Conversion with a fee failed - when are we making it official?

The conversion of the right to use construction land into the right of ownership with a fee, after 12 years of application, has proven to be a legal and political failure, according to a new analysis by NALED on the legislation and practice in the field of conversion. The state managed to collect less than 10 million euros, while much larger investments were lost due to the impossibility of building on the land that is in the regime of the right of use. Further improvement of the procedure is almost impossible, so the most efficient solution is the abolition of fee for companies that acquired land in the procedures of privatization, bankruptcy and enforcement.

This is a key recommendation of the analysis, which indicates that Serbia lags behind the former republics of SFRY in this segment, such as Croatia, BiH and Montenegro, where a similar problem (social, then state ownership of construction land) was solved more than a decade ago and for free.

- The view that conversion with a fee has failed is conformed both by the data of the Ministry of Construction and NALED’s analysis. Local governments have conducted less than 15 procedures on average, and businesses that took part in the research state that they do not plan to initiate a conversion procedure, because they expect to pay too high a fee of 500,000 euros per hectare, after already paying fair price for the land. Currently, there are only two to four active cases per local government, while in 40% of cities and municipalities there are none, which testifies to a very low interest in conversion - says lawyer Goran Cvetković, member of the Property and Investment Alliance in NALED and founder of Law Office Cvetković, Skoko and Jovicic, adding that 20% of municipalities had no requests at all.

According to him, the announced simplification of legalization procedure is an opportunity for the state to include conversion in the "reform package", with more than 5,000 hectares of construction land are waiting to be "unlocked" which would lead to new investments and jobs.

The current 2006 Constitution enabled the re-privatization of construction land. After three years, the Law on Planning and Construction introduced conversion, which was free for citizens and a part of businesses, but in order to achieve fairness, the state prescribed a fee for all those that bought companies in privatization, bankruptcy and enforcement procedures in order to compensate the difference between the paid and full market price of the obtained land.

As the number of applications was small, in 2011 the state partially admitted that the introduction of conversion fee was a mistake and with the latest amendments to the law regulating the conversion, the authorities tried to expand the circle of entities entitled to fee exemption, and re-enable construction through the institute of lease - an almost absurd provision was introduced, allowing land users to lease their "own" land from the state in the long run so that they can build on it, but only in situations when the plot is empty (the number of leases was absolutely negligible).

However, this did not work either, mostly due to the decision of the Constitutional Court from 2013, which ruled that land purchased could not be converted for a fee if it was lower than the market price of land, otherwise the public interest would be violated (the state would be left without income). The state itself contributed to the poor rate of conversion by prescribing a complicated procedure for reliefs, considering that the legal provisions did not clearly regulate which of the competent bodies determines the right to exemption from the payment of fee.

NALED's analysis indicates that the decision of the Constitutional Court is not an obstacle to the abolition of fee - the court did not reject the possibility of free conversion as unconstitutional. The proposal is that the conversion for a fee be kept for sports organizations, associations, remaining social enterprises and companies that are the subject of succession, when the time comes for their privatization.

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