Reform Index Focus: Land Sales Through Electronic Auctions

In late May, Parliament passed two important new laws for the launch and proper operation of the land market. These are Law 1423-IX on land decentralization increasing the number of land managers and Law 1444-IX of May 18, 2021 introducing the process of renting and selling plots of land being held in state and communal ownership or the title to them viaelectronic auctions. The latter must provide for transparency and competitiveness of land auctions, and the uniform rules for holding them.

The transition from “traditional” to electronic auctions has been underway for several years now. At the same time, such electronic auctions must meet certain modern technology and capability requirements. Putting land auctions onto “transparent rails” is crucial to enable every hromada, expert or MP to analyze and monitor real-time what is happening with the distribution of land by local authorities in their home districts. 

Law 1444-IX sets out clear requirements for the electronic trading system and the bidding procedure. The leasing and sale of land plots being held in state and communal ownership or the title to them must be carried out exclusively on a competitive basis via electronic auctions in the state owned two-level electronic trading system (ETS). Private landowners can also announce a land auction in the ETS under the conditions specified in the Land Code. There are two main requirements on the Land code for land auctions, the trade must be based exclusively on the price increase and the principle “everyone sees everything” must be applied, all thesecan be provided by Prozorro.Sale.

Prozorro.Sale is an information and telecommunication two tier system: the central database and authorized electronic marketplaces. The ETS is administered by the state-owned enterprise Prozorro.Sale. It ensures the smooth operation of the system and the electronic auction module and provides for the storage and dissemination of information about all auctions through electronic platforms. The electronic marketplaces ensure the users’ interaction with the system and the functioning of personal cabinets of the organizers (i.e. sellers)  and auction participants (i.e. buyers).

Equal and transparent rules of the game on all markets are extremely important forus, and the land market is no exception. E-auctions are many times better than traditional auctions sincethey are public. In such a model, it is impossible to prevent someone from participating in the bidding process. And the more participants, the higher the price, which is beneficial for both the state and local authorities. Buyers and tenants also benefit because there is no corruption in e-auctions. The winner is the one who offers the best price.

Thanks to open data, it will be possible to check whether thousands of land sales in cities and villages across the country are held honestly and in line with the uniform rules. Also, everyone can monitor real-time the bidding process in the electronic trading system to make sure it is equal and transparent. This will increase trust among all of the players onthe market.

The main advantage of transparent electronic auctions is that the seller receives the maximum rental or sale price due to the intense competition. 

What changes does the law bring in?

The open and transparent land market is a reform that we have been pursuing for decades. In addition to lifting the moratorium, other processes were also updated. In particular, the land auction process has moved to a digital format, with higher standards. Land reform opens up new opportunities for hromadas and the state to dispose of the land they own. This reform also improves the investment attractiveness of Ukraine.

At the same time, it is important to improve this market’s rules of operation, i.e. not just to sell land but to create a market where the price is set through competition, contract transparency, and equal access. All of this is provided for by Law 1444. It establishes mandatory land auctions for state and communal lands and enables private owners to try land auctions  if they  wish so. It means improving the quality of management of state and communal lands, enhancing hromadas’ ability to oversee this management, guaranteeing equal access to the market for all participants, regardless of the form of ownership.