The war has huge consequences for Ukraine. Not only on a human level but also economically. Costs to repair the damage have now risen to $500 billion, according to estimates. Even with support from allies and donors, Ukraine will have to pull out all the stops, not only for short-term recovery, but also for long-term growth. A cog that could become very important in this regard is the liberalization of the land market.
Ukraine has approximately 42,7 million hectares of cultivated land - including the territories occupied by Russia - of which 33 million hectares are arable. By comparison: the agricultural powerhouse in the EU, France, has approximately 32 million hectares of cultivated land. According to the Kyiv School of Economics (KSE), there has hardly been anything that could be called a land market for thirty years since the collapse of the Soviet Union. The emphasis was mainly on renting and leasing land.
That changed in 2021 when the market was partially opened. From July that year, people were allowed to purchase land, albeit with a few restrictions. For example, a maximum of 100 hectares per person was established and tenants had a first right of purchase. Minimum prices were set by the government and foreigners and legal entities could not purchase land. State and local government agricultural land remained subject to the 2001 sales ban.
New Round, New Opportunities
The land market will be further opened as of January 1, 2024. Since then, legal entities have been allowed to purchase land that previously fell under the 2001 sales ban. Furthermore, the limit has been increased to 10.000 hectares per person. The other restrictions remain in force, including the ban on legal entities with foreign beneficiaries from purchasing Ukrainian land.
Because the land market in Ukraine is in its infancy, the value of land hardly plays a role in financing. According to StateGeoCadastre data, the average value of agricultural land in Ukraine in the fourth quarter of 2023 (i.e. before further liberalization) was approximately €900 per hectare. According to calculations by KSE, at current land prices, the market value of agricultural land in Ukraine would represent approximately $33,5 billion. At the current maintained funding ratio of 0,35, $12,4 billion in additional financing could be attracted. That is already considerably more than the current $3,5 billion in agricultural financing.
Financial space
It is expected that by admitting legal entities to the land market, the land price will increase by 40% in the coming period. The total land value would therefore approach $50 billion according to KSE and financing with land as collateral could increase to $17,5 billion. The first signs of an increase are already there. In January, the average land price rose to approximately €1.000 per hectare. With further market liberalization, for example by improving market transparency and stimulating market liquidity, the financing ratio by the Ukrainian central bank could be increased to 0,6 to 0,8, as is common in many developed countries.
Liberalizing the land market is certainly not the answer to the problems Ukraine faces, according to KSE. It can be an important instrument to attract money primarily for the reconstruction of the agricultural sector, but also for reconstruction in a broader sense. What the KSE does not leave unmentioned is that further liberalization of the land market is also a step towards EU membership. To this end, European (legal) persons should also be given the opportunity to purchase land in Ukraine. According to KSE, this brings even more advantages.