• 1/29/2019

11 key risks in acquiring land title

The acquisition of land site as property to deploy industrial facilities is a reliable option for those looking far into the future and planning well ahead

However, in order to avoid "pitfalls" and protect oneself from significant risks, one needs to pay attention to important issues:

Legal risks

For the investor not to lose its investments when buying a land plot, one needs to pay attention to the following factors:

1.      Existing urban restrictions that may compromise the possibility of implementing the project as a whole;

2.      Allowed type of land usage, making it impossible to build certain types of facilities on the plot;

3.      Land ownership rights, that may, for example, belong to a third party, which calls into question the legality of your ownership of real estate;

4.      Encumbrances (arrest, bail, rent, easement, reservation for public needs), which limit significantly the possibility of implementing the project and lead to time loss and extra financial costs.

For example, an investor draws up a contract of sale to purchase a land plot to construct a warehousing building, on the basis of partial prepayment. The buyer installs it, but the property appears to be pledged to a bank. The transaction is not completed and the money cannot be returned. Some time later, it turns out that the creditors have started bankruptcy proceedings with respect to the seller, and the real estate goes to the bank.

Unfortunately, such situations are quite common in the Russian real estate market. The legal purity of the transaction is of great importance when deciding whether to buy a plot or piece of real estate ready for use.

Technical risks

In addition, it is important to evaluate industrial real estate by the following 4 factors, which can significantly extend the terms and cost of implementing the project:

1.      Remoteness of points of connecting to engineering networks. The closer the points of connection the facility to the utilities, the lower the total cost of constructing the facility. And vice versa.

2.      Availability of the necessary engineering capacities (by contract on connecting such resources with respective network organization) may significantly reduce the time it takes to launch a project and save resources otherwise to be spent on obtaining those capacities from monopolist providers.

3.      Tariffs on the consumed utilities (electricity, gas, water, sewage, heat) can vary significantly from region to region. Even the city and its province located in the same region may feature significant difference in utility tariffs, which affects the cost of doing business there.

4.      The terrain relief and bearing capacity of soil within the acquired site may affect significantly the cost of constructing the facility, which will affect its payback term.

Constructing the facility on greenland site may lead to an increase in time and financial costs associated with putting the facility into operation. The investor or representative thereof is required to collect quite a number of documents and expert conclusions, while their validity may well be limited. It all leads to lost profits, as the project falls short of its delivery term and deadlines due to procrastinations in approving, leading up and connecting utilities and bringing the site in accordance with all the established requirements.

Environmental risks

When deploying production facilities, it is worth paying attention to the following factors:

1.      The established sanitary protection zones of industrial enterprises, including your future enterprise may interfere with placing the facility on site you have acquired, by virtue of established norms and regulations.

2.      Environmental requirements to placing the facility on the territory you purchased (quality of soil, groundwater and the level of air pollution) may not meet the established indicators and standards, which would lead to a serious extra spending or even loss of invested funds.

3.      The presence of water bodies on or in its immediate vicinity may also limit the possibility of implementing your project significantly due to certain requirements imposed by the environmental regulatory authorities.

At the stage of making a decision to purchase a site for industrial facilities, it is necessary to run the possible scenarios in advance.

All of the above risks can be avoided if you purchase land in the Greenstate Industrial Park. To date, 28 residents have already accommodated in our park, including both large foreign industrial enterprises and Russian small and medium-sized companies.

In case you have any questions yet standing out, please call us and we will answer them as fully as possible.