SURVEY OF LAND AND REAL ESTATE TRANSACTIONS IN THE RUSSIAN FEDERATION REGIONAL REPORT: KHABAROVSK KRAI

Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Foreign Investment Advisory Service, a joint service of the International Finance Corporation and the World Bank Project is co-financed by the European Union in the framework of the Policy Advice Programme SURVEY OF LAND AND REAL ESTATE TRANSACTIONS IN THE RUSSIAN FEDERATION REGIONAL REPORT: KHABAROVSK KRAI May 26 3896

The project has also received financial support from the Swiss State Secretariat for Economic Affairs (seco). The Report was drafted for FIAS by marketing agency Media Navigator, www.navigator,nnov.ru, (located in Nizhny Novgorod), on the basis of their analysis of survey data from 15 Subjects of the Russian Federation. Disclaimer (EU) This publication has been produced with the financial assistance of the European Union. The contents of this publication are the sole responsibility of its authors and can in no way be taken to reflect the views of the European Union. Disclaimer (FIAS) The Organizations (i.e. IBRD and IFC), through FIAS, have used their best efforts in the time available to provide high quality services hereunder and have relied on information provided to them by a wide range of other sources. However they do not make any representations or warranties regarding the completeness or accuracy of the information included this report, or the results which would be achieved by following its recommendations. 2

TABLE OF CONTENTS 1. INTRODUCTION... 4 2. EXECUTIVE SUMMARY... 6 3. REGIONAL SAMPLING... 8 4. PROCEDURE BY PROCEDURE SUMMARY... 1 4.1. Procedure no.1: Leasing a land plot, which is currently state or municipal property, for construction with preliminary agreement on the object location... 1 4.2. Procedures no.2a and 2B: Obtaining ownership rights on a land plot (2A) or Leasing a land plot (2B) which is currently state or municipal property for construction during tenders without preliminary agreement on the object location, during auctions or tenders... 11 4.3. Procedures no.3a and 3B: Obtaining ownership rights on land plots that are currently state or municipal property with premises, buildings or constructions which are private property (3A) or Leasing land plots with premises, buildings or constructions which are private property (3B)... 11 4.4. Procedure no.4: Leasing a real estate object without the procedure of tender (including for targeted use)... 12 4.5. Procedure no.5: Leasing a real estate object, which is currently the municipal property, during tenders (auctions)... 13 4.6. Procedure no.6: Transferring a premise (building) from the residential use to non-residential one... 13 4.7. Procedures no.7a and 7B: State registration of a purchase and sale transaction on real estate acquired in the secondary market (7A) and State registration of a lease agreement concluded in the secondary market for a term exceeding 1 year (7B)... 14 4.8. Procedure no.8: Transferring a land plot from one category to another, changing the designated use of a land plot... 15 4.9. Procedure no.9: Privatization of a real estate object (building, structure, premise), which is currently municipal property... 15 5. ALL PROCEDURE FIGURES... 17 5.1. Time and cost comparison over all procedures... 17 5.2. Practice of unofficial payments, donations to funds and additional burdens. 19 5.3. Characteristics most important in saving time... 19 3

1. INTRODUCTION The survey was conducted in period of from February the 1st and October the 17 th, in 15 regions of Russia: Irkutsk, Nizhniy Novgorod, Novosibirsk, Rostov, Perm, Sakhalin, Kaliningrad, Leningrad, Moscow, Sverdlovsk, Tomsk and Novgorod Oblasts, Khabarovsk Krai and the cities of Saint Petersburg and Moscow. Research methodology required legal analysis and survey. Legal analysis is based on publicly available (Federal and Municipal) legal acts and in depth interviews with experts for obtaining more specific information about the locating procedures under investigation in each particular region. The legal analysis results are gathered in templates, which describe major stages for any of surveyed procedures in any of surveyed regions (sequence of stages, necessary documents, government authorities, organizations involved in every stages, official time and cost limits for obtaining documents). These templates become a base for comparison with real practice, reflected in surveyed companies responses and are available in Annex (tables 1-9). Survey required: business intermediaries survey (on the basis of BIS companies interviews) and administrative and regulatory costs survey (on the basis of ARCS companies interviews). BIS - legal entities and sole proprietors providing intermediary services for locating procedures ARCS - legal entities and sole proprietors that attempted, underwent or completed locating procedures in 24 4

The following nine basic locating procedures were studied: Procedure no. 1 Procedure no. 2A and 2B Procedure no. 3A and 3B Procedure no. 4 Procedure no. 5 Procedure no. 6 Procedure no. 7A and 7B Procedure no. 8 Procedure no. 9 Obtaining (by lease) a land plot, which is currently state or municipal property, for construction on, with a preliminary agreement on the object location. Obtaining (by purchase (2A) or lease (2B)) a land plot, which is currently state or municipal property for construction on, without a preliminary agreement on the object location, during auctions or tenders. Obtaining ownership (3A) or lease (3B) rights on land plots that are currently state or municipal property, with premises, buildings or constructions, which are private property. Lease of a real estate object (premise, building or construction) which is currently municipal property, without the procedure of tender (including purposive appointment cases). Lease of a real estate object (premise, building or construction) which is currently the municipal property during tenders or auctions. Transferring a premise (building) from the residential use to non-residential one. State registration of rights on real estate and real estate transactions (in the cases of (7A) buying or selling a real estate object (land plot, building or premise) in the secondary market, (7B) drawing a contract of a real estate object (land plot, building or premise) lease for the term of more than 12 months in the secondary market). Transferring a land plot from one category into another, changing designated use of a land plot. Privatization of a real estate object (building or premise) which is currently municipal property. 5

2. EXECUTIVE SUMMARY 1. Among the procedures that imply obtaining land plot either as ownership or tenancy (Procedures 2А, 2В, 3А, 3В), the overwhelming majority of interviewed BIS and ARCS companies passed the procedure for obtaining tenancy rights. 2. Among the procedures that are susceptible to comparison, the most long-lasting procedures both for ARCS companies and for BIS companies were considered to be the following procedures: Leasing a land plot for construction with preliminary agreement on the object location (1) as well as Leasing land plots that are currently state or municipal property with buildings (structures, installations) owned by the company (3В). 3. The most cost intensive procedures in terms of finances both for interviewed ARCS and BIS companies was considered to be the procedure of Leasing a land plot for construction with preliminary agreement on the object location (1). 4. Most of ARCS companies reported occurrence of unofficial payments while going through the Procedure no. 1, among BIS companies proportion of the companies that reported occurrence of unofficial payments while going through the Procedures no. 6 and 3 was the most significant 5. Average duration of the procedure reported by BIS companies is approximately by 1.4 times shorter than average duration reported by ARCS companies. Possible explanation may be deemed to be the fact that land plots (67%) prevail in ARCS companies while premises (53%) prevail in BIS companies. At that, the area of the objects of ARCS companies is on the average by 4.5 times larger than area of the objects of BIS companies. 6. Time spent while going through the procedure in cases with reporting occurrence of unofficial payments is by 1.3 times longer than time spent in cases without reporting occurrence of unofficial payments (irrespective of the type of procedures or type of respondents). It can be supposed, that the companies fell back upon unofficial payments in case of delaying procedures by official authorities. 7. According to the surveyed companies, time and financial costs for passing through all the procedures increased in 24. However, these changes are differently strong for different procedures. So, the least changes of time inputs and amount of official payments were noted with regard to Procedure no 6. Procedure no. 1 differs in the most notable increase of duration and unofficial payments. Procedure no. 2 differs in increase of unofficial and official payments. The greatest increase of official payments is noted for Procedure no. 9. 8. Time and financial costs for obtaining the same documents might differ cardinally depending on type of the procedure. In case of greater time inputs for completing the stage or obtaining the documents the proportion of companies reported occurrence of unofficial payments was higher. 9. By estimate of BIS companies, the key factor that allows cutting time while going through procedures, is deemed to be willingness of the client to make unofficial payment. In addition, considerable potential for cutting time and financial inputs while going through the majority of procedures according to the respondents, is taken by municipal (state) owner of the property who is interested in a quick 6

transaction. Client knowledge of regulations guiding the procedure for the majority of procedures is the factor that allows cutting financial inputs. 1. Percentage rates of stages for which time and cost expenses are determined by law are different for assorted procedures. The highest statutory certainty existing in terms of time and cost expenses for document processing was established with regards to Procedures no. 7, 9 (Diagram 2.1). The least exactly costs were determined with regards to the Procedure no.6. Chart 2.1 Share of stages in each procedure which have legislatively defined time and financial costs 1. TIME, % NUMBER OF STAGES COST, % Procedure 1 22 4 74 23 35 13 52 Procedure 2 19 19 62 21 38 14 48 Procedure 3 45 9 45 11 55 27 18 Procedure 4 2 8 5 8 2 Procedure 5 2 4 4 5 1 Procedure 6 9 9 82 11 18 9 73 Procedure 7 1 3 67 33 Procedure 8 75 25 8 5 38 13 Procedure 9_1 67 33 6 1 Procedure 9_2 67 33 6 1 Procedure 9_3 75 25 4 1 Procedure 9_4 6 4 5 1 Defined and specified Defined and not specified Not defined Defined and specified Defined and not specified Not defined 1 Defined and specified means that precise amount of time and cost limits is established (even if document is for free) Defined and not specified means that it is known that the payment (or time limit) is fixed, but its precise amount has not been established. For example: depend on the object s characteristics, according to BTI standards etc. Not defined means that the fact of payment necessity (or time limit existence) is not fixed in publicly available legislation 7

3. REGIONAL SAMPLING For the purposes of carrying out the survey, sampling quotas were fixed and included 1 BIS and 1 ARCS questionnaires. The achieved sample size in Khabarovsk Krai was 7 ARCS and 1 BIS. One BIS company could be interviewed about several procedures Sources of information used to identify the potential respondents were: Goskomstat, and Public sources of information (e.g. yellow pages). Telephone directories were chosen as the source of information for the reason of the incommensurability between the completeness of information provided by Goskomstat, the time spent, and financial costs. Once a complete list of potential respondents was compiled, respondents were contacted according to random key 2. See Table 3.1 for the most important statistics covering the screening and interviewing, as well as the duration of work, and Table 3.2 for the distribution of interviews in various procedures. Table 3.1 Statistics on the field work BIS ARCS Companies in the database, number 461 4 185 Phone calls, number 384 2 118 Companies interviewed, number 42 7 Number of meetings as a percentage of phone calls made 1,9 3,3 Questionnaires, number 1 7 Refusal-rate as share of refusal phone calls from total number of phone calls, % 3 2,8 Duration of an average interview, minutes 42 31 Duration of the whole fieldwork, working days 67 The analysis of time and cost expenses for the procedure, on the whole, is based only on those companies, which completed all of procedure s stages independently and which have completed the procedure as by the survey date. The main reasons for this approach are as follows: 1. The time and cost expenses of those, which have not completed the procedure, are not correct to be compared with the costs of those, which have completed it. 2. A company, which involved any intermediaries (or which has been involved in case of BIS companies) at certain stages of the procedures, may be ignorant of certain specific amounts of official, unofficial and total costs for completing of the procedure. For example, there is a possibility of an ARCS company, which has involved 2 A random number generator was used to specify the sequence for BIS companies. A sampling step was used to specify the sequence for ARCS companies. The sampling step for ARCS respondents was determined as the quotient of the total number of the units in the general population by 5. 8

intermediaries at one of the stages not being able to single out the amount of the official, unofficial and mediator payments out of the total amount. A BIS company, which has participated at several stages of the procedure, may be not informed of the total amount of expenses for completing the whole procedure and also of the amount of unofficial payments made by the client on its own. Document analysis and estimation of authorities are based on all respondents responses. Table 3.2 Number of companies interviewed for each procedures, counts BIS ARCS 1. Leasing a land plot, which is currently state or municipal property, for construction with preliminary agreement on the object location 16 14 2A. Obtaining ownership rights on a land plot, which is currently state or municipal property, during tenders for construction without preliminary agreement on the object location 2B. Leasing a land plot, which is currently state or municipal property, for construction during tenders without preliminary agreement on the object location 3A. Obtaining ownership rights on land plots that are currently state or municipal property with buildings (structures, installations) owned the company 3B. Leasing land plots that are currently state or municipal property with buildings (structures, installations) owned by the company 4. Leasing a real estate object without the procedure of tender (including by purposive appointment) 5. Leasing a real estate object, which is municipal property, during tenders (auctions) 6. Transferring a premise (building) from the residential use to nonresidential one 7A. State registration of a purchase and sale transaction on real estate acquired in the secondary market 7B. State registration of a lease agreement concluded in the secondary market for a term exceeding 1 year 8. Transferring a land plot from one category to another, changing the designated use of a land plot 9. Privatization of a real estate object (building, structure, premise), which is currently municipal property 1 1 3 5 8 15 33 14 11 12 1 22 5 8 6 3 3 9

4. PROCEDURE BY PROCEDURE SUMMARY 4.1. Procedure no.1: Leasing a land plot, which is currently state or municipal property, for construction with preliminary agreement on the object location Completion of Procedure no. 1 (i.e. concluding a lease agreement for a land plot), requires going through 23 stages and includes processing 24 documents (See Annex, Table 1). There is no normative timeframe for completion of this procedure because for 19 stages out of 23 no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 12 out of 23 stages legislation does not stipulate whether an official fee is or is not payable, for 3 stages out of 23 the amount of official payments is either not identified or can vary depending on the characteristics of the object. This procedure is one of the longest among document processing procedures surveyed in Khabarovsk Krai, and this fact can be explained, inter alias, by high number of its stages. In accordance with respondents replies the period of time required to complete the procedure was 379 days in average for BIS companies, and 31 days in average for ARCS companies. Official payments amounted to not less than 18,224 rubles for BIS companies, and 145,936 rubles in average for ARCS companies. According to the results of survey unofficial payments prevail during the completion of the procedure in case. Thus, 89% of ARCS respondents and 25% of BIS respondents reported occurrence of unofficial payments while obtaining certain documents necessary for completion of the procedure. The opinion of respondents with regard to the most problematic of all documents pertaining to the procedure was heterogeneous. The most frequently mentioned document became The Application for a Contract of land plot lease (2% BIS and 2% ARCS). According to BIS, the afore-mentioned document can be obtained relatively easy at moderate cost and with no unofficial payments. IT is peculiar that surveyed BIS companies recognized The Mayor's Ordinance on preliminary approval of the object allocation as the most problematic document (27%), while none of surveyed ARCS companies had ever mentioned it. The document that was nominated by the survey as the most costly in terms of official fees and time allocated for its drawing (Specifications for connection of the facilities to supply lines and utilities) is regarded as the most problematic document by modest 13% of BIS and 7% of ARCS. The majority of BIS respondents (69%) singled out Department for Architecture, Construction and Land Use of Khabarovsk Municipal Administration as the most problem-ridden government authority. ARCS respondents mentioned Land Management Committee and Architecture and City Planning Directorate of Khabarovsk Municipal Administration (each government authority was mentioned by 2% of ARCS respondents). 1

4.2. Procedures no.2a and 2B: Obtaining ownership rights on a land plot (2A) or Leasing a land plot (2B) which is currently state or municipal property for construction during tenders without preliminary agreement on the object location, during auctions or tenders Completion of Procedure no. 2 (i.e. purchasing a land plot or concluding a lease agreement for a land plot) requires an applicant to go through 21 stages and includes processing of 22 documents (See Annex, Table 2). There is, in fact, no normative timeframe for completion of this procedure, because for 17 out of 21 stages of this procedure no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 1 out of 21 stages legislation does not stipulate whether an official fee is or is not payable, for 3 stages out of 21 the amount of official payments is either not identified or can vary depending on the characteristics of the object. In accordance with respondents replies the period of time required to complete the procedure was not less than 9 days for BIS companies, and from 18 to 36 days for ARCS companies. No sufficient data was received with regards to official payments from either ARCS or BIS companies. It does not seem to be possible to determine the prevalence rate of unofficial payment practices with regards to the Procedure no.2 in Khabarovsk Krai by reason of insufficient number of respondents. It is difficult to single out any particular document (stage) as the most problemridden for this procedure. Firstly, only insignificant number of respondents was interviewed that passed this procedure in Khabarovsk Krai, and secondly, the opinion with regard to the most problematic document within the framework of this procedure varies. Not a single document was nominated twice. It is also difficult to single out the most problem-ridden government authority due to insufficient number of respondents that completed the given procedure. 4.3. Procedures no.3a and 3B: Obtaining ownership rights on land plots that are currently state or municipal property with premises, buildings or constructions which are private property (3A) or Leasing land plots with premises, buildings or constructions which are private property (3B) Completion of Procedure no. 3 (i.e. purchasing a land plot or concluding a lease agreement for a land plot), requires going through 11 stages and includes processing 12 of documents (See Annex, Table 3). There is no normative timeframe for completion of this procedure because for 6 stages out of 11, no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 2 out of 11 stages legislation does not stipulate whether an official fee is or is not payable, for 4 stages out of 11 the amount of official payments is either not identified or can vary depending on the characteristics of the object. In accordance with data received from respondents, the period of time required to complete the procedure was 242 days in average for BIS companies, and 11

252 days in average for ARCS companies. Official payments amounted to 51,992 rubles in average for BIS 3 companies, and 34,643 rubles in average for ARCS companies. According to the survey findings, involved companies use unofficial payments while completing this procedure. BIS respondents reported occurrence of unofficial payments more frequently than ARCS respondents (56% compared to 38%). A larger share of surveyed BIS companies reported occurrence of unofficial payment while completing Procedure no. 3A (Obtaining ownership rights on land plots) than while completing Procedure no. 3B (Leasing land plots). The survey findings demonstrate that the most problematic document to be obtained during the completion of Procedure no. 3 is The Mayor's Ordinance on allotment of a land plot into ownership or by lease. In particular, this document is one of the most time-consuming and simultaneously entails the highest reported amount of unofficial payments. The largest share of BIS respondents (3%) pointed this document out as the problematic. ARCS respondents did not give more than 16% to any document in the chart of the most problematic documents. BIS respondents nominated the following authorities as the Government agencies that have caused the most problems while interacting with them: Khabarovsk Department for Municipal Property (36%) and Department for Architecture, Construction and Land Use of Khabarovsk Municipal Administration (29%). It is to be noted that Department for Architecture, Construction and Land Use of Khabarovsk Municipal Administration was singled out as the leading time-waster. This body issues one of the two most time-consuming documents - Land plot borders draft plan. 4.4. Procedure no.4: Leasing a real estate object without the procedure of tender (including for targeted use) Completion of Procedure no. 4 (i.e. leasing a real estate object) requires an applicant to go through 5 stages and includes processing of 12 documents (See Annex, Table 4). There is, in fact, no normative timeframe for completion of this procedure, because for 4 out of 5 stages of this procedure no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 1 out of 5 stages legislation does not stipulate whether an official fee is or is not payable. The period of time required to complete the procedure was 112 days in average for BIS companies, and 119 days in average for ARCS companies. Official payments amounted to 5,6 rubles in average for BIS companies, and 16,25 rubles in average for ARCS companies. Half of the surveyed BIS respondents and 43% of the surveyed ARCS respondents acknowledged the practice of unofficial payments during the 3 In case of exclusion from analysis of the maximum reported value, the amount of official fees by BIS companies shall be 28,554 rubles in average. 12

completion of this procedure. BIS respondents stated that, in accordance with their usual practice of obtaining documents, unofficial payments may take place for processing all the documents in 1% through 25% of all cases. The most problematic document for the majority of BIS became The Ordinance on allotment of a real estate to lease (64%). This document takes average amount of time to be processed in comparison with other documents, rarely requires the payment of official costs, and even if official charges pertaining to it are levied, they are relatively low. Yet, processing of this document called for the most unofficial payments on behalf of the surveyed BIS (42% respondents reported their existence), which also surrendered record high payments on average in compare with other documents. ARCS respondents (27%) also referred to this document as one of the most problematic. Most problems related to the completion of this procedure were caused to the respondents by the activities of Technical Inventory Bureau (BTI). The majority of respondents consider the foremost time-waster to be Khabarovsk Department for Municipal Property. 4.5. Procedure no.5: Leasing a real estate object, which is currently the municipal property, during tenders (auctions) Completion of Procedure no. 5 (i.e. leasing a real estate object) requires an applicant to go through 5 stages and includes processing of 7 documents (See Annex, Table 5). There is, in fact, no normative timeframe for completion of this procedure, because for 4 out of 5 stages of this procedure no processing deadlines have been established (See Chart 2.1). The official costs of carrying out this procedure are on the level from 1 up to 5 rubles for legal entities and from 15 up to 3 rubles for individual persons. During the research no ARCS or BIS companies, completed the procedure Leasing a real estate object, which is municipal property, during tenders (auctions) in 24, were found in Khabarovsk Oblast. 4.6. Procedure no.6: Transferring a premise (building) from the residential use to non-residential one Completion of Procedure no. 6 (i.e. transferring a building from the residential use to non-residential one) requires an applicant to go through 11 stages and includes processing of 23 documents (See Annex, Table 6). There is, in fact, no normative timeframe for completion of this procedure, because for 1 out of 11 stages of this procedure no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 8 out of 11 stages legislation does not stipulate whether an official fee is or is not payable, and for 2 out of 11 stages, the amount of official payments is either not identified or can vary depending on the characteristics of the object. 13

In accordance with data received from respondents, the period of time required to complete the procedure was 21 days in average for BIS companies, and official payments amounted to 159,556 rubles in average. No sufficient data was received from ARCS companies with regards to either the required timeframe, or official payments. According to the results of survey, 64% BIS companies report occurrence unofficial payments while completing this procedure. A correlation of (.93) was established between the average frequency of required unofficial payments in usual practice of obtaining documents and the share of BIS respondents who reported unofficial payments. No sufficient data was received from ARCS companies with regards to unofficial payments. According to the most surveyed BIS companies (92%), the most problematic document of this procedure was The Kray Extradepartmental Committee report. This document is a far outstanding leader by the time of processing (48 days). Moreover, 4% of the BIS respondents reported occurrence of unofficial payments to obtain this document. The highest average amount of unofficial payments was also reported for this documents. Government agency that has caused to most of BIS respondents (63%) the biggest number of problems while interacting with it became Khabarovsk Kray Administration. In addition, BIS respondents also frequently distinguished the mentioned government authority among the time-wasters (33% of respondents). 4.7. Procedures no.7a and 7B: State registration of a purchase and sale transaction on real estate acquired in the secondary market (7A) and State registration of a lease agreement concluded in the secondary market for a term exceeding 1 year (7B) Completion of Procedure no. 7 (registration of a lease or purchase of a real estate object) requires an applicant to go through 3 stages and includes processing of 6 documents (See Annex, Table 7). The normative timeframe for completion of this procedure should not exceed 9 days. The official costs for completing the procedure are not clearly stipulated - for 2 out of 3 stages, the amount of official payments depends on the characteristics of the object (See Chart 2.1). In accordance with data received from respondents, the period of time required to complete the procedure was 64 days in average for BIS companies, and not less than 14 days for ARCS companies. Official payments amounted to 13,426 rubles in average for BIS companies, and not less than 7,5 rubles for ARCS companies. The frequency of unofficial payments associated with this procedure is relatively low, as only a small number of companies (26% BIS) identified their presence. No sufficient data was received from ARCS companies with regards to unofficial payments. The BIS respondents singled out the following documents as the most problematic: The Certificate of State Registration and A real estate plan with 14

cadastral number identified; floor plan for premises. The first caused more problems while passing through the Procedure no.7b, the second while passing through the Procedure no.7a. It is to be noted that the first document entails the highest average reported amount of unofficial payments, while the second one calls for smaller unofficial payments, which in their turn are applied more frequently. The same government agency was mentioned more frequently than others as both the Government agency that has caused the biggest number of problems while interacting with it and the most time-wasting authority: Department of Justice for Registration of Rights to Real Estate and Transactions therewith. 4.8. Procedure no.8: Transferring a land plot from one category to another, changing the designated use of a land plot Completion of Procedure no. 8 (transferring a land plot into an appropriate category) requires an applicant to go through 8 stages and includes processing of 8 documents (See Annex, Table 8). There is, in fact, no normative timeframe for completion of this procedure, because for 2 out of 8 stages of this procedure no processing deadlines have been established (See Chart 2.1). Similar uncertainty exists with regards to official costs, i.e. for 1 out of 8 stages the law does not stipulate, weather the official fee is or is not payable, and for 3 out of 8 stages, either the official fee is not established, or it depends on the object features. During the survey no ARCS companies were surveyed that had completed the Procedure no.8 in 24. The interviewed BIS companies also failed to report sufficient data with regards to either period of time or official payments. In accordance with BIS respondents replies unofficial payments might be present in at least half of stages of the given procedure. Furthermore, in the opinion of BIS companies, willingness of a client to pay unofficial payments allows accelerating the procedure completion, yet increases its costs. All the BIS respondents pointed out Application for transferring of land held in municipal ownership as the most problematic document. It is difficult to single out the most problem-ridden government agency due to insufficient number of respondents that had completed the given procedure. 4.9. Procedure no.9: Privatization of a real estate object (building, structure, premise), which is currently municipal property Completion of Procedure no. 9 (privatization of a real estate object) requires an applicant to go through 4 to 6 stages and includes processing of 4 to 11 documents depending on the method of completing the procedure (See Annex, Table 9). The normative timeframe for completing the procedure also depend on the method. For methods #1, #2 and #4 no processing deadlines have been established for 2 stages (See Chart 2.1). Under the law, passing of the 15

remaining stages should take not more than 95 days for methods #1 and #2, and not more than 7 days for method #4. For method #3 no processing deadlines have been established for 1 stage out of 4. Completing the other 3 stages should not take more than 61 days. The official cost does not depend on the method of completing the procedure, and should not exceed 5 rubles for legal entities and 3 rubles for individual persons. During the survey no ARCS companies were surveyed that had completed the Procedure no.8 in 24. For BIS companies the period of time required to complete the procedure was not less than 6 days. No data was received from BIS companies with regards to official payments. It is difficult to determine the prevalence rate of unofficial payment practices by reason of insufficient number of respondents in Khabarovsk Krai that had completed the given procedure. It is difficult to single out the most problem-ridden government agency or document due to insufficient number of respondents, and inconsistency of their opinions. 16

5. ALL PROCEDURE FIGURES 5.1. Time and cost comparison over all procedures Table 5.1 Time comparison over all procedures 1. Leasing a land plot for construction with preliminary agreement on the object location 2A. Obtaining ownership rights on a land plot during tenders for construction without preliminary agreement on the object location 2B. Leasing a land plot for construction during tenders without preliminary agreement on the object location 3A. Obtaining ownership rights on land plots that are currently municipal property with buildings (structures, installations) owned the company 3B. Leasing land plots with buildings (structures, installations) owned by the company 4. Leasing a real estate object without the procedure of tender (including by purposive appointment) 5. Leasing a real estate object, which is municipal property, during tenders (auctions) 6. Transferring a premise (building) from the residential use to non-residential one 7A. State registration of a purchase and sale transaction on real estate acquired in the secondary market 7B. State registration of a lease agreement concluded in the secondary market for a term exceeding 1 year 8. Transferring a land plot from one category to another, changing the designated use of a land plot 9. Privatization of a real estate object (building, structure, premise), which is currently municipal property Time 15 region average, days Time Khabarovsk krai, average, days BIS ARCS BIS ARCS 296 272 379 31 28 15 239 178 226 233 Insuffici ent data Insuffici ent data From 9 to 45 n/a No less than 18 From 24 to 36 29 189 25 243 117 77 112 119 77 17 n/a n/a 26 244 21 86 88 66 74 11 59 215 From 9 to 54 11 137 Insuffici ent data No less than 6 Insufficie nt data No less than 14 Insufficie nt data n/a n/a As it is shown in the Table 5.1, the comparison of time spent on procedures in Khabarovsk Krai with average time indicators in the 15 surveyed regions is possible only with regards to certain procedures. The period of time required to complete Procedures Nos.3B, 4, 6 for BIS companies, and the Procedure No.1 for ARCS companies turned out to be the closest to timeframes for these procedures in the 15 surveyed regions in average. No explanations were uncovered related to features of objects. Procedures no.7a and 7B for BIS companies in Khabarovsk Krai turned out to be comparatively less time consuming than in the country in average (Table 5.1). 17

Table 5.2 Cost comparison over all procedures Total cost 15 region average, rubles 1. Leasing a land plot for construction with preliminary agreement on the object location 2A. Obtaining ownership rights on a land plot during tenders for construction without preliminary agreement on the object location 2B. Leasing a land plot for construction during tenders without preliminary agreement on the object location 3A. Obtaining ownership rights on land plots that are currently municipal property with buildings (structures, installations) owned the company 3B. Leasing land plots with buildings (structures, installations) owned by the company 4. Leasing a real estate object without the procedure of tender (including by purposive appointment) 5. Leasing a real estate object, which is municipal property, during tenders (auctions) 6. Transferring a premise (building) from the residential use to non-residential one 7A. State registration of a purchase and sale transaction on real estate acquired in the secondary market 7B. State registration of a lease agreement concluded in the secondary market for a term exceeding 1 year 8. Transferring a land plot from one category to another, changing the designated use of a land plot 9. Privatization of a real estate object (building, structure, premise), which is currently municipal property Total cost Khabarovs krai, average, rubles BIS ARCS BIS ARCS 287 213 263 45 38 275 251 639 75 173 253 143 51 85 72 241 38 484 Insufficient data Insufficient data From 25 to 29 n/a Insufficient data From 1 to 22 72 327 7 13 78 46 813 48 566 22 72 36 486 31 333 8 338 34 67 n/a n/a 13 746 51 319 159 556 54 95 18 398 29 31 25 45 27 257 18 334 168 875 No less than 4 55 951 31 25 n/a No less than 3 Insufficient data No less than 7 5 Insufficient data As one can see from the table (Table 5.2), the comparison of the overall financial costs for undergoing the procedures in Khabarovsk Krai with the average financial costs for all the 15 studied regions is possible only for part of surveyed procedures. The majority of procedures susceptible to comparison required lesser or the same average overall financial costs as in the 15 surveyed regions. There are several procedures for which overall financial costs are higher in Khabarovsk Krai than in the country in average: this pertains to Procedures Nos.1 and 6 for BIS companies and the Procedure no.4 for ARCS n/a n/a 18

companies. In case of Procedures Nos.1 and 6 such differences could possibly be explained by the highest statutory uncertainty with regards to necessity and amounts of payments (Diagram 2.1). The analysis of time and cost expenses demonstrated that the most cost intensive stages in terms of both time and money in Khabarovsk Krai are the Procedure no.1 for BIS companies and the Procedure no.4 for ARCS companies. It should be noted that completion of these procedures required the vast majority of respondents to remit payments to non-governmental funds or to become sponsors (88% BIS and 8% ARCS), as well as to assume certain additional obligations (75% BIS and 4% ARCS). 5.2. Practice of unofficial payments, donations to funds and additional burdens Taking into account all the studied procedures, the frequency of application of unofficial payments is practically equal to average indicators in Khabarovsk Krai as compared to the average of the 15 studied regions. The occurrence of using unofficial payments during at least one of the stages of the procedure was mentioned by 59% of BIS respondents and 44% of ARCS respondents on average. For all the regions, this value comprises 53% for the BIS companies, and 45% for the ARCS companies on average. The range of the amounts stated is rather wide for Khabarovsk Krai (1 to 8, rubles). The largest of the stated payments was performed when undergoing Procedure No. 1. Most of the stated amounts do not exceed 15, rubles (56% of the stated values). It should be noted however that 19,6% of the above mentioned amounts exceeded 5, rubles. In addition to unofficial payments, respondents in Khabarovsk Krai also reported some other semiofficial practices. On the average for all the procedures, some 52% of BIS respondents and 64% of ARCS respondents reported the necessity of performing payments to certain non-governmental funds. These values are significantly higher than the average values for the 15 studied regions, which comprised 19% for the BIS companies, and 22% for the ARCS companies. We may point out that this practice in Khabarovsk Krai is a bit more widespread for ARCS respondents when undergoing Procedure No. 4, and Procedure No. 1 for BIS respondents. The third type of semiofficial or unofficial payments is the so-called additional burdens. The necessity of paying additional burdens for all the procedures was reported by 32% for BIS respondents and 45% of ARCS respondents on average. Most often, such payments are encountered by BIS and ARCS respondents when undergoing Procedure No. 1. 5.3. Characteristics most important in saving time As shown in the table (Table 5.3), the most important time-saving factors, which may reduce the time for completion of procedures, are: willingness of the client 19

to make unofficial payment, municipal (state) owner is interested in a quick transaction and administrative resource or special personal relations with officers of administrative bodies. These and other time-saving characteristics are related, on the whole, to unofficial relationships and the official s personal interest in the completion of the procedure. The most significant characteristics for reducing the financial costs of completion of a procedure are, according to the BIS respondents, municipal (state) owner is interested in a quick transaction, client knowledge of regulations guiding the procedure, and administrative resource or special personal relations with officers of administrative bodies Table 5.3 Characteristics, which are the most important for saving time, % All Procedures procedure s, average 1 2 3 4 6 7 8 9 Willingness of the client to make unofficial payment 42 5 5 35 36 5 37 1 33 Municipal (state) owner of the property is interested in a quick 22 6 5 25 36 25 2 33 transaction Administrative resource or special personal relations with officers of 21 19 25 14 25 23 33 administrative bodies Client knowledge of regulations guiding the procedure 6 19 5 7 Personal relations with private companies designated to evaluate specific aspects of the project, 4 6 14 3 issues permits, etc necessary for completion of the procedure Having former officials employed by your company 3 1 3 Central location of the project 1 3 Difficult to answer 1 3 2

Table 5.4 Characteristics, which are the most important for saving money, % All Procedures procedure s, average 1 2 3 4 6 7 8 9 Municipal (state) owner of the property is interested in a quick 32 25 5 2 43 42 33 33 33 transaction Client knowledge of regulations guiding the procedure 21 38 5 25 14 8 17 33 Administrative resource or special personal relations with officers of 18 25 25 14 8 13 33 33 administrative bodies Personal relations with private companies designated to evaluate specific aspects of the project, 9 15 14 8 1 issues permits, etc necessary for completion of the procedure Having former officials employed by your company 4 5 14 3 Refusal 1 3 Willingness of the client to make unofficial payment 1 8 Others 1 3 Difficult to answer 13 13 1 25 17 33 21