Share rental market in Ukraine: how much do tenants pay in different regions?
31 July 2024 20:48
EXCLUSIVE
On 1 January this year, Ukraine launched the second stage of its land reform, opening the market to legal entities. According to forecasts of experts predict that this could boost the development of the land market in Ukraine. In general, according to the according to the results research by KSE Agrocentre, USAID and the land market have already begun to gradually recover from the full-scale invasion: prices for both land sales and leases are rising.
According to according to Opendatabot, in June of this year, the highest price for the sale of 1 hectare of land was UAH 136,730 in Ivano-Frankivsk region, and the lowest in Sumy region – UAH 29,953 per hectare. However, what is happening on the rental market in Ukraine is an open question. [ Kommersant looked into how much landlords receive in different regions, how the price is formed and what determines the cost.
How the price of land lease is formed
In an exclusive commentary for 
, Mykola Syrota, an expert and editor-in-chief of the agricultural website Kurkul.com said that the lease price is formed according to the normative monetary valuation of land, which is based on the bonus (assessment of fertility, suitability for cultivation, etc.).
“However, the last survey and determination of the land’s bonitas was carried out in Soviet times. Since then, a lot has changed: both the climate and the quality of land. However, this indicator is the basis for calculations throughout Ukraine, and on average, each region has its own normative monetary value. Every year it is indexed in accordance with the consumer price index, i.e. it increases. But it is still not an adequate price. This indicator only shows the minimum price below which, according to the law, you cannot sell land,” said Mykola Syrota
He added that in fact, the normative monetary valuation (NMV) of land is a restriction on the part of the state to prevent fictitious transactions to reduce taxes.
“It is this NMV that is the basis for calculating the lease. When a formal lease agreement is concluded, it usually stipulates that the rent is at least 3% of the normative monetary value. That is, if the NMV per hectare is UAH 27,000, then 3% is UAH 810 per hectare per year. But this is the minimum figure,” he said.
In general, according to the expert, the lease price is influenced by the location of the share and competition.
“If it is a very highly competitive region with many successful farms competing for tenants, then rents can rise very sharply, in some communities rents reach 20-22% of the NGV. There are really auctions and tenants fight for the right to rent the best shares,” said the editor-in-chief of Kurkul.com.
A snapshot of real prices for land shares in Ukraine
A land share is a conditional plot of land allocated as a result of the distribution of land of collective agricultural enterprises among its members. It can be of different sizes, so social media users also actively share information on the rental prices of their shares.
On average, landlords receive, according to their statements, the following per 1 hectare of land:
1.Kyiv region – UAH 13 thousand per year
2. Ternopil region – UAH 11 thousand per year
3. Vinnytsia region – 11 thousand UAH/year
4.Cherkasy region – 9.4 thousand UAH/year
5.Chernivtsi – 8 thousand UAH/year
6.Khmelnytsky – 7.2 thousand UAH/year
7.Poltava – 6.2 thousand UAH/year
8.Dnipropetrovska – 6 thousand UAH/year
9.Zakarpattia – 5 thousand UAH/year
10.Sumy – 5 thousand UAH/year
11.Mykolaiv region – 5 thousand UAH/year
12.Kharkiv region – 4 thousand UAH/year
13.Zhytomyr region – 3.7 thousand UAH/year
14.Odesa region – 3.5 thousand UAH/year
15.Chernihiv – 2.3 thousand UAH/year
16.Zaporizhzhia – 2 thousand UAH/year
17.Rivne region – 1 thousand UAH/year
At the same time, not all landlords receive payment for the share.
“Kherson region – the tenant has not paid a penny for a 6-hectare share for 3 years. He is looking for reasons that don’t exist,” Olena, a landlord, notes on social media.
Natalia reports that she does not receive any money at all, but is paid in kind.
“They pay me in grain, oil, and that’s it. They also help with money when people ask for help,” she said.
How landlords should regulate their relations with tenants
As Mykola Syrota explained, contracts are often concluded in such a way that the farmer or some holding company, that is, the one who will cultivate the hectare, agrees with the owner not for 3%, but for example for 8%, but the contract will say 3% to reduce rent taxes. And the rest is paid either in kind or in cash in an envelope.
“In this case, it’s the lessor’s fault. He should demand that the real percentage of the rent be specified, because in this case, nothing prevents the tenant from paying nothing and providing payment only under the contract,” he said.
Mykola Syrota explained that if a share owner wants to change the rental price, he should contact the tenant in advance and demand different terms when renegotiating the contract.
“If the tenant needs the share, he will be forced to agree to these terms. The agreement should also specify the preferred equivalent of receiving payment for the share: cash, non-cash or in-kind. Everything must be specified in the terms of the agreement. The parties can do whatever they want,” explained Mykola Syrota.
Prospects for the share rental market in Ukraine
With the development and emergence of official land sales, rents began to rise, because those who lease land are not interested in people selling it, says Mykola Syrota.
“No one has the funds to buy a large number of plots. The agricultural sector is in a very difficult position and it is sometimes impossible to find extra tens of thousands of dollars to buy a dozen shares. Therefore, tenants are now gradually raising rents to encourage people to keep the land. That’s why rents have started to rise. I think it will continue to grow in the coming years, as it is a gradual evolutionary process,” he said.
The expert stressed that we should not expect a rapid increase in rent prices. It will follow the price of the land itself.
“There will be a gradual increase of about 5% in the value of land in dollar terms annually. It will be stable, but gradual,” said Mykola Syrota.
In his opinion, the growth of the price of land shares and land prices in Ukraine will follow the example of Europe.
“For example, the land market in Romania was opened in 1998 and over the first 20 years the price of land grew to just €2,000 per hectare. The situation was similar in the Czech Republic and Poland. In the first years after the land market was opened, there was a gradual growth process. It was only when Ukraine joined the EU, legal and economic reforms took place, and free access to the land market was opened to foreigners that prices began to grow faster. For example, in the Czech Republic, the average price is now 12 thousand euros per hectare. But they started with figures even much lower than ours today,” summed up the editor-in-chief of Kurkul.com.
However, Ukraine is not yet a member of the European Union, and the reforms have not yet been fully implemented. Ukraine also has many constraining factors: war and military risks, landowner’s vulnerability to raiders, and lack of easy credit financing. It remains to be seen how the reforms will be implemented and at what pace, and whether they will actually lead to a rise in the cost of agricultural land lease in Ukraine. At the same time, landlords can already take expert advice and, in case of unsatisfactory payments by tenants, review lease agreements and renegotiate them in their favour.
Author – Aliona Kaplina
