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Serbia, The problem with the proposal to amend the Law on Planning and Construction - Serbia Business

Serbia, The problem with the proposal to amend the Law on Planning and Construction

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Wanting to kill two birds with one stone, the ruling majority at the time adopted a regulation whose application in the previous 13 years, despite all the amendments, additions, adoption of a special law, decrees and by-laws, has hardly changed since the beginning, if we exclude the fact that Milan Beko, however, he did not manage to build a residential and business complex on the land that he got to use through the privatization of Luka, as he had intended.

And if it is any gain at all, then it could probably be considered the only benefit of the regulation at the time.

That’s why Vesić states in the author’s text for the Kopaonik Business Forum that “the former government wanted to use the Law on Planning and Construction, along with the fairy tales that billions of euros would be collected from the tycoons, to correct all the ‘Drina mistakes’ in the privatization process.”

“Instead of everyone who violated the law being prosecuted according to the current regulations, the former government, in order to solve one problem, specifically the problem of the Port of Belgrade, stopped all investments in 5,000 locations,” writes Vesić, explaining why the current government plans to months, by amending the Law on Planning and Construction, the conversion of the right of use into the right of ownership for a fee is abolished.

But, before we face Vesić’s arguments why the fee should be abolished and the arguments of those who strongly oppose it, let’s start from the beginning.

Serbia actually legalized the process of ownership transformation of land with the 2006 Constitution, although the privatization of social enterprises started much earlier. It seems that, just as in the case of restitution, this is actually the reason that all other conversion woes will arise later.

Three years after the adoption of the Constitution, a new Law on Planning and Construction was adopted, followed by a Regulation that stipulated the possibility of privatizing construction land, i.e. converting the right of use into the right of ownership, for the majority of businesses and citizens, free of charge.

This was necessary because the city land was mostly owned by the state, although the building on that land was owned by individuals or legal entities, so almost all of Serbia was not the owner of the land on which their house was located in the cadastral books, even though the houses they did.

A small number of companies, which were acquired by the new owners in privatization, bought out of bankruptcy or through executive proceedings, were stipulated, however, that they will not receive this conversion for free, but will have to pay for it.

In the atmosphere of summing up privatization effects, increasingly frequent privatization affairs, which the Councilfor the fight against corruption spoke most loudly about, and the involvement of various people from the ruling parties in those affairs, a regulation was passed that wanted to charge tycoons on the bridge what, as the law justified, was not earlier on the bridge.

Namely, even then it was more than clear that individual businessmen in privatization bought social enterprises not to engage in tractor production, home crafts or port business, but because those enterprises also had the right to use the land under and around those factories. And the government came up with the idea of charging them later, so that if they want to become owners of that land, they will have to pay a fee.

The dispute over whether the land has already been paid for and whether the new owners bought the land with the assets of the company, or whether its value during the privatization process was not included in the sale price, is a controversy that continues to this day.

The facts, however, are as follows – such a regulation did not prove to be particularly applicable in practice, because the new owners did not want to pay huge amounts for the conversion afterwards, which should have been calculated at the market price of the land at the time when the request for conversion was submitted.

The case of the Port of Belgrade ended in court, where the city of Belgrade and the new owner argued about who has the right to use about 100 hectares of land, and the billions of euros in revenue for the state treasury, as announced, turned into barely a few million. There is information that in the first five years in Belgrade, only one conversion was carried out.

The justification was that the procedure is complicated, the fee is expensive, and it also turned out that the Tax Administration does not have the capacity to determine the conversion amount for each individual case.

The apparent halt in this process, which on the one hand did not bring the expected income to the state coffers, and on the other hand hindered investors, either to build new facilities for production purposes, or to build new housing and business complexes, which led some to buy companies, led until the regulation needs to be changed at the end of 2014.

In the meantime, a year earlier, the Constitutional Court’s assessment was made, according to which the conversion for a fee is temporarily prohibited, because the constitutionality of the provisions of the law concerning the conversion of rights will be assessed.

The government led by SNS therefore changes the Law on Planning and Construction, and also passes a special Law on the conversion of the right of use into the right of ownership with compensation, with pompous announcements that this regulation will remove all the shortcomings of the previous one and that clear and quick procedures will be established, and thereby facilitating the construction and obtaining construction permits.

And then it was announced that after years of stagnation from this conversion, the state will now have the opportunity to collect several billion euros, as well as to introduce a lease mechanism, all with the aim of accelerating investments and construction.

But, despite all these changes in the law and the adoption of exemptions from the application of conversion with a fee, including the introduction of a 99-year lease as the basis for construction with the payment of annual rent, and all other attempts at simplification, conversion does not work in practice.

In his text, Vesić claims that so far the state has received only 31 million euros, instead of the promised billions that should have been shared by the state budget and local governments, as well as the Restitution Fund.

It is interesting, however, that Minister Vesić mentions 5,000 locations, while in previous years there were around 5,000 hectares of land in circulation awaiting conversion, which may indicate that even the state itself does not have data on how much such land there is, who owns it, what it is the new owner plans and the like.

“On that basis, 31 million euros were collected in 13 years, that is, less than two and a half million euros per year.”

And hundreds of millions, maybe even billions of euros, the state and local self-governments could have collected in the meantime from contributions for construction land, VAT or property tax for those properties that would have been built on disputed locations,” Vesić points out, completely the opposite of what which until now has been the mantra of both the party he once belonged to, and the one he now belongs to.

Because if they have something in common in the conversion story, it is the claims that it will bring in billions of euros in revenue, while Vesić now says that the abolition of the conversion fee will in fact bring in billions.

“If we collected so little in 13 years, are we losers or winners?” Isn’t this a classic example of slaughtering an ox for a kilo of meat”, asks the current Minister of Construction in an author’s text for the Kopaonik Business Forum review.

Proponents of the abolition of the conversion payment, which are mainly investor associations, claim that the regulation on the payment of compensation was never fair, and experience has shown that it did not bring the expected financial effects.

They believe that the new owners have already paid the market price for the companies they bought, that they already received the largest possible “bundle” of rights that they could get, and that there is no logic in charging them something retroactively.

Their argument is that the state itself decided to enter the privatization process before it was allowed to convert the right of use into the right of ownership over the land, and that because of that decision it cannot subsequently punish investors. “If conversion had been allowed then, those buyers in the privatization would have received ownership rights over the land.

The only difference is that, accounting-wise, that land was usually not part of the property, because it was state property according to the laws of the time. Some companies were able to convert for free, because their list of purchased assets included land or part of the land, and some did not. And now, because of this confusion, the locations have been standing for years, investors cannot build, but wait for something to be resolved,” a well-informed interlocutor tells us.

Nebojša Nešovanović, a real estate expert, tells NIN that the regulations have changed so many forms, that there have been too many attempts to simplify the conversion process for a fee, that the list of possible exemptions has been expanded, that investors are allowed not to have to pay for land for regular use with the object, but that nothing contributed to move the process, practically from a standstill.

“The first law prescribed the payment of the market price for the land, and that was too much for investors, that’s why they didn’t want to convert, even though it’s a condition for construction, mortgage or sale.

Later, exceptions were made, the possibility of leasing was introduced, everything was simplified, but for some reason, the administration never had the firm will to implement this. I claim that the conversion price is not a problem for investors either, because since 2015 and the new law it is a fair price, as much as there is no will in the administration to carry out these processes.

And it is true that the economy suffers because of this. The law was passed because of one case and shouts at tycoons, and no one disputes that in the process of privatization there were various cases and various intentions, but the bottom line is that those who want to engage in their activities, who did not buy the company in order to built complexes and now they cannot quickly and easily expand their capacities nor be the owners of the land on which the company has the right to use,” says Nešovanović.

It is also interesting that the government is planning to amend the Law on Planning and Construction to practically invalidate what is prescribed by the Law on Conversion, which it will not repeal. Also, until the regulation is won, it is not known precisely how the registration of property rights will be carried out in practice, that is, which authority will be in charge of carrying out the conversion, regardless of the fact that this time it will be free of charge.

Asked on what basis he claims that it is about billions of euros, he says: “Zorana Mihajlović, justifying the law, said that the income from compensation is more than 15 billion, and she did not count Belgrade, where the most valuable land is located.”

We cannot know the exact figure, because no one has dealt with it in a serious way. But it is certain that this is a huge amount of money and that such changes would lead to the biggest robbery of the budget in the past few decades. In this way, investors are given the most valuable locations and the best land.

Therefore, I believe that this indicates corruption at the highest level. Imagine that you are an investor who bought a failed factory out of bankruptcy for 10 euros and you expect to pay 10 million euros in conversion fees. You have calculated that it will pay off, because by selling the apartments you built there, you will earn 13 million euros, which means you will earn three million. And then someone comes and says that they will fix it for you and that you won’t pay a single dinar for the conversion,” explains Rajić.

This interlocutor of NIN agrees that so far not nearly enough money has been collected, and says that apart from vague explanations, we have not heard why the law is not being applied exactly. “It is a fantastic finding that investors will not pay, because the fee is too high.”

Well, if that’s the case, then they won’t be able to build. “Let them sell that land to someone else, there are certainly those who would be willing to pay for the conversion and build,” Rajić believes.

He believes that instead of repealing the law, it would be normal to list those locations, calculate the value of the land for conversion, analyze the stagnation in the process and only after discovering the causes of the problems and stagnation with the implementation of the law, propose its changes.

Nešovanović emphasizes that the problem in canceling the conversion can also be the control of state aid, that is, EU standards when it comes to state aid.

“The bottom line is that by abolishing the fee, investors are given something that has more value now, and that is state aid.” I have the impression that this problem is being neglected now, but he can come forward.

How it will be treated, whether it will be treated as state aid and whether it will then be approved by the Commission for the Control of State Aid, that can only arise as a problem,” warns the interlocutor of NIN.

It seems that just as back then, in 2009, apart from the intention to introduce compensation and “penalties” for Beka, the government of that time did not go a step further, so this one now, apart from the intention to abolish the compensation, does not know exactly how it will do it.

And what the consequences can be. They also have in common that until recently both of them were telling fairy tales about billions of euros, which almost fell into the state coffers.

Even today, critics of the abolition mention the biggest robbery in Europe and the damage of 50 billion euros, which is almost equal to the value of the Serbian GDP, but without precise arguments as to how this came to be and what was the problem until now that so much money was poured into the state cash register, so only slightly more than 30 million was collected out of huge billions. And no one has offered a reasonable and enforceable solution for these more than 13 years, NIN Magazine writes.

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