based, manual system. If the process were to be computerized, it would be faster and more efficient, while reducing the cost of administration and improving the quality and accessibility of the records. In addition, the information flow between the Public Registry and the public would be much improved. Although through donor-funded projects registration records are digitally maintained, they cover only selected districts or rayons of the country and they need to be coordinated, gradually upgraded, and incorporated into one system.

Achievement of a computerized registration system, however, is severely hampered due to lacking or inadequate equipment and substandard management and technical skills, not to mention the need for reliable energy supplies.

 

4.2. Coverage and Quality of Land Information Systems

 

Land registration is one of the crucial components of Georgia’s land cadastre. The Public Registry should possess all the necessary records on boundaries, as well as information on the quantitative-qualitative and legal conditions of the land parcel or related immovable property. In accordance with current legislation, legal rights pertaining to the land or related real estate are subject to obligatory registration. State registration in Georgia is accomplished through a unified legally mandated system of record maintenance in the Public Registry.

 

A land cadastre is a set of data about a) landowners and users, b) the nature of their interest in land (e.g. owner’s title, type and duration of rights, restrictions, and responsibilities), and c) land parcels (e.g. location, boundaries, size, and improvements). A cadastre may also contain some other data, such as land value, land use, soil fertility, etc. Therefore, it can be a strong and effective tool in the hands of government, society and individual landowners to plan, manage and control the land/real estate market.

 

Progress made in recent years has resulted in:

·        Aerial surveys for a major part of the country;

·        Development of procedures and methodologies for rapid and legal land registration; and

·        Incipient application of cadastral data to town planning, real estate valuation, and bank mortgages.

 

The creation of a registration system has been an important achievement for securing title to property, but problems continue to hinder its maintenance and further development. Some of these are:

 

·        Inadequate technical and financial resources for state agencies;

·        Public Registry offices are poorly equipped;

·        There are no funds available from the state to purchase computers and software;

·        Title information for all land parcels and other real estate is recorded by hand and maintained in written form.

 

All these problems result in poor quality, inaccurate, and difficult to retrieve information about the land market.  Even though donor projects supply relevant agencies and offices with both printed and electronic versions of cadastral information, the information is often not properly used.  Frequently, it is merely kept in a storage area just for display, and nobody thinks to update it.  Such behavior calls into question the long-term justifiability of the expenditures.

 

Several donor organization’ projects are limited to gathering cadastral information.  They do not utilise the information collected to actually register ownership rights, or if they do, it is done belatedly.  Unless actual property registration follows soon after the cadastral work, the information will be outdated in a short period of time.

 

Another problem is the selection of staff.  Registrars lack relevant qualifications, knowledge or experience.  Some are not aware of the land-related legislation.

 

Registration of transactions is linked to other institutional approval procedures. For instance the registration of a transaction cannot proceed if the seller has not paid all due taxes. Sale of immovable property is not registered if it is in whole or in part an illegal construction. Registration is hampered because other agencies fail to carry out their responsibilities.  Registration fee revenues would increase if there were less administrative bungling in related agencies. 

 

The creation of cadastral and registration systems is still going on in a fragmentary way, so progress made in certain areas (cities, districts, regions) differs significantly from case to case. The effectiveness of the existing cadastre can be called into question since it lacks a system of unique identifying coordinates. There is no doubt that the effectiveness of the national land cadastre will increase as more and more territory is covered, and as data are integrated into a unique system.

 

Because the registration information is incomplete, the evaluation of legal titles based on information contained in the legal registry can be risky. In addition the law governing conflicts over property rights is not yet highly developed. There is a risk that some unregistered interests may appear and result in abrogation or modification of titles.

 

Although are no fees for obtaining information concerning the registration status of a property (except for photocopying), unofficial payments are requested to facilitate the process and to motivate the registrars to search through piles of registration files.

 

A critical problem hindering donors’ efforts to establish a unified system of registration is that the registration of rights to real estate is often carried out simultaneously in two agencies – in the registration offices of the SDLM, and in the BTIs -- in spite of the fact that law clearly identifies the Public Registry as the only place for property title registration. The lack of a unified information base creates obstacles for bankers, insurance agents and brokerage firms to obtain complete information on a property that is to be mortgaged or sold.  Banks do not recognize the information held at the BTIs.  This serves to complicate and even reduce the number of market transactions.

 

A comprehensive immovable property registration system for all immovable property, privately and publicly owned, urban and rural, is not possible because of the parallel registries and incomplete cadastral information.  A uniform registration practices model has not been agreed upon by the various donor projects, and the problem of no uniform registration database persists.  There is inadequate coordination of donor’ activities.

 

As a result of the above-mentioned problems, the registration of property rights is not comprehensive, accurate or up to date. Future efforts must be directed toward ensuring the availability of accurate cadastral data and to the clarifying property registration procedures.

 

 

4.3   Planning and Urban Development

 

Similar to agricultural land reform, urban land reform was initiated during a period of political instability, against a background of civil war, a drastic drop in living standards, and in the absence of adequate legislative, technical, methodological and administrative frameworks. As a result, the reform process was characterized by many irregularities related to land use.

 

Housing privatization was implemented  without the concomitant privatization of the land underneath or  adjacent to the housing structure. This problem was addressed with the passage of the Civil Code. The Law on the Declaration of Private Ownership of Non-agricultural Land in Use by Physical and Private Legal Entities speeded up the privatization of land underneath and related to privatized commercial and industrial buildings. The Law on the Administration and Disposition of State-Owned Non-Agricultural Land (1998) enabled the privatization of certain urban land parcels by means of public tender.

 

As discussed above, the state agencies responsible for privatization of property and land on urban territories are: the SDLM, the Ministry of Urbanization and Construction, the Ministry of State Property Management and local government bodies. Municipalities do not own land within their boundaries, as privatization of state-owned land hasn’t envisaged the transfer of land to municipalities.  Nevertheless, municipalities are directly involved in the privatization of state-owned land located within territories under their authority. Vital urban development requires public sector development projects such as schools, hospitals, technical infrastructure, social housing, etc. Municipal ownership of necessary land could facilitate quicker decisions on the implementation of these projects, and result in lower costs.

 

Most municipal master plans are outmoded.  There are no other development plans, and zoning regulations are lacking.  Thus, urban land privatization is only poorly related to the potential use of privatized land parcels in the future. The privatization price therefore is not linked to the potential of future commercial profit. Nor do privatization agreements obligate the buyers to financially contribute to the development of infrastructure (roads, water, sewage, parking, etc), which is necessary for supporting future development of privatized land. From this viewpoint, the privatization of urban land can be considered as unfair distribution of future obligations and benefits between the new private owners and the municipality. This is seen as a threat to sustainable urban development in Georgia.

 

De facto decentralization of power to self-government units has not yet been implemented; this is exactly why all roles and responsibilities still remain with appointed branches of local governments.  It is important that bodies of local self-government are independent in the issues of land use within the urban territories and can independently approve and control urban development plans and projects. At the same time state must retain the authority to approve local projects in order to ensure that that locally approved projects do not oppose the national interests. 

 

For Georgia, as for other post-Soviet countries, it is critically important to develop a comprehensive strategy for the management of the urbanization process, on the basis of which a municipality’s physical structure, mechanisms for urban land management, and its zoning principles will be elaborated.

 

Presidential Decree #475 dated July 22, 1996 on Measures Supporting the Management of Urban Development Process, City-Planning and Construction was issued to target the above objectives. However, the Decree was not politically supported and has not achieved its main objectives. 

 

At present, spatial planning in Georgia is largely based on old Soviet legislative norms and regulations. Land use is governed primarily by Soviet-era master plans. The last spatial development plans were developed in the 1970-80s. Since then, there has been no reworking of national and regional programs, regional planning schemes for distribution of industrial and residential areas, or plans of cities and other residential areas.   Since the early 90s, statutory acts have been issued periodically. These acts have demanded the legal extension of the old plans, their redesign, or the preparation of new plans. All these attempts have failed, however, due to the economic crisis, the scarcity of financial resources, the absence of an appropriate legislative framework, and, not least, the weak will of governmental authorities when it comes to taking decisive steps toward resolving this problem.

 

In general, politicians are uniformed about modern urban planning strategies and their importance for the physical development of the country. Budget allowances for development in this sphere clearly reflect the low level of commitment and support that policy-makers have given to urban planning and development. Public involvement is critical from the beginning of the decision-making process, but existing planning approaches and strategies, strongly influenced by Soviet mentalities and principles, don’t include principles of participatory planning.

 

The overwhelming majority of city master plans were due to expire in 2000.  Presidential decree #204, (May 20, 2001), Measures Targeted at Implementation of the State Urban Construction Policy for Residential Areas of Georgia, extended the expiration date to the end of 2003.

 

In addition, city municipalities and local governance bodies, in collaboration with the Ministry of Urbanization and Construction, must ensure that procedures for the revision of existing master plans will be implemented. Sadly, the political will of the central and local governments is still lacking. The development of new master plans is underway only in some cities and primarily at the behest of foreign institutions, GTZ for instance. The Ministry of Urbanization and Construction was told to work out and approve by no later than July 1, 2001, instructions regulating the usage of residential areas in Georgia.  The same ministry was told to work out and approve by December 31, 2001 procedures for the revision and approval of master plans for residential areas Regrettably, neither task has been accomplished to date.  

 

A statutory act regulating (albeit to a limited extent) spatial planning in Georgia, is the Law of April 16, 1999 on the State Complex Expertise and Approval of Construction Projects. The purpose of the law is to raise the level of design decisions related to architectural planning and urban construction; constantly review and improve standards of safety and human health; and to implement environmental protection measures The law requires that construction projects be in compliance with current legislation and enables the authorities to prohibit construction of any building or facility which is not in compliance. 

 

Pursuant to the aforementioned law, urban construction documentation of all kinds (regional planning schemes and projects, master plans,  plans of cities and other residential areas, and urban construction development programs)  also requires approval  in a “specified manner” by the Ministry of Urbanization and Construction.[4] However, the “specified manner” referred to has not been defined up to date.

 

Obligatory State Complex Expertise

 

Presidential Decree # 626 on the Limits and Manner of Arranging the Obligatory State Complex Expertise of Construction Projects was issued on November 21, 1999, in order to ensure that the Law of Georgia on the State Complex Expertise and Approval of Construction Projects is followed.  The Decree purports to give detailed procedures for conducting the State Complex Expertise. It is to be noted, however, that the Decree only identifies the bodies responsible for carrying out the State Expertise.

 

The Ministry of Urbanization and Construction’s Order # 4 of February 12, 2001,  was intended to meet the requirements of the Presidential Decree #626.  The Order lists certain facilities and construction projects that are subject to the obligatory State Complex Expertise. Here, for the second time, and again without any further definition, one comes across spatial planning terms: housing master scheme, regional planning scheme (project), settlement master plan (scheme), detailed planning project (design) and housing projects. The Order declares that urban construction documentation is subject the obligatory State Complex Expertise as are facilities to be built on “the areas of historical-cultural heritage, environmental, sanitary, resort…and other territories with restricted planning permissions”.

 

Within urban areas, all of the standard planning approaches to preventing incompatible land uses typically apply.  While existing planning documentation may provide guidance on types of uses permitted in areas, in general there are no “zoning” regulations in the Western sense that provide definitive legal guidance for defined areas of the city regarding permitted design parameters such as ancillary and subordinate uses, height, setback, lot coverage, open space, off-street parking, etc. Project details are considered and use and design permits granted based on general guidance of existing plans and the relationship of the project to its surroundings. There are no legally defined and guaranteed development rights—all uses and development rights are determined on a case by case basis. City planning documents are not widely available, and consist primarily of general plans requiring detailed consultation with planning officials to reach any useful conclusions.

 

It is a noteworthy exception that the MUC and the Municipality of Tbilisi have issued Rules for Land-Use and Building Regulations for the City of Tbilisi (enacted in August, 2001).   The rules are to be enforced via decisions of the Tbilisi Municipal Council.  But, like other reform initiatives, it has not yet been put into practice.  A law on territorial planning and urbanization, which seeks to modernize and reorient planning procedures to the market economy, has been drafted and introduced in Parliament. The law would place greater emphasis on such matters as urban zoning techniques and public participation in the planning process, as well as improve procedures for obtaining land use and development permits and approvals.

 

Presently, the Ministry of Urbanization and Construction is the main agency for carrying out the general supervision of city-planning issues. According to the Organic Law of Georgia on Local Government and Self-Governance, competence of local self-governance bodies includes: control and development of overall strategies;  preparation of development plans; and provision of infrastructure for settlements under the jurisdiction of the local body in compliance  with national laws.

 

Urban Observatories

 

For effective monitoring and management of urban land use, the establishment of an urban observatories network will be an important step forward. The Global Urban Observatory was established by UN-HABITAT, as a mechanism to monitor global progress in implementing the Habitat Agenda and to monitor and evaluate global urban conditions and trends.  Its purpose is to address the urgent need to improve the worldwide base of knowledge in this field by helping national governments, local authorities, and NGOs  to develop and apply policy-oriented urban indicators, statistics and other assessment tools. Establishment of urban observatories in Georgia at national and local levels will greatly assist urban land use monitoring by promoting the use of a system of urban indicators.

 

Local and national urban observatories are governmental agencies, research centers, or educational institutions that are designated as "workshops" where monitoring tools are developed and used for policy-making through consultative processes. A local urban observatory for a city or town is the focal point for urban policy development and planning where collaboration among policy makers takes place, and where  exchange between technical experts and representatives of partners groups is fostered. National urban observatories foster networks of local urban observatories, . co-ordinate capacity building assistance, and compile and analyze urban data for a national policy development process.

 

In Georgia, the national urban observatory has been set up as an NGO of local networks involved in urban development.

 

Historic Structures and Districts

 

The preservation of historic buildings and districts is governed generally by the Law On Cultural Heritage and is under the supervision of the Ministry of Culture’s Department of Historic Monument Protection.  The law governs both individual objects and entire historic districts, and requires special procedures for obtaining permission for construction or rehabilitation work.

 

Many sites in Georgia have been designated as historic.  At present, obtaining permission to work in those areas or on specific historic objects requires approval of the Ministry of Culture before the project is presented to the local architectural authorities for building permission.  Some local authorities may also have their own review processes for historic buildings and areas. Tbilisi, for example, is developing its own department of historic preservation in the office of the chief architect. This may result in two separate levels of historical review.

 

Illegal construction is a widespread practice in urban areas. Because of a high level of corruption in the construction industry, building is often done without the necessary permits and in complete disregard for standards and norms.  An ignorance of design is accompanied by a failure to consult and accommodate city-planning strategies.  The architectural heritage of the country is degraded and the needs of the public (for example, the destruction of sidewalks) are ignored.  This state of affairs has worsened over the past decade.   

 

 

4.4   Strength of the Land Market and Supporting Professional Services and Institutions

 

The transfer of land and related real estate from state possession into private ownership, the legal declaration of the rights and obligations of private ownership, and establishment of a system of land title registration has facilitated the process of formation of Georgia’s land/real estate market. 

 

The land market is more actively developing in urban areas. Its formation varies across regions or rayons.  The dynamic of agricultural land market development is higher in those rayons where tourism/resort development is underway, as well as in regions where it is possible to establish agricultural activities that are based on the cultivation (and processing) of high-value agricultural crops.  In urban areas, the land market is most active in cities such as Tbilisi, where the nation’s economic activity is concentrated, and Poti, where extensive investment in transportation and shipping facilities has given a boost to real estate values and encouraged investment.

 

Although the market for real estate is limited, some progress is visible in terms of a growing number of sales transactions. According to SDLM statistics as of July 2002, sales transactions (both on agricultural and non-agricultural land) have increased by 136 % compared to the analogous showings of the previous year. The tables below present statistical data of sales transactions accomplished on agricultural and non-agricultural land for the last four years.

 

                                                 

 

 

 

 

 

 

          

 

 

 

 

 

 

 

 

 

Land and real estate are increasingly becoming part of the market turnover as liquid assets.  As a result, banks and credit associations have gotten more actively involved in the land market.  A significant position within the credit portfolios of the leading banks of Georgia is currently occupied by land and related real estate, which represent their main guarantee for loans.

 

The table below depicts the growing number of the hypothec loans issued by Georgian banks.

 

Table 3. Hypothec loans issued under non-agricultural and agricultural land security (cumulative total number)

 

	10.1999	01.2000	08.2000	10.2000	01.2001	10.2001	01.2002	09.2002
Tbilisi	435	904	1,592	1,745	1,745	3,091	6,983	9496
Rayons	44	89	247	657	728	2,480	3,315	5181
Total	479	993	1,839	2,402	2,473	5,571	10,298	14,677

 

 

Graph 2. Data on hypothec transactions with non-agricultural and agricultural land as security

 

 

Although the cumulative number of mortgage transactions is steadily increasing, the lack of information on actual value of transactions doesn't allow drawing concrete conclusions with regard to the progress of market development.

 

Despite the fact that the largest share of financial capital created by the real estate market as hypothec loans is centered in the capital, Tbilisi, the regions of the country are also becoming more involved in this process.  The following is a listing of Tbilisi’s hypothec loan share by year:

 

Oct. 99                        90.81%        

Jan. 00             91.03%        

Jan. 01             70.56%     

Jan. 02             67.81%    

Jul. 02              64.77%           

 

Banks will more readily grant loans with non-agricultural land as collateral than with land owned by small farmer or with village houses as collateral.  On average, only 5% of all mortgages have agricultural land as collateral.  The table below illustrates this. 

 

Table 4.  Number of hypothetic loans issued on agricultural land parcels

 

 

Year	01.2000	08.2000	01.2001	10.2001	01.2002	07.2002
Number of transactions	15	65	121	464	688	1131
% Of the total number of loans	1.5%	3.5%	4.8%	8.3%	7%	8.9%

 

 

Professional Institutions Supporting the Development of the Land Market

 

Professional services and institutions supporting the development of the land market, particularly both the real estate brokerage and appraisal communities in the country are relatively underdeveloped in terms of numbers, sophistication and effectiveness, and the associations exist largely on paper.

 

Real Estate Brokerage Services

 

The real estate industry is undeveloped in rural areas and is centered in the capital. In Tbilisi there are quite a few individuals or firms that hold themselves out as brokers, but only a handful would meet that standard in Western markets. The real estate brokerage community is small with 400-500 practitioners. Brokers are involved in only about 15 percent of transactions. There is no law that would regulate the activity of brokers, either protecting the rights and interests of brokers or clients. There is no officially approved guidance or adopted standards, or well-established mechanisms that shall ensure protection of client’s interests.

 

Brokers can be classified according to three main categories:

1.      Well-known real estate agencies with 8-10 years of experience;

a.       The members of the Georgian Real Estate Association (GREA); GREA was formed in 1999 and is not providing programs, products or services

b.      Independent companies, with significant experience.

2.      Agencies, with small staff (3-4) agents, renting small office premises and having 2-3 years of experience;

3.      Sales agents/dealers not registered officially; 

a.       Sales agents, so-called “black brokers" who work at the street market and have many years of experience.

b.      “Newly baked” brokers, who have decided to work in this field because they have not been able to find any other profitable job.  Their experience and knowledge is extremely limited.

 

The well-known real estate agencies with some professional experience prefer to deal with prestigious property sales. However, the immovable market is saturated with low-priced apartments that are less attractive for realtors as the time consumed in selling them is the same as for larger properties while the  commission is rather low.  As a result, the sellers of not-highly-valued property are forced either to address non-professionals or try to find the buyer themselves.

 

Features of the brokerage community are:

1.      Service commission fee equals to 4-6 %;

2.      Allowing a falsified sales price to be entered in the sales purchase agreement in order for the seller to avoid paying a higher income tax (2 % of the price).

3.      In addition to sales, some companies will rent office and residential premises;

4.      Some companies multi-list;

5.      Very few real estate agencies use the official/legally reasonable agreements to regulate the relationship between client and agency:

a.       In order to avoid paying the taxes imposed on the entrepreneurs and service providers;

b.      Because the courts do not always provide support to realtors when a client violates the terms and conditions agreed upon

 

The existing legal forms are simple and primitive, and don’t take into account all of the problems that could arise. These instruments do not protect any of the involved parties.

 

Realtors broker property sales and rentals of new or existing real estate.  For the services they provide, the charge a commission of four to six per cent of the selling price which includes all registrations fees.

 

Most brokerage business is focused on residential transactions, but the larger and more sophisticated firms do a significant amount of work with land and commercial facilities. Given that state and former state enterprises lack market experience, it is not unusual for enterprises with excess land and facilities to employ brokerage firms as general real estate advisors. A frequent role for private brokers is to assist with assembly of property and negotiations with neighboring owners, including relocation negotiations.

 

Other factors that impede development of the real estate industry are: Supply exceeds demand:  it’s a buyer’s market.

 

• Information on actual market prices is not available.
• Public trust in the services provided by the real estate agents is very low.
• There is no dialogue between municipal planning departments and private practitioners.
• Real estate brokers do not need to pass qualifying examination; neither are they licensed.
• The rights and interests of brokers and/or principles are not legally well protected.
• The public at large does not understand the services that could be provided by honest and competent real estate agencies.

 

Real Estate Valuation System

 

There are no competent companies that specialize in land and in general real estate appraisals.

 

Real property valuation in Georgia today is rarely based on market values  Instead, urban land valuation is carried out based on location and accessibility. Agricultural land valuation is based on a combination of parameters such as soil quality and land suitability.  With the exception of vineyards, land prices in rural areas are extremely low, and land values are deteriorating due to the lack of soil fertilization, anti-erosion measures.  Valuation and performance standards have not been adopted.  Auditors carry out land valuations, while in-house bank personnel make the credit agreements.  Services of independent appraisers are rarely, if ever, used.

 

Valuation practices in Georgia are regulated in accordance with the Law on Auditory Activities of 1998.  The state licensing body is the Council of Audit, under the Parliament of Georgia (particularly under the Committee of Budget and Finance).

 

The Council of Audit issues three types of licenses: 1) General Audit; 2) Banking Audit; and 3) Insurance Audit. The license for General Audit covers all other types of audits, starting from the audit of businesses’ financial activities to the appraisal of real estate or other property. Licensees are eligible to conduct both audits of financial statements and to appraise property, as the legal system makes no distinction between the two activities.  The Council of Audit regulates licensing, but the process is neither transparent nor honest, and the competence of the licensee is not assured.  Honest appraisals are difficult to achieve, in addition, because everyone is undervaluing real estate in order to minimize the amount of tax paid to the state.

 

The problem is aggravated by the absence of recognized appraisal standards.  As a result, appraisals are based on the roughest calculations and in many cases the final figure is far from realistic.

 

Considering the fact, that the number of real estate transactions is increasing, the problems described above are going to become more acute.  

 

Organizations such as the Georgian Federation of Professional Asset Valuators (GFPAV) are working to create a legal and regulatory framework that recognizes international appraisal standards, and relies on training and certification programs administered by professional organizations, rather than state agencies.  It is hoped that such an approach will reinforce the credibility and integrity of the appraisal profession.                                                                                                                                                                                                                                                                      

 

Real Estate Information

 

Information resources on land and real property are not highly developed. With the emergence of the real estate market, the most common way to spread information on real estate has been through placing owner/seller advertisements in the print media for lease or sale of all types of real estate, including vacant land suitable for commercial or industrial use. There is no “multiple listing” or other centralized information resource used by brokers. Market information that brokers possess is considered proprietary. There is no multilevel geographic information system or real estate information system, as emphasis is placed now on basic mapping and cadastre.

 

At the national level, the Ministry of State Property Management keeps the inventory of remaining state property. Technical information on land sites - primarily cadastral maps and surveys - is available only from government agencies, in particular SDLM and its local offices. SDLM is not legally authorized to sell mapping and other technical products commercially. Other sources of information on available land and premises are attorneys, accountants, and design or construction professionals.

 

 

 

4.5   Land and Real Estate Taxation Policy

 

In Georgia, tax legislation has been subject to frequent amendments. As a result, the Tax Code is not a systemized legal document.  Its confusing and complex language leads to legal disputes between the tax department and taxpayers.

 

Under current tax law, the one who owns and uses the land is the one who must pay the land tax.  Disputes arise over whether or not a person uses, but does not own land is subject to the tax.  The recommendation is assess taxes against the owner, while the land user is charged rent.

 

For leased state-owned land, lease payments and land tax assessments are the same. The result is confusion about whether a piece of land is leased by the state or privately owned. 

The two categories of land for tax assessment purposes are agricultural and non-agricultural. The land tax is paid annually.

 

Agricultural land tax

 

The Tax Code establishes base rates of land tax on agricultural land.  Those rates are differentiated according to local government administrative units, and are determined per hectare in GEL.

 

Additional factors are considered based on the type of land.  Administrative units, arable land, and land with perennial crops are rated good, medium, or poor.  Hay and pasture land are rated based on whether they are “regular” (naturally occurring) or cultivated.  At the request of its local SDLM office, a local government (Sakrebulo) may assess a tax, which is lower or higher than the scheduled rate.

 

Local SDLM offices make the determination on whether land is arable, perennial, hay or pasture Each year landowners report to the Sakrebulos on how their land is being used.  the Sakrebulos  then pass this information on to their local SDLM office. Rates are based on current use, which can change from year to year.

 

Soil quality is supposed to be re-determined once every ten years. In fact, this has not been done in more than fifteen years.  The past fifteen years have seen deterioration in soil quality for a variety of reasons, so it is essential to revisit the classifications previously set.  In the meantime, individual landowners can request a change of status.

 

The following quotation from the United Nations Economic Commission for Europe report– Land Administration Guidelines describes the nature of this approach:

 

In countries of east and central Europe that are currently in transition there was a cadastral system based on the Russian model. This cadastre focused on land use. Land was "valued" in terms of its agricultural potential based on soil types, climate, rainfall, etc. and the farmers were then instructed to grow appropriate crops. This concept of the term "value" is only indirectly connected with the sort of valuation that are needed to manage land in a market economy.

 

Non-agricultural Land Tax

 

The basic non-agricultural land tax rate is 24 Tetris[5] per square meter.  It is paid annually.. The adjusted tax rate is calculated by multiplying the base rate by a territorial coefficient, based on  location and zoning .  Using physical plans and other town-planning documents, the SDLM and local self-government bodies work together to determine  territorial coefficients.  Final determination rests with the local self-government bodies.  Additionally they are authorized to adjust the rate by plus or minus twenty percent.    Thus, the non-agricultural land tax is much more based on location than is the agricultural land tax.  .

 

Property Tax (Tax on Structures and other Assets other than Land)

 

In addition to the land tax, the Tax Code establishes a property tax for physical persons and legal entities.  In the case of physical persons, the property tax is calculated based on the value of inventoried property.  Criteria for establishing the inventory value are determined by the Sakrebulo, and reported to local tax authorities.  The tax is levied annually in the amount of 0.1 percent of the value of the all structures. Payment is made in two equal parts.

 

Legal entities are subject to a property tax on fixed assets, installed equipment, uncompleted capital investments, and intangible assets listed on their balance sheets.  Foreign enterprises are subject to property tax if they engage in ongoing economic activity. The tax is calculated as 1.0% of the average annual balance sheet residual value of the assets calculated at the beginning and at the end of the calendar year.

 

Tax on Transfer of Property

 

There is a tax on the transfer of immovable property whether by sale, lease, or rental. Putting up immovable property as collateral is not subject to taxation. The tax rate is 2 percent of the taxable amount, which is the amount of compensation transferred, directly or indirectly (but not less than the market price) including assumed indebtedness. In case of lease or tenancy, the taxable amount is determined by discounting the amounts payable under the lease or tenancy agreement. In addition exchange of property is regarded as transaction and transfer tax is imposed, which hinders land consolidation.

 

By their character, the property tax and tax on the transfer of property are ad valorem taxes, as they are levied as a percentage of value.  They represent tax on the value of property as opposed to a tax on the income earned from property. With regard to the land tax, its base is not derived directly from property value. It could be better ascribed to area-based patterns, with the rates determined according to selected factors. It is obvious that the main reason for not using the value-based approach to land taxation is a lack of appraisal information and market data on land transaction. Therefore a sort of geographical/area-based approach is generally introduced instead.

 

Property and land taxes do not represent efficacious sources of revenue increase for either the central or local governments, as the level of tax collection as well as the level of payment is low in the country. A complete and reliable information base as well as a standardized system of land and real estate appraisal are essential if the real estate tax system is to function successfully. 

 

4.6   Investment and Credit Policy Supporting the Development of Real Estate Market

 

For the past several years, development of a favorable investment climate has been a priority for Georgia.

 

The Constitution and the Law on Promotion and Guarantees of Investment Activities and Bilateral Agreements on Promotion and Mutual Protection of Investments protect foreign and domestic investments in Georgia.  Foreign and local investors are granted equal rights.  Expropriation of investment is only allowed in cases directly stipulated by the law, by court decisions, or by special circumstances envisaged by organic law. Expropriation is only allowed with adequate compensation. In addition, the law provides guarantees against adverse changes in the law for a 10-year period following the investment.

 

In order to facilitate investment activities, in 1996, the Georgian Investment Centre was established as a national investment promotion agency currently functioning under the supervision of the Ministry of Foreign Affairs of Georgia. In 1997 the Foreign Investment Advisory Council was established and later, according to the Decree of the President of Georgia, a special commission was established under the Foreign Investment Advisory Council whose main purpose was to deal with investors and solve problems.

 

Impediments to Foreign Investment

 

Disposable income is, in any economy, the source of funds for investing.  The average income for Georgian citizens is too low to enable them to invest.  Thus foreign investment is the main source of capital growth in Georgia.  However, due to geopolitical instability and a costly and risky business environment that is overly bureaucratic, corrupt and unpredictable, Georgia is not likely to be a very attractive to most investors. Most of the foreign direct investment that flows into Georgia (1996-2000) can be attributed to pipeline construction and privatizations. Privatizations can be a good base for attracting an initial round of one-time foreign direct investments opportunities, but they are not directly related to the quality of the investment environment.

 

Most investments come from transport, warehousing, communication, energy and water supply infrastructure, investing in real estate is considered as a stable and high-yield source of investment. According to the 2001 statistical report of the State Department of Statistics, investments with regard to real estate operations, lease and commercial activity (excluding individual housing) constituted only 3,8% of total investments. Investments in the real estate sector are accomplished through a steadily growing construction industry. The volume of construction is actually twofold more than what is declared (officially registered). 

 

Access to useful information on real estate is difficult for most investors to obtain.  Contacts may be made with local officials, mainly the mayor's office, and some local administrations have designated officials to handle inquiries about investment.  At the national level, the Ministry of Property Management keeps an inventory of remaining state property, but such property is generally not available without going through the complex enterprise privatization process. The main source of information for significant investors at the national level may be the Georgian Investment Center (GIC).

 

Other factors which contribute to a deleterious investment environment are:

• Inflation
• Taxes & Regulations
• Financing
• Corruption
• Political Instability
• Exchange rate
• Organized Crime
• Street crime
• Anti-competitive practices
• Inadequate and failing infrastructure
• Corrupt and inefficient judiciary.

 

Environmental Impact Assessments and Permits

 

The main regulations affecting property investment are those dealing with environmental permits required under the Law On Environmental Protection Permits for certain types of projects. Although all projects require some level of environmental review and approval, the environmental permit process is primarily intended for projects having potentially greater impact on the environment. The permit establishes the environmental constraints and conditions governing project development.

 

The primary tool of the environmental permit process is the Environmental Impact Assessment (EIA), a special form of project documentation specifically addressing environmental issues.

 

Ground and water contamination can be a problem on some older industrial sites. The Ministry of Natural Resources and Environment Protection does not presently take an active approach to auditing industrial pollution or requiring cleanup, but a new project will not be approved in the absence of an acceptable environmental remediation plan. Consequently, while an investor may not be saddled with absolute successor liability to clean up a contaminated site, neither will his new project proceed without clean up. It is considered highly advisable for any potential land purchaser to perform a professional environmental audit before purchase.

 

Credit Policy

 

Land and real estate are readily accepted by banks as collateral when giving loans. The majority of mortgages are for collateralized non-agricultural land. Banks do not accept agricultural land as collateral because of its low valuation.  This has resulted in an underdeveloped agricultural land market.  Agro Business Bank is the only Georgian bank specializing in agricultural businesses, but its policy is not to accept agricultural land as collateral. 

 

For the past several years, six branch offices of ACDI/VOCA--a private, nonprofit organization offering favorable credit terms in order to encourage the development of agriculture—have been operating throughout Georgia.  However, one-year loans with an 18% annual interest rate are beyond the means of most peasants and other farmers.

 

Although controversial, donors propose the establishment of a Land Bank that will offer loans for farmers or other interested parties to purchase land.  Implementation of a land bank is possible only through donor funding, 

 

On the other hand if loans with 18% interest rate per annum are not favorable for farmers, offering lower interest rates will be attractive, however this will oppose credit policy of the commercial banks and institutions that set the minimum interest rate to be equal to 18%. Loan transactions have high cost for Georgian banks and associated risk is high, so the approach of setting the minimum interest rate has to be taken carefully.

 

Even though the real estate feasibility study conducted by International Finance Corporation declares the legal basis for lending adequate, the Civil Code contains a provision that prohibits the eviction of a borrower from his home in case of default on a home purchase mortgage: the bank may foreclosure but the borrower has the right to remain as a renter.

 

 

4.7    Environmental and Natural Resources Protection

 

The 1996 Law on Environmental Protection is the main legislative act dealing with environmental issues together with related laws and regulations administered by the Ministry of Natural Resources and Environmental Protection.

 

In the early nineties, the decrease in economic activity had a mixed influence on the environment in Georgia. On  one hand, negative industrial impact  was reduced, but, on the other, environmental management ceased.  Highlights of this situation are:           

                                                           

·        The decrease in industrial activities and the amount of pollution present in surface waters with industrial waste and agricultural chemical weed-killers fell considerably. Air pollution from energy and industrial objects fell significantly as well. However, due to the deterioration of  the industrial complex, the proportion of pollution per production unit increased. The early nineties saw a reduction of exhausts from transport.  However, recently, air pollution has increased again and this presents a serious danger to the public health in urban areas, especially in Tbilisi;

 

·        Filtration systems for potable water supply, sewage and inflowing waters continue to break down all over the country. The local authorities do not have sufficient financial resources for repairing  the disabled systems;

 

·        The system of refuse collection is almost completely destroyed and refuse is being disposed of in the districts or at special dumping sites at best. There are no facilities for processing household rubbish and industrial refuse. The private sector cannot afford to solve this problem without governmental help.

 

·        Natural resources are frequently used without appropriate licensing, and this contributes not only to the deterioration of the state of the environment, but to the disappearance of animal sanctuaries and to the reduction of biological diversity;

 

·        Unabated erosion of agricultural land is occurring, with no measures being taken to stop it.

 

·        Insufficient and expensive electricity increases the use of timber with a corresponding negative impact on the country’s forests.  When city-wide systems of heat delivery fail, people resort to individual heating facilities which use low efficiency and highly polluting fuels The resulting negative impact on the public health is immediate and serious.

 

·        Water supply and sewage treatment systems lack sufficient financing to function properly and to update outmoded and inoperative equipment. Low costs for water not only do not bring in enough money to rectify this situation, they do not discourage efficient conservation of water.  Often outside taps are allowed to run for days at a time. This situation is approaching crisis proportions.

 

·        Because of poor controls, low quality fuel is readily available and presents a too tempting alternative to the poor.  In the long run, it is a false economy for the consumers and the nation. 

 

·        Environmental protection and monitoring is not funded.

The process of erosion, salinization and desertification of soil  is taking place in several regions of the country.

 

Given the scarcity of arable land, soil erosion remains one of the greatest problems. 380 thousand hectares of arable land, 570 thousand hectares of pastures and hay lands and 87 thousand hectares of the Black Sea costal strip have been eroded. The erosion problem is particularly acute in mountainous regions. Along with natural processes, cultivation of land on steep slopes without appropriate terracing, excessive grazing, and  uncontrolled logging of forests further accelerate this process. Over the last year an active advance of desertification has been observed in eastern Georgia. Due to excessive grazing and adverse climatic conditions, nearly 3 thousand hectares of land in east Georgia have been subject to desertification. The salinization problem, which is more common in eastern Georgia, adds to the problem. Currently, 59.220 hectares of land are severely salinized and 54.340 hectares are averagely salinized.

 

Recently, frequent droughts have become a new kind of danger for agriculture. For example, in AD 2000, drought-related agricultural losses in Eastern Georgia resulted in a 400 million GEL loss.  The enormity of the loss was due in part to local authorities’ inability to take preventative measures.  Should the extent of the drought affect the flow rates of Georgia’s rivers, irrigation and other water-based systems will suffer. 

 

The quality of the environment and availability of natural resources essentially determines the economic development of the country, in particular:  

 

·        Environmental deterioration has a detrimental effect on people’s health and this reduces the effectiveness of the labor force;

·        Tourism will suffer as a result of a degraded natural landscape and an unhealthy climate. 

·        Pollution of rivers, lakes and the Black Sea coupled with overfishing endanger the fishing industry

·        The illegal, unsystematic clearing of timber reduces the productivity of Georgian forests, diminishes their biological diversity, results in soil losses, compromises water reserves, and degrades recreational and other economic and ecological functions;

 

This list is certainly incomplete. Although progress has been made in drafting appropriate legislation and in working out an environmental protection policy, ongoing financial, legislative, and institutional difficulties continue to make environmental protection more a dream than an achievable goal.

 

Part V.  Summary

 

Legislative Framework of Land Use and Secured Property Rights

 

Property rights are considered inviolable and are secured by the Constitution of Georgia, the Civil Code, laws and normative acts. There are a number of laws adopted to regulate ownership rights on land. Legislation guarantees full ownership  of surface rights to real property.  The state retains ownership of all subsurface resources.  Laws form the legislative basis for land use and ownership, and there is no systemized document to codify these pieces of legislation. There is no law that would allow privatization of state-owned agricultural land.

 

Institutional Framework for Land Management and Use

 

The institutional framework for land management and use include several ministries and state departments, the Office of the President, various Parliamentary committees, nd  government bodies. The State Department of Land Management is the main national agency dealing with land-related issues.

 

In general, the institutional framework is characterized by:

 

·        Insufficient financial, technical resources and lack of professional capacities;

·        Inconsistency between the title and function of an agency;

·        Incomplete definition of activity areas and parallelism of functions within central governmental bodies involved in the management of land related questions;

·        Rivalry between agencies;

·        Dominance of interests of particular professional groups;

·        Existence of legislative conflicts;

·        Weak or non-existent coordination of policies and programs.

 

Massive corruption and abuse of power by government officials has contributed to the development of a non-transparent land management and administration system.  Examples include delayed processes to transfer land in ownership or use, unfair land distribution and uncontrollable land allocation, problems associated with title registration, and difficulties in obtaining access to information on land and other real estate. 

 

Land Management

 

Land management is the process through which land resources are used efficiently. In the absence of a coherent land state policy, there is no strategy for effective use (or disposition) of the state-owned land fund. No state funding is available for accomplishing the necessary works for the protection and preservation of lands in the national fund.

 

Nor is there a comprehensive and balanced system of control of the uses of land for the benefit of the community. As a result of deficiencies in the agricultural land privatization and distribution process, fragmented and economically inefficient land parcels were created, the average area of which at present amounts to 0.22 ha. Land consolidation is an important precondition for improved agricultural production, creation of parcels acceptable as collateral for credit institutions, improvement of rural infrastructure and settlement structure. As proper land reclamation measures are not maintained, the state land fund is steadily deteriorating. Land is regarded as means for social security, rather than an economic asset.

 

Land Market Development

 

The real estate market in Georgia is more developed in urban areas, while activity in the rural land market is very limited. The low-value of agricultural land, desolate rural infrastructure, and the seriously deteriorated agricultural products processing industry are major causes for this fact.

 

Preconditions that are needed to support land market development are the following:

 

·        Cadastral activities accomplished in most of the regions.

·        Land registry covering the whole country.

·        Title registration proceeding progressively.

·        Legal framework supporting registration of secondary transactions in place.

·        Land/immovable property serves as collateral for obtaining loans from financial institutions.

·        Real estate regarded as the stable and high-return source of investment that encourages an increase of transacting in real estate.

 

The overall number of transactions on agricultural and non-agricultural land is increasing each year.  This can be attributed to the coverage of more and more territories by cadastral information and improvements to the registration system. However the absence of information on the actual value of transactions limits the reliability of conclusions about progress in the land market.

 

There are other missing fundamentals, all of which are critical to the existence of a market in real estate:

 

·        Market participants do not have access to all the relevant and reliable information necessary for engaging in a transaction.

·        There are no adequately developed and competitive real estate services, surveyors, and valuation experts.

·        There are no performance standards and liability rules for these services.

·        Substantial delays exist in bureaucratic approval procedures for real estate development.

 

The market for agricultural land is particularly limited, as preconditions that would allow the use of land as a profitable asset are absent.  In particular, the agro-processing industry is not functioning, and prices for many domestic agricultural products are very low. The rural infrastructure is obsolete. The value of agricultural land is low and its use as security for obtaining loan from banks is very limited.  As a result, investors interest in land and agricultural activities is steadily decreasing.

 

Planning and Urban Development

 

In general there is no comprehensive, systematic legal definition of land-use, land-use changes and control of the uses of land for the benefit of the community. The territorial planning system in Georgia suffers from institutional, legal, financial, methodological and technical crisis. Planning documentation is old, appropriate scale maps are not available. Regulations governing the use of land and buildings in urban areas are out-dated. Rules for land-use and building regulation of the city of Tbilisi have been developed.  They are not enforced, however, since political will and support on the part of local government is lacking.  The  chaotic situation has resulted in the destruction of city construction discipline, and an overwhelming number of environmentally unsound projects. There is the lack of political awareness and commitment toward improved management of urban development process. Another important issue is the lack of trained professionals in spatial planning and urban land management sphere. 

                                                                                                                                 

Registration of Rights on Land and Cadastre

 

The Law on Land Registration and the Law on Registration Fees, 2002 regulate registration of rights on land. The Public  Registry is a crucial component of Georgia's land cadastre system. Information stored in the Public Registry is public and is available to anyone after paying a reasonable fee.  A number of legislative acts have been adopted to simplify, cheapen, and regulate registration of rights to land. Land registration and titling projects have emerged as major instruments to increase individuals' tenure security, to contribute to a well-functioning land market (both sales and rental) and to facilitate use of land as collateral in credit markets. As a result of donor-funded projects, registration of rights to agricultural land is progressing more rapidly than registration of non-agricultural land. In general, however, there are some deficiencies in the registration system:

 

·        Registration information is incomplete;

·        Data on land and other real estate is not reliable and accordingly it cannot support the development of an effective and functional land and property taxation system; and increases cases of disputes about property ownership.  Unreliable data also impede the development of the land market development, and restricts programs and projects dealing with, urban development and planning along, urban infrastructure, and environment management;

·        Publid Registry staff lack t necessary qualifications to record property rights on reliable basis;

·        The degree of coordination between donor projects is low, and has not to date resulted in the integration of cadastral information into one unique system;

·        The Public Registry data is maintained in manual format, because of equipment and energy deficiencies;

·        Boundaries and status of individual parcels are not always defined with sufficient clarity;

·        Parallel registries exist (SDLM and BTI).

 

Land Taxation Policy

 

The Tax Code of Georgia imposes the following taxes relating to real property ownership:

 

·        Tax on Property of Physical Persons

·        Tax on Property of Legal Entities

·        Tax on Agricultural Land Use

·        Tax on Non-agricultural Land Use

·        Tax on Transfers of Property.

 

Tax on property is levied as a percentage of property's inventory value. Land tax is differentiated according to the quality and location of land. While the Tax Code sets base rates for the tax on agricultural land, these base rates are differentiated by rural-administrative regions.  Furthermore, authorities of local self-government bodies determine the actual tax rates in accordance with land quality and productivity. 

 

The non-agricultural land tax is calculated by multiplying annual base land tax rate in the fixed amount by the territorial coefficient and the land area.  Territorial coefficients are determined on the basis of expert social-economic valuation of territory and approved by local government authorities. Thus, tax law gives just general hints for definition of land tax, and a largely area-determined and politically/administratively regulated land tax system has been put into action.

 

In general, the level of tax mobilization in Georgia is very low. The state fails to collect a considerable amount of potential revenue from land taxes. The real estate transfer tax is sometimes regarded as a disincentive to trade in land since it is imposed on the amount of compensation transferred.

 

Lease payments for most leases of state-owned land equal the amount of tax on agricultural land use.  This introduces confusion between these two types of landholdings.

Revenues from land taxes go to the local government budget, as well as revenues from property taxes, transfer tax, and lease payment.

 

Environment and Natural Resources Protection

 

In line with the social and economic crisis experienced after the dissolution of Soviet system, the state of the environment in Georgia has been gradually deteriorating. The situation at present is disastrous.

 

Water pollution problems include:

·        As a result of discharging domestic and industrial waste into rivers, rivers in Georgia are heavily polluted. Most water treatment plants are not operating or work at a very low level of efficiency.

·        Cities suffer from aging municipal infrastructure, insufficient or in many cases no wastewater treatment facilities, and inadequate waste management facilities.

·        The level of fertilizers and pesticides in watercourses exceeds permissible level.

 

Soils problems include:

·        There is no systematic monitoring of industrial pollution performed in the country. Heavy metals are major industrial pollutants of soils.

·        The process of erosion, salinization and desertification of soil can be observed in several regions of the country.

 

·        Recent significant increase in the use of chemical substances (fertilizers, pesticides, herbicides) is mainly due to the mismanagement and incorrect use of chemicals by private owners.

·        The system for the management of toxic chemical substances is not functioning effectively.

·        Illegal trade with pest control products is widespread.

·        The Department of Land Resources and Waste Management within the Ministry of Environment is coordinating efforts of registration and management (agreement, calculation, licensing, control, inspection) of land resources conservation, waste (besides radioactive) and potentially hazardous substance in co-operation with the Ministry of Health and the Ministry of Agriculture and Food.

 

Air Pollution problems include:

·        Despite the sharp decline in industrial activities in recent years, air quality conditions in urban areas have deteriorated.  Major air pollution sources in Georgia are the traffic, industrial and energy sectors.  Inefficient sources of home heating and cooking, due to electricity and gas shortages, also contribute to pollution levels, especially in the winter season.

·        Traffic is a severe source of air pollution in Georgia. The reason is the large number of old vehicles, as well as the use of the low quality fuel.

 

Forests

·        Due to the almost complete reduction of the timber imports from Russia, intensive deforestation activities have taken place in recent years.  In addition, a sharp reduction in the import of fuels has been compensated by illegal cutting of trees by the population.

·        The qualitative consistency and productivity of the forest has been degraded and decreased as a result of human influence.

 

Economic Development and Poverty Alleviation; Sustainable

Development of Agriculture

 

The poverty problem is very high on Georgia’s agenda. Currently, nearly, 60 percent of the population of the country lives below the poverty line, i.e. subsistence minimum. The contribution of land to economic growth depends on the security, duration, and enforceability of property rights, which determines investment incentives, and on the extent of markets to rent and sell land. In addition, land markets are often an important ingredient in the development of financial markets. Taxes on land and property are important sources of raising revenues for local budgets, as despite the fact that taxes on the use of land and tax on property are national taxes, they finance local budgets. As a consequence, the way in which rights to land are defined is of great importance for economic growth, the effective use of this resource, governance at the local level, as well as poverty reduction and opening up productive opportunities for the poor.  

 

Agriculture is an important sector of country's economy.  Half of the labor force is employed in this sector. Therefore land is regarded as an economic asset and source of subsistence for population, especially rural. Access to land is one of the factors that affect food security of households. The process of erosion, salinization and deserting of soil can be observed in several regions of the country, which prevents the development of agriculture. Recently, frequent droughts have become a new kind of danger for agriculture. The scale of the losses caused by natural disasters was significantly raised due to the lack of funds required by local authorities for taking preventive measures. After several years characterized by a shortage of rainfall, it is possible that the ordinary characteristics of rivers might alter, which will have a negative influence on the irrigation and other water-based systems. With view to the long term, considering the possible changes in global climate, the situation may even worsen in some regions of eastern Georgia in relation to the availability of the potable and irrigation water. Deficit of winter pastures and privatization of routes for sheep driving negatively affect livestock breeding.

 

Improved land management and complementary reforms in agriculture are essential preconditions for the reduction of level of poverty in the country. 

 

Land policy is a complex of social-economic and legislative norms that determine how to allocate land and its economic gain. The necessary stipulation is to maintain balance between exploitation, use and conservation of land, as of natural resource.

 

The above findings in land policy related areas create general picture of existing shortcomings and necessary actions.

 

 

 

 

LAND POLICY ACTION PLAN -

TOWARDS IMPROVED LAND USE AND MANAGEMENT OF LAND RESOURCES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Part VI. Identification of Priority Areas for action

 

Issues	Recommendations
Legal Framework of Land Ownership and Use
Existing legislation is neither systemized nor codified.	Adopt a Land Code that will systemize existing laws and legal acts, and bridge the gaps
It is not presently legal to transfer state-owned agricultural lands to private ownership.	Adopt a law on privatization of remaining state-owned agricultural land.
Current judicial process for disputes over property rights and contracts is expensive and time-consuming	Design and implement a pilot project for dispute resolution and arbitrage.
Land categories are insufficient and poorly defined.	Diversify land categories along with clearly defined sub-categories to include: Agricultural land Non-agricultural land Settlement land Forest Land Water shed lands State Reserve land
Institutional Framework for Land Management and Use
Duplication of work and functions among states agencies results in confusion and conflicts.	Eliminate overlapping functions and optimize what’s left.  Maximize the role of the private sector, professional associations and NGOs
There are substantial delays in bureaucratic approval procedures for real estate market development	Increase fees in order to increase salaries.  Set standards for approval procedures and hold staff accountable for meeting these standards.
Land registration offices are financially unsustainable	Diversify service fees Increase fees in order to increase salaries.  Streamline the registration process.
Shortage of qualified staff.	Develop a staff-training program.
Land policy is not coherent.	Design and implement an inter-ministerial process for land policy development.
The Poverty Reduction and Economic Growth Program (PREGP) of Georgia doesn’t prioritize land policy development	PREGP must deeply consider land policy.
Fragmented ownership of land parcels result in inefficient agricultural activities.	Draft a Land Consolidation Act and develop a land consolidation pilot project Educate the public to a need for land consolidation.
Soil quality is deteriorating nationally due to a lack of reclamation efforts.	Assess current risks, identify and implement measures to rectify existing problems and prevent future ones.
Land Market Development
Information on land market is not readily available	Identify barriers to easy access of information.  Identify, coordinate, and augment current efforts to improve access to information.
The cadastre does not cover the whole country and the record that does exist is not uniformly held.	Integrate cadastral information from different projects into one record.  Complete the cadastre.
Brokerage services are not adequately developed. Performance standards and liability rules for these services do not exist	Based on experience in developed countries, adopt professional standards for brokerage services and support the introduction of best practices
There are no standards for appraisals, and there are no appraisers.	Draft laws and professional standards for appraising.  Develop a professional group of appraisers.
Planning and Urban Development
The comprehensive set of regulations concerning the method by which buildings may be constructed is lacking  There is no comprehensive set of regulations for the building industry.	Identify flaws in the current legislation and draft improved laws.
Land use planning documentation is out-dated Modern tools for strategic development of the settlement have not been created New master plans do not exist	Update or create documents to reflect current situations and goals; require public participation in all planning exercises.
There is a lack of trained professionals in spatial planning and urban land management.	Improve education in spatial planning and urban land management   Create the legal basis for defining the role of developers and other new participants in urban land management and spatial planning
Registration of Rights on Land and Cadastre
Cadastral registration is often inaccurately done because of incompetent staff.	Improve quality and training of staff.
Donor project are not coordinated.	Make the State Department of Land Management responsible for coordination.
Registration is complex and prolonged.	Registration requirements and fees should be readily available to the public.
Real Property Taxation
Real estate/land is taxed based on territorial/zoning principle rather than on market value	Real property taxes should be based on market value.
Tax levies and payments are too low.	Make land taxes local, not national, and restrict use of income to land management activities.
Leasing fees for  agricultural land equals  taxes on agricultural land use.	Make taxes lower than rents.
The Tax Code doesn't distinguish tax on ownership from tax on use of land	Amend the Tax Code to separate the tax on land use form the tax on land ownership.
Environment and Natural Resources Protection
Soil degradation is occurring due to erosion, salinization, and desertification.	Identifies areas at risk.  Develop and implement corrective measures.
Irrigation systems are largely inoperable	Repair the irrigation systems.
Soil fertility has decreased because of the uncontrolled use of chemicals.	Monitor and control sale and use of agricultural chemical and fertilizers.
The government cannot afford a program of environmental protection.	Revise standards to comply with the EU and WHO.
Water is contaminated because of inoperable waste water treatment plants, inadequate solid waste management, and uncontrolled use of fertilizers	Repair and update the regional Gardabani Waste Water Treatment Plant
Protection of the landscape is not mandated.	Draft Law on Natural and Manmade Landscape Protection

 

 

 

Annexes

 

I.                   Key Statistics about Georgia

 

 

Area	69,700 sq km
Natural resources	forests, hydro resources, manganese deposits, iron ore, copper, minor coal and oil deposits; coastal climate and soils allow for important tea and citrus growth
Land use	arable land: 26.3% of the total agricultural area perennial crops: 8.9% pastures: 59.5% meadow land: 4.7% forests and woodland: 43%
Population	4,945 300 (2001)
Population growth rate	-0.59% (2001 est.)
Ethnic groups	Georgian 70.1%, Armenian 8.1%, Russian 6.3%, Azeri 5.7%, Ossetian 3%, Abkhaz 1.8%, other 5%
Religions	Georgian Orthodox 65%, Muslim 11%, Russian Orthodox 10%, Armenian Apostolic 8%, unknown 6%
Literacy	99% of the total population (1989 est.)
GDP	3,159  million USD (2001)
GDP – real growth rate	4,5% (2001)
GDP – composition by sector	agriculture: 19.2% trade: 12.8% industry: 12.5% transport: 11.0% (2001 est.)
Population below poverty line	60% (2002 est.)
Labor force	3. 03  million (2001)
Labor force by occupation	Industry 20%, agriculture 40%, services 40% (1999 est.)
Unemployment rate	11.4% (2001 est.)[6]
Budget	revenues: 517.9 million USD expenditures: 608.2 million USD (2001)
Industrial production growth rate	-1.1% (2001)
Agriculture – products	grapes, citrus, tea, nut, vegetables, potatoes; livestock products
Exports	320,0 million USD (2001 est.)
Imports	684,1 million USD (2001 est.)
Major trading partners	Russia 16%, Turkey 14%, Azerbaijan 11% (2002 est.)
Debt - external	2 900,5 million GEL (2001)
Currency	lari (GEL)
Exchange rates	$1 - 2.18  (January 2003)

Annex II: References

 

1.      Foreign Investment Advisory Service, Study of Administrative Barriers to Investment, Tbilisi, December 2001

2.      Poverty Reduction and Economic Growth Program of Georgia, material for discussion. Tbilisi, November 2001

3.      The Constitution of Georgia.  Tbilisi, 2001

4.      Tax Code of Georgia. Tbilisi, 2000

5.      Civil Code of Georgia, Tbilisi, 2001

6.      Statistical information on land use, registration and land market, State Department of Land Management

7.      Salukvadze Joseph, Taxation of Land in Georgia, Society and Geography, Proceedings of the First Georgian-Israeli Geographical Seminar, Tbilisi 2000

8.      Stanfield, D., Options for State-Owned Agricultural Land in Georgia, Tbilisi, 2002

9.       The National Centers for Disease Control, Tbilisi-Georgia and Save the Children-US, Georgia Field Office, Nutritional Status of Children Less Than Five Years in Six Drought-Affected Regions of Georgia: 2000-2001, Tbilisi, 2002

10.  Koechlin Jean, Jegat Marriannick, Survey on Land Privatization Process in Georgia, April-August, 1999.

11.  Vardosanidze Vladimer, Particular Aspects of City Planning in Georgia, Tbilisi, 2000

12.  National Assessment Report for Sustainable Development, Ministry of Environment and Natural Resources Protection, 2002

13.  Law on Privatization of State-owned Property, 1997

14.  Law on Agricultural Land Ownership, 1996

15.  Law on Land Registration

16.  Law on Declaration of Private Ownership of non-agricultural Land in Use of Physical and Private Legal Persons, 1998

17.  Law of Georgia on Administration and disposition of State-owned Non-agricultural Land, 1998

18.  Law on Local Government and Local Self-governance, 2002

19.  Food and Agriculture Organization of the United Nations (Subregional Office for Central and Eastern Europe), Strategy for Land Consolidation and Improved Land Management in Georgia, December 2001

20.  Economic Commission for Europe (Committee on Human Settlements, Working Party on Land Administration), Land Administration Review in Georgia, November 2001

21.  Economic Commission for Europe, United Nations. Land Administration Guidelines, 2000. Available at {http://www.unece.org/env/hs/wpla/docs/guidelines/lag.html}

22.  Statistical Yearbook of South Caucasus 2002, co-financed by the EU, “SADA”, 2002