SURVEY OF LAND AND REAL ESTATE TRANSACTIONS IN THE RUSSIAN FEDERATION REGIONAL REPORT: SAKHALIN OBLAST

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: SAKHALIN OBLAST May 26 3813

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... 9 4. PROCEDURE BY PROCEDURE SUMMARY... 11 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... 11 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... 12 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)... 12 4.4. Procedure no.4: Leasing a real estate object without the procedure of tender (including for targeted use)... 13 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... 14 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... 16 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 According to the results of the analysis when getting through the examined procedures related to land and real estate in Sakhalin Oblast, it can be concluded as follows: 1. Among the procedures that imply obtaining land plot either as ownership or tenancy, the overwhelming majority of ARCS companies passed the procedures for obtaining tenancy rights. With regard to BIS companies it is impossible to single out any tendency for reason of small number of respondents who passed the relative procedures. 2. According to the results of the survey, it is impossible to single out any procedure, which would be the most basic in terms both of financial and time inputs. Rather high (but not the largest) inputs for ARCS companies according to these criteria are noted to be the procedures related to land plots: Leasing a land plot which is currently state or municipal property for construction with preliminary agreement on the object location (1) as well as Obtaining ownership (3A) or lease (3B) rights on land plots that are currently state or municipal property. It is difficult to single out the most problem-ridden procedures for BIS companies due to insignificant number of interviewed BIS companies in Sakhalin Oblast. 3. The Procedure no.1 also stands out in terms of the highest rate of respondents reporting making different types of unofficial payments. 4. Average duration of the procedure, which is passed by BIS companies, is approximately by 1.5 times longer than average duration of ARCS companies. Possible reason for this is deemed to be the fact that 8% of objects executed by BIS companies are located in the city center while 67% of objects of ARCS companies are located outskirts of the city and outside the city. 5. According to the results of the survey the practice of unofficial payment application might depend on the object characteristics and duration for going through the procedure. Irrespective of the type of companies (ARCS or BIS) in cases with reporting unofficial payments, the area of objects on the average as well as time spent for going through the procedure on the average, was almost twice as much than analogous values in cases without unofficial payments. That is, it can be supposed that respondents fell back upon unofficial payments in case of delaying procedure by official bodies or when such object was characterized by optional properties, in particular it was large-sized. 6. According to the results of the survey, amount of unofficial payments to a certain degree depends on the object size with regard to which the procedure is held (correlation factor =.58) 7. With regard to the majority of the procedures examined in the course of the survey BIS companies concurred that time and financial inputs for getting through the procedures in 24 increased as compared to 23. Considerable increase of time inputs and inputs for official payments was 6

noted for all the surveyed procedures. The greatest increase of unofficial payments was noted by the respondents with regard to Procedures 1, 6, 8. 8. The key factor that may have influence on cutting time and financial inputs while passing through all the procedures according to BIS companies, is deemed to be Administrative resource or special personal relations with officers of administrative bodies. The rest of the factors are differently considerable for cutting time and financial inputs in different procedures. 9. Depending on type of the procedure, inputs for official payments when obtaining the same documents may differ cardinally. With regard to the time inputs differences in question are considerably less. 1. Percentage rates of stages for which time and cost expenses are determined by law are different for assorted procedures. The highest statutory certainty in terms of time costs for document processing was established with regards to Procedures nos.7, 9 (Methods 1, 2, 3) (Diagram 2.1). The least exactly financial costs are determined with regards to the Procedure no.6. It should be noted that financial costs of passing the majority of procedures in Sakhalin Oblast are determined more exactly in comparison with the time costs. The least exactly financial costs are determined with regards to the Procedure no.6. 7

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 21 5 74 19 32 21 47 Procedure 2 25 5 7 2 45 2 35 Procedure 3 33 8 58 12 67 25 8 Procedure 4 6 4 5 1 Procedure 5 6 4 5 1 Procedure 6 29 71 7 29 71 Procedure 7 1 3 33 67 Procedure 8 75 25 8 5 38 13 Procedure 9_1 1 6 1 Procedure 9_2 1 6 1 Procedure 9_3 1 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 8

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 Sakhalin Oblast was 7 ARCS and 18 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. The basic principle for sampling BIS and ARCS companies was total surveying 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 174 15 Phone calls, number 174 15 Companies interviewed, number 1 7 Number of meetings as a percentage of phone calls made 6,8 6,6 Questionnaires, number 18 7 Refusal-rate as share of refusal phone calls from total number of phone calls, % 11,5 1,2 Duration of an average interview, minutes 31 21,6 Duration of the whole fieldwork, working days 56 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. 2 The main reason for such approach was that even if such a method is used, the number of companies that meet the requirements of the survey did not exceed 1% of the total number of companies in the sampling and did not reach the set sampling size (1 questionnaires from BIS companies and 1 questionnaires from ARCS companies). 9

For example, there is a possibility of an ARCS company, which has involved 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 5 2 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 2 3 2 13 1 19 8 1 1 3 4 5 12 8 1 3 3 1

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 19 stages and includes processing 25 documents (See Annex, Table 1). There is no normative timeframe for completion of this procedure because for 16 stages out of 19 no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 9 out of 19 stages legislation does not stipulate whether an official fee is or is not payable, for 3 stages out of 19 the amount of official payments is either not indicated or can vary depending on the characteristics of the object. In accordance with the survey estimates, the period of time required to complete the procedure was not less than 24 days for BIS companies, and 27 days in average for ARCS companies. Official payments for ARCS companies amounted to 68,667 rubles. No sufficient data was reported by BIS companies on official payments. In accordance with the survey estimates, 44% of ARCS companies reported making unofficial payments while passing this procedure. 3% of the interviewed ARCS companies reported on sponsorship and making payments to non-governmental funds. 4% of ARCS companies reported on requirements to assume additional burdens. The highest amount of unofficial payments reported by the BIS respondents was associated with obtaining Specifications for connection of the facilities to supply lines and utilities by a BIS company. According to the BIS respondents, unofficial payments in usual practice of obtaining documents were more frequent to obtain the Approval issued by Sanitary & Epidemiological Station (SES) and the Approval issued by State Fire Inspection (in more than 6% of cases). The survey results indicate that the unofficial payments are, at least to some extent, required for obtaining most of the rest of the documents. The respondents were not unanimous in specifying the document which caused most difficulties. Different respondents encountered problems on different stages of this procedure. The interviewed companies disagreed on a government authority causing most difficulties. Various problems are characteristic of many authorities participating in the procedure. The majority of respondents (ARCS and BIS companies) indicated the Department of Architecture, City planning and Real estate administration as the authority wasting the most time. Bureaucratic arbitrariness of some officials is a phenomenon faced by all of the interviewed BIS companies in different governmental bodies in the course of completion of Procedure no.1. 11

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 2 stages and includes processing of 2 documents (See Annex, Table 2). There is, in fact, no normative timeframe for completion of this procedure, because for 18 out of 2 stages of this procedure no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 7 out of 2 stages legislation does not stipulate whether an official fee is or is not payable, for 4 stages out of 2 the amount of official payments is either not indicated or can vary depending on the characteristics of the object. During the survey not a single BIS company was interviewed, that had completed the Procedure no.2 in 24. The period of time required to complete the procedure was from 3 to 365 days for ARCS companies. No sufficient data was received on official payments from ARCS companies. Insufficient number of respondents does not allow to estimate the prevalence of unofficial payment practices with regards to this procedure, as well as to pinpoint the most problem-ridden document or government agency. 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 12 stages and includes processing 18 of documents (See Annex, Table 3). There is no normative timeframe for completion of this procedure because for 8 stages out of 12, no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 2 out of 12 stages legislation does not stipulate whether an official fee is or is not payable, for 3 stages out of 12 the amount of official payments is either not indicated or can vary depending on the characteristics of the object. In accordance with the survey estimates, the period of time required to complete the procedure was 189 days in average for ARCS companies and from 12 to 365 days for BIS companies. According to survey results, only 12% ARCS companies reported occurrence of unofficial payments. Insufficient number of respondents that had completed this procedure does not allow to estimate the prevalence of unofficial payment practices by BIS companies. 12

The respondents were not unanimous indicating the most problematic document. Different respondents encountered problems while obtaining different documents. Respondents also did not have common opinion in determining the most problem-ridden government agency. Long lines represent the most frequently encountered problem while interacting with many government agencies involved in this procedure. 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 7 documents (See Annex, Table 4). There is, in fact, no normative timeframe for completion of this procedure, because for 2 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 the amount of official payments depends on the characteristics of the object. During the survey not a single BIS company was interviewed, that had completed the Procedure no.4 in 24. The period of time required to complete the procedure was from 3 to 9 days for ARCS companies. Official payments amounted to not less than 5, rubles for ARCS companies. 1/5 of ARCS respondents reported occurrence of unofficial payment while completing this procedure. The Contract of real estate lease and the Technical passport of a building were reported to be the most problematic documents. The respondents were not unanimous in indicating a government authority wasting maximum time and being the most problematic. Considering where the documents identified as the most problematic were obtained a conclusion can be drawn about the most problematic authorities, which are the Department of Architecture, City planning and Real estate administration (or institutions performing the same functions on the city and regional levels) and the Technical Inventory Bureau 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 2 out of 5 stages of this procedure no processing deadlines have been established (See Chart 2.1). In order to pass this 13

procedure the amount of official fees shall not exceed 7,5 rubles for legal entities, and 5 rubles for individual persons. Insufficient number of ARCS and BIS respondents that had completed this procedure does not allow to analyze any of the reviewed criteria pertaining to this procedure (duration, amount of official payments, practices of unofficial payments, the most problem-ridden documents and government agencies). 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 7 stages and includes processing of 9 documents (See Annex, Table 6). There is, in fact, no normative timeframe for completion of this procedure, because for 5 out of 7 stages of this procedure no processing deadlines have been established (See Chart 2.1). There is similar uncertainty about official costs - for 5 out of 7 stages legislation does not stipulate whether an official fee is or is not payable, for 1 out of 7 stages, the amount of official payments is either not indicated or can vary depending on the characteristics of the object. For passing the other 1 stage no official fee is to be paid. The period of time required to complete the procedure was not less than 33 days for BIS companies. Official payments amounted to not less than 13,9 rubles. No data was received from ARCS companies with regards to either the required timeframe, or official payments. Insufficient number of respondents interviewed in Sakhalin Oblast that had completed this procedure, does not allow to estimate the prevalence rate, as well as to single out the most problem-ridden documents and government agencies. 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). There is, in fact, no normative timeframe for completion of this procedure, because for 1 out of 3 stages of this procedure no processing deadlines have been established (See Chart 2.1). 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. 14

In accordance with estimates of the survey, the period of time required to complete the procedure was from 3 to 24 days for BIS companies, and 157 days in average for ARCS companies. Official payments amounted from 5,136 to 2,4 rubles for BIS companies and 18,455 rubles in average for ARCS companies. According to the respondents, unofficial payments may require while completing majority of the procedure stages. Almost half of BIS respondents and 8% of ARCS respondents reported making unofficial payments. Besides some of the respondents were forced to effect payments to non-governmental funds or take additional burdens. According to the respondents the most problematic document of Procedure no. 7 is A real estate plan with cadastral number indicated; floor plan for premises. On average this document required the maximum time to process, the maximum official payments and was identified by the maximum number of both ARCS and BIS respondent companies as the most problematic document. The respondents were not unanimous in identifying the most problematic authority. Different respondents encountered problems while interacting with different government agencies. 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). There is similar uncertainty about official costs - for 2 stages out of 8, the amount of official payments is not indicated. During the survey no sufficient data was received on either procedure duration, or amount of official payments from both ARCS and BIS companies. It does not seem to be possible to determine the prevalence rate of unofficial payment practices by reason of insufficient number of respondents interviewed in Sakhalin Oblast that had completed this procedure. The survey identified no documents as problematic. According to the data provided by the respondents no authority could be identified as the authority causing problems during interaction. 15

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 13 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 method # 1 - not more than 92 days, for method # 3 - not more than 97 days, for method # 3 - not more than 91 days. For method #4 for two stages the laws establishes no maximum timelines (See Chart 2.1). In order to pass this procedure the amount of official fees for method # 1 shall not exceed 9,5 rubles for legal entities, and 25 rubles for individual persons; for methods #2, #3 and #4 - shall not exceed 7,5 rubles for legal entities, and 5 rubles for individual persons. During the survey no sufficient data was received on either procedure duration, or amount of official payments from both ARCS and BIS companies. It does not seem to be possible to determine the prevalence rate of unofficial payment practices by reason of insufficient number of respondents interviewed in Sakhalin Oblast that had completed this procedure. Taking into account the small number of respondents and the fact that their opinions do not coincide, it is impossible to single out a document as problematic. No authority was identified by the respondents as problematic or time-wasting. 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 Sakhalin Oblast, average, days BIS ARCS BIS ARCS 296 272 No less than 24 28 15 n/a 239 178 n/a 226 233 29 189 No less than 35 Insuffici ent data 117 77 n/a 77 17 n/a 26 244 86 88 No less than 33 From 3 to 24 74 11 n/a 215 From 9 to 54 Insuffici ent data 27 No less than 9 Insufficie nt data 199 184 From 3 to 9 Insufficie nt data n/a 96 From 45 to 5 Insufficie nt data 11 137 n/a n/a As we can see from the table (Table 5.1), the comparison of time costs for undergoing the procedures in Sakhalin Oblast with the average time costs for all the 15 studied regions is possible only for very small part of surveyed procedures, and only with regards to ARCS companies. The duration of all the procedures in Sakhalin Oblast susceptible to comparison is either equal, or differs insignificantly from periods of time used for the relevant procedures in the 15 regions in average. 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 Sakhalin Oblast, average, rubles BIS ARCS BIS ARCS 287 213 263 45 No less than 3 251 639 75 173 n/a 52883 Insufficient data 253 143 51 85 n/a n/a 72 241 38 484 Insufficient data 72 72 327 7 13 n/a 45 346 48 566 22 72 n/a 8 338 34 67 13 746 51 319 54 95 18 398 Insufficient data No less than 15 From 25 to 12 625 25 45 27 257 n/a 168 875 No less than 4 Insufficient data No less than 5 n/a n/a 16 938 No less than 7 5 Insufficient data 55 951 31 25 n/a n/a As we can see from the table (Table 5.2), the comparison of the overall financial costs for undergoing the procedures in Sakhalin Oblast with the average financial costs for all the 15 studied regions is possible only for very small part of surveyed procedures, and only with regards to ARCS companies. There is only one procedure for which overall financial expenditures in Sakhalin Oblast are substantially higher that in the country in average, i.e. the Procedure no.3a for ARCS companies. On the basis of materials available for review, no explanation can be found for this phenomenon. It is only known that with regards to ARCS companies completing this procedure very insignificant 18

percentage rate of respondents was established that reported making unofficial payments. In other words, the majority of payments were made by official channels. Analysis of time and financial costs has not identified any procedures that would be unambiguously more costly, from the point of view of both time and costs. 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 higher for BIS companies and lower for ARCS companies in Sakhalin Oblast 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 65% of BIS respondents and 32% 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 Sakhalin Oblast (25 to 4, rubles). The largest of the stated payments was performed when undergoing Procedure no. 2A. Most of the stated amounts do not exceed 15, rubles (67% of the stated values). In addition to unofficial payments, respondents in Sakhalin Oblast also reported some other semiofficial practices. On the average for all the procedures, some 18% of BIS respondents and 18% of ARCS respondents reported the necessity of performing payments to certain non-governmental funds. We may point out that this practice in Sakhalin Oblast is a bit more widespread for ARCS respondents when undergoing Procedure no. 1. Among BIS respondents it is difficult to single out any procedure with the most prevalent practices due to insignificant number of respondents that had completed each of the surveyed procedures. The third type of semiofficial or unofficial payments is the so-called additional burdens. The necessity of paying additional burdens for all the procedures on average was reported by 32% of BIS respondents and by 28% ARCS respondents. Most often, such payments are encountered by ARCS respondents when undergoing Procedure no. 1. Among BIS respondents it is difficult to single out any procedure with the most prevalent practices due to insignificant number of respondents that had completed each of the surveyed procedures. 5.3. Characteristics most important in saving time As shown in the table (Table 5.3), the most important time-saving factor, which may reduce the time for completion of procedures, is administrative resource or special personal relations with officers of administrative bodies. This and other time-saving characteristics are related, on the whole, to unofficial 19

relationships and the official s personal interest in the completion of the procedure. The most significant characteristic for reducing the financial costs of completion of a procedure is also, according to the BIS respondents, 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 procedures, average 1 3 5 6 7 8 Administrative resource or special personal relations with officers of 56 1 1 33 4 1 administrative bodies Municipal (state) owner of the property is interested in a quick transaction 17 67 33 Personal relations with private companies designated to evaluate specific aspects of 11 33 2 the project Willingness of the client to make unofficial payment 11 33 2 Rich companies 6 2 Table 5.4 Characteristics, which are the most important for saving money, % All Procedures procedures, average 1 3 5 6 7 8 Administrative resource or special personal relations with officers of 41 2 67 1 4 1 administrative bodies Small company 12 2 5 Client knowledge of regulations guiding the procedure 12 2 2 Personal relations with private companies designated to evaluate specific aspects of 6 2 the project, issues permits Having former officials employed by your company 6 33 Municipal (state) owner of the property is interested in a quick transaction 6 5 Difficult to answer 18 4 2 2