The new legislation will affect only 2 percent of Russia’s huge land mass, but the Land Code will cover the most lucrative land: urban housing and industrial real estate. Millions of Russians who formerly had practical possession of the land their homes or dachas sit on will now be able to register it as their own personal property. That means they can sell it or put it up as collateral for a mortgage or loan. However, it also means that they will have to declare the real price of the land and pay taxes accordingly.

Many privatized companies sitting on substantial plots in urban areas could use their purchased land as collateral to raise loans for fresh operating capital. Experts were divided as to whether privatized Russian firms, many of which view land ownership as a tax liability, would leap to seize the opportunity. Experts thought that foreign investors were more likely to be attracted to doing business with Russian companies that owned land as a capital asset. The fact that foreigners now also have the right to buy land could boost foreign investment interest (foreign investment is expected to reach $5.5 billion in 2001). German Gref, minister of economic development and author of the law, pointed out that foreign investors will feel more secure in the knowledge that the land that their factories and shopping centers occupy belongs to them.

With capital flight of $200 billion to $300 billion over the last 10 years, the land and real estate market may become an attractive investment target for Russian money parked in such offshore havens as Cyprus and the Channel Islands. In addition, the law will open the gates for the development of private housing and a mortgage industry, and will allow millions of Russians to improve their living conditions. Housing starts could become a key indicator for the Russian economy in the future. Western economists have said that with time, the law could spawn the growth of a new property-owning class in a country where home ownership is still a novelty despite 10 years of economic reforms.

The authorities will develop a national land registry, an impressive undertaking, especially given that Russia is the world’s largest country. Estimates of the value of job growth in construction, banking, real estate, and other related areas are in the millions. Supporters of the Land Code insist that the new law will prevent the further spread of black market land. Over the past decade a shadow land market has sprung up. Thousands of apartments, dachas, and commercial properties change hands every month, but the transactions have been largely illegal and greased by official corruption.

Most important, the Land Code sets the scene for introducing a separate law allowing the purchase and sale of agricultural land. In czarist times, most agricultural land belonged to peasant communes. Tsar Alexander II had abolished serfdom by 1861, but severe limits to private landholding and dependence on the czar’s largesse stymied the development of civil society and democracy. Nevertheless, in 1895 the Russian Empire supplied 25 percent of the United Kingdom’s grain and 50 percent of its eggs. It exported grain to most of Europe and successfully competed against Argentina and the United States.

The reforms of Prime Minister Pyotr Stolypin in 1908–12, which included the privatization of agricultural land, laid the foundations for the emergence of a strong agriculture sector based on individually-owned farms. These reforms were cut short by his assassination and the outbreak of World War I.

After the 1917 Bolshevik Revolution, Russia’s agriculture was utterly destroyed and millions died because of the resulting starvation. Since the 1970s Russia has been dependent on grain imports from abroad. Tiny private plots of land, 0.3 percent of the former Soviet Union’s total arable land, provided more than 30 percent of its vegetables, meat, and poultry. Nevertheless, even today, communists and nationalists oppose private ownership of agricultural land and compare trade or lease in farmland to "leasing your mother or your sister," as the Slavophile Nobel prize winning writer Alexander Solzhenitsyn once put it. Ironically, Solzhenitsyn is the most famous admirer of Stolypin and his reforms.

Russia’s politicians are already preparing the groundwork for a law that will regulate the buying and selling of agricultural land. The government is expected to submit the bill on farmland to parliament soon. As currently envisaged, the federal law on farmland would leave regional governors to deal with the farmland issue. The governors of southern Russian regions, the country’s main crop farming area, have already said that they will not allow private ownership, while the governors of northern regions are more open to privatization.

Many agricultural companies that control former Soviet-era collective farms—which in many ways still function just as they did in Soviet times—are ready to support agricultural land reform, as this might give them access to additional financing by mortgaging the land. Because of the absence of a sufficient legal infrastructure, since 1991 only 260,000 individuals have ventured into private farming.

With Russia seriously considering entering the World Trade Organization, deep reform of the agriculture sector, including private ownership and markets in farmland, is becoming particularly urgent and necessary.