What opportunities does the “land law” give to business?

Adoption of the Law “On introducing an amendment to deyakimi legislative acts of Ukraine for the purpose of land lands sylskogospodarskogo designation” - a positive factor for the market. In fact, it gives agricultural companies the opportunity to buy land since the summer of 2021, opens up a new direction for investment and stimulates the development of the industry. Nikolay Volkov, market expert, representative of Raiffeisen Bank Aval, told us what is written between the lines of the mentioned document.
At first glance, the new law limits agricultural companies to the possibility of acquiring land right up to 2024, making it possible for individuals to do so. But this is only at first glance. According to the adopted law, the company will be able to transfer its right to buy the land to an individual or persons. The founders of the company and their proxies will be able to buy 100 ha per person. For example, partners, employees, family members, friends ... The so-called “overwhelming right” of the landlord, prescribed by law, will help agribusiness to create their own land fund. It gives priority to the purchase of land to those companies that rent and operate on them.
So, you can still buy, but for how much and how? The law determines that land should be bought at a price not lower than the normative monetary value, which will make the minimum price of 1 ha of land no lower than the equivalent of 1 thousand dollars. But what is especially important - payment is possible only in non-cash form and with the provision of the source of funds. That is, if the owner of an agricultural enterprise wants to redeem several fields with the help of a group of proxies, he will have to think now - how to legally provide them with the necessary funds. For example, increase salaries, pay material assistance, a bonus, make a deal with them, as a result of which they will receive cash income after paying duties and taxes, and, of course, do not forget about paying dividends to the founders. If the law allowed legal entities to buy land directly, without waiting for 2024, such schemes would not exist.
It is worth paying attention to the fact that lease agreements that were concluded with legal entities and previous land managers (mainly shareholders) remain valid after the change of ownership. Of course, if the contracts are drawn up correctly. The agricultural producers have paid a lot of attention to this topic over the past four years, which will work in the plus in the current situation. The extension of the lease terms to new owners reduces the risks of agribusiness and gives guaranteed income to new owners, if, of course, they are not from among trusted representatives.
An important nuance. Due to the limitation of 100 ha, it turns out that the plots will not be bought by those who actually cultivate and manage the land, but rather a wide range of people. And not all of them will be trusted with a really high level of trust. So, for the owner of the enterprise will be important legal control over these people. After all, these formal landowners can become a risk factor for the enterprise. For the money of the company, they will buy land for themselves, but this company will not be able to conclude a long-term lease with them with the right to redeem - only a fixed-term lease agreement. So, to retain proxies, motivation programs, introducing into the status of partners or co-founders of the company, other decisions, allowing to fix their share of the resource in the management of the enterprise, will be necessary. As a result, a new quasi-legal structure will emerge. And this will be a “working scheme” until 2024, until the business has the opportunity to openly buy the main resource.

To summarize the subtotal. The restrictions indicated by law do not preclude the company from acquiring the required amount of land, but limit the ability to do so in a simple and transparent way. And they also close the possibility for legal entities to take targeted loans at comfortable interest rates, to take advantage of the state compensation program.

So, in a year or more, it will be possible to buy and sell land. But is it worth it to everyone working on the earth in a hurry? After all, 100 hectares will cost 150-200 thousand dollars. For ordinary villagers and FOP farmers this is an unrealistic amount, although legally the law is written specifically for them. A small farmer is that category of entrepreneurs who already have land. Farms are often based on land shares of a family, partners or relatives, it can be, for example, 10-20 ha. They often do not need new territories, except in those cases when the economy is actively developing. But it is more efficient for such entrepreneurs to lease additional plots, and invest funds in equipment and other household needs.
Who exactly will buy the land is small agricultural companies whose owners live in the territory in which they conduct business, and for them it is more than a business. These farms are often city-forming, are the main donors and investors. Such entrepreneurs will seek to buy from the point of view of reputation, status, and a sense of “just government”. This is a psychological factor, because many Ukrainians still remember that their great-grandfathers owned and actively cultivated land.
Buying land should not be an end in itself for agribusiness. Now, companies focused on operational efficiency are clearly distinguished. Their task is to achieve the best result on rented land when used effectively. For them, land is not a source of profit, but a tool. Renting a field for such companies for annual crops will be economically more profitable than buying.
Having bought the land, the company should use it as efficiently as possible, improve the quality of processing, invest in infrastructure (for example, irrigation systems), it is possible to change the profile, grow products that will have an additional cost. Because buying land is a significant investment, and it must pay off. Especially if credit funds were involved. So the opening of the land market can play a positive role in improving the general culture of land use in Ukraine, and bring the efficiency of agribusiness to a new level.
When deciding whether to buy or not to buy, an important factor must be taken into account. In addition to land for annual crops, the agricultural company may have “key” lands. These are perennial plantings, orchards, berry plants, vineyards, hazels. That is, those in which a significant amount of money and time is invested. A vegetable storehouse, a processing complex, a logistics facility can be built next to such locations, and this makes land plots strategic. If a company loses them, it loses not only huge funds, but also a share of the business or its entirety.
We summarize. The value is the land in which investments are made. For example, the fields on which irrigation systems are installed, reclamation is carried out. Often seeds are grown on them, for example, under contracts with Syngenta, Pioner ... Such companies often require that irrigations are carried out in areas where seeds are grown, a number of preparatory work is carried out. Even if there is no risk of losing such a plot, the cost of renting this land will definitely increase, and the producer will need to find the opportunity to receive additional profit from it. That is, land with infrastructure is promising for acquisition: money has already been “buried” in it, it works efficiently and gives increased profitability.
But to whom the new law will bring only a headache instead of opportunities - these are companies with foreign capital. As a rule, they very carefully selected their land for doing business, with good performance and topography, and also processed them with high quality. In the first place, their demand will be in the main. At the same time, the prospects for buying this resource are extremely vague for them. In 2024, the land market will not open for them; only positive referendum results will be able to change the situation. Which may be possible, perhaps not, in any case, it is not known when. We advise such companies to start preventive measures, first of all - to establish work with shareholders. Conduct an information campaign, persuade not to sell land (at least in the near future), but, as before, to lease. Increase the payment of shares and think about other types of increasing loyalty.

The law in its current edition will contribute to another new phenomenon. There will appear people and companies on the market that are not directly related to agribusiness and who purchase land as an investment for rental or further resale. In fact, a new type of activity will appear in this market - the Rentier. They will try to collect land masses, for example, a whole field, promising plots, locations, not far from cities, land with added value, which are rented by large Ukrainian and foreign agricultural holdings. Interest in such areas - higher rents and shorter investment return periods. The renter will also provide other services - the creation of groups of controlled landowners for the purchase of land necessary for the agrarian.
It can be predicted that in a five-year perspective, the value of land, as an asset, will grow and, possibly, reach 4-5 thousand dollars per hectare. This means that people who have the opportunity to invest money in the land will try to do this right at the first stages. In addition to the expected growth in value, the grouped plots in one field will be the assets with the highest price and liquidity both from the side of the investor and from the bank.

So, what does the landowner need to do in preparation for the opening of the land market

• To conduct an audit of land and relations with shareholders, and technological solutions have already appeared on the market, such as Vkursi Zemli, which really simplify the life of the farmer and allow virtually online, in a few clicks, to obtain comprehensive information about their land bank and potential legal risks.
• Legalize funds for a planned purchase. To withdraw the necessary amount by legal methods to himself personally and to proxies. For example, in the form of dividends.
• Consider how to concentrate an important strategic land bank for the company on proxies. Preliminary negotiations with sellers.
• In a more distant context, already by 2024, when a legal entity can buy land, it is necessary to secure a positive credit history.
• It can be assumed that at the opening of the market, which provides 10,000 ha in one hand, immediately a large number of legal entities will want to acquire land, which will entail numerous simultaneous calls to the bank. There will be a stir. Banks will primarily consider borrowers with a good credit history and a history of interaction with the bank. If your company until that time used only settlement accounts, but plans to buy land, it should decide on the choice of a bank and begin to form relations with it in advance.
• Perhaps take some small loan for the purchase of equipment or current needs. The year that has remained ahead is just a sufficient minimum period for evaluating the borrower's credit history. You need to show yourself, go through verification procedures, some kind of "legalization".
• Fulfill the requirements in order to meet and fall under the conditions of state support in the form of compensation for the loan rate. It should be noted that even now the most effective and most transparent programs of state support are based precisely on bank lending.
  With all the ambiguities of the "land" law, it will have a positive impact on the agricultural sector of Ukraine. This is the entry of money into the industry from other types of business, external investors. The new Coronacrisis will make a number of industries unpromising, and there will soon be an overflow of capital. Business is already looking for “safe haven”, and agricultural land in this context looks very attractive. Moreover, even in the current conditions, the agricultural sector continues to remain in the category of industries that are not exposed to significant risks, along with medicine, pharmacy, trade in food and essential goods.