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State burdened by junk real estate

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PHOTO: Tiit Loim / Valgamaalane

The year started with bad news for the finance ministry: a Finnish developer gave the state two apartment buildings in Lääne County, while the town of Kohtla-Järve contributed another 30 apartments. While owning real estate is usually a good thing, the state is left with property that is worth little and the expenses of which previous owners no longer want to shoulder.

“People die, successors renounce apartments that go to local governments, said aid to Kohtla-Järve mayor, Tiit Lillemets.

Apartments handed over to the state are individual properties scattered between different boroughs (Sompa, Oru, Ahtme, Kohtla-Järve). Their upkeep was costing the city more than €45,000 annually. “That is money the city could use to get something done,” the aid said.

The city solved its junk real estate problem by giving it to the state. “It is not a clever plan; it is a possibility offered by the law. Why not, if the law allows it,” Lillemets said. He added that in the past unwanted real estate has been given to the state by individuals. “No local government has thought of it.”

Lillemets could not say how many other worthless apartments, and when, the emptying mining town plans to hand over to the central government. That is up to the city council.

The official said the state can do nothing to refuse worthless real estate. “We'll see what they can come up with if they want to amend the law of property act,” the city official said. He added that the simplest solution for the government would be to saddle its local counterparts with the problem of junk property.

A simple notarial transaction

Adviser at the state property department of the Ministry of Finance Veronika Ilsjan said that transfer of junk real estate is simple. The transferor of the apartment formalizes the transaction with a notary  without having to ask the state's permission, a corresponding entry will be added to the land register, and the government becomes the owner and is obligated to pay the property's bills. “The ministry has no legal basis for contesting transfers,” Ilsjan said.

If until recently the ministry handed individual pieces of real estate over to state manager RKAS, the practice has been abandoned by now as the problem has turned out to be more serious than anticipated.

“Giving apartment to RKAS comes with additional expenses, like expert assessments, auditors' and notarial fees etc. The cost of the transfer often exceeds the value of apartments. A lot of apartments have been transferred with a value of €1 because they were in serious disrepair,” Ilsjan said.

Head of the ministry's planning department Tiit Oidjärv said that there is reason to believe the problem will become worse as Statistics Estonia forecasts continued population decrease, with some counties set to lose a fifth of residents in the next few decades. “Even if Estonia's migration balance becomes permanently positive, urbanization will very likely continue in Estonia, just as it will elsewhere in Europe, which means residential space in rural areas will increasingly be left empty,” the official said.

The ministry believes that local governments are most capable when it comes to tackling the problem of junk property, with help from the government.

Amending the law of property act so that private property would be transferred to local governments instead of the state is currently being considered. Local governments have been opposed to the change so far.

The ministry also wants to amend the immovables expropriation act by allowing the process only in cases where apartments are located in habitable buildings and it proves impossible to contact owners.

The state wants to demolish

The ministry asks local governments not to follow Kohtla-Järve's example in transferring real estate to the state. “Transfer [of apartments] will not solve the problem, while it makes it costlier for the state to manage property,” Oidjärv said. The ministry suggests local governments emulate the town of Valga that is tearing down empty buildings and moving remaining residents into a single one.

Lillemets said that the ministry's recommendation to demolish empty buildings is not suitable for the city. “It is something that could be considered in a situation where the building is empty, or where you have people living in two or three apartments. However, what to do if you have two empty flats in a building that has a total of 30 apartments?”

Lillemets added that people do not want to leave apartments they've privatized. “It would be necessary to compensate people were we to do it (move people – ed.) forcibly,” the official said.

The empty apartments problem is not going anywhere for Kohtla-Järve as the town's population is aging and young people are moving away.

The problem will only become worse for the state as apartment associations have also discovered it is possible to get rid of bothersome apartments easily. Põhjarannik wrote that an apartment association in Kohtla-Järve transferred an apartment in very poor condition to the state on March 2. The same association is planning to hand over another flat before the month is out.

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