300 34142 privatesector P U B L I C P O L I C Y F O R T H E NUMBER NOTE 2005 Land Markets OCTOBER Russell Muir and Promoting the Private Sector by Improving Access to Land Xiaofang Shen Land markets that allow access to land--and to buildings--through Russell Muir secure property rights, at transparent prices, and with efficient (rmuir@ifc.org) is a lead economist at the Foreign permitting processes and land tax systems are essential to a good Investment Advisory business environment. Creating such markets, however, can be a long, Service (FIAS), a joint facility of the World Bank complex, politically charged process, especially where most land is and International PRESIDENCY untitled and where there are conflicting claims. But experience points to Finance Corporation that practical interim or step solutions that can have a positive impact and VICE helps governments improve their country's generate the political capital to reform the overall land market system. investment climate. Xiaofang Shen Business surveys identify problems in gaining (xshen@ifc.org) is a Survey respondents identifying procedures access to land as among the biggest complaints DEVELOPMENT senior investment policy for accessing land as an obstacle to of investors in developing countries (figure 1). Figure operating and expanding their business officer at FIAS. 1 A detailed study in India shows that such prob- Percent SECTOR lems, by constraining investment and competi- 0 25 50 75 100 tion, can cost developing countries more than Russian Federation 1 percentage point of GDP growth annually Venezuela, RB PRIVATE (McKinsey Global Institute 2001). Studies of Albania Senegal titling programs in Peru, Thailand, and Viet- Cape Verde nam show big increases in investment and pro- Ghana ductivity on titled land compared with land GROUP Yugoslavia, Fed. Rep. without title (World Bank 2004b). Bulgaria While investors seeking land have varying Kazakhstan BANK needs and priorities, they generally face four Macedonia, FYR key and related issues (table 1): Armenia s Access. Is the land I need available? If so, from Uganda whom can I obtain the land, at what price, Burkina Faso WORLD and on what terms? How long will it take? s Security. If I can get access to suitable land, Source: World Bank and International Finance Corporation, Foreign Investment Advisory Service, Administrative and Regulatory Cost Surveys, 2000­04. THE what will be my rights over the land? Will my L A N D M A R K E T S P R O M O T I N G T H E P R I V A T E S E C T O R B Y I M P R O V I N G A C C E S S T O L A N D property rights be secure? Will I be able to and involves 11 key documents, 4 issuing author- use them as security for bank loans? ities, and 7 approving authorities. s Use. Once I have acquired land, how may I use and develop it? How long will it take to Access to tribal and communally owned land obtain all the permits for construction and In many countries in Africa, the Pacific, and the related activities--and how much will it cost? Middle East much of the land needed for devel- s Consistency of treatment. Are my competitors oping mining, tourism, or agribusiness is tribally being treated in the same way? or communally owned and thus not easily avail- able to investors. Where investors must negoti- 2 Most critical issues for investors ate for such land, it is often unclear which legal Of the many issues, the following are the most entity or group has ownership. serious. Where transparency is lacking, local politics tend to further complicate the transactions, Access to state-owned land making the negotiation process long, cumber- In many countries the state prohibits direct pri- some, and frequently corrupt. But quick ad hoc vate ownership of land and often remains the fixes often fail. In Mozambique the government largest--and sometimes the only--provider of rushed to accommodate a large strategic foreign land well served by essential infrastructure. Even investor by setting an unrealistic 90-day deadline where private ownership is traditionally recog- for completing all arrangements with the local nized, such as in Botswana, Jordan, or Turkey, communities. And in China the government has only a small fraction of the land suitable for new sometimes forced rural communities to relocate industrial and commercial development is pri- to free up land for foreign investment. Such vately owned. And many countries impose spe- strategies often backfire as relocated farmers cial restrictions on foreign ownership. move back to squat on the land and conflicts Where the state dominates land supplies, erupt between communities and investors. both foreign and domestic investors are con- cerned about how to obtain land at a fair price, Property rights in a reasonable time, and through a transparent Access to land without sufficient security is of lit- and corruption-free process. Gaining access to tle use to investors, who need secured long- government-owned land in the Russian oblast of term property rights as collateral for obtaining Nizhny Novgorod, for example, takes 273 days bank financing. Moreover, investors who have Table Land issues concerning investors and factors determining the outcomes 1 Issue Factors determining outcomes Access: Is land available, and at what price? · State ownership of land · Tribal or communal ownership of land · Ownership or use restrictions · Zoning and planning requirements · Property tax Security: What are my rights? Are my property rights secure? · Titling system · Registration process · Collateral rules · Transfer of property rights · Courts Use: How can I use and develop land? · Location permits · Construction and building permits · Environmental impact assessment · Utility connections Consistency of treatment: Are my competitors treated like me? · Governance · Transparency · Accountability no assurance that they will benefit from the Solutions added value brought by long-term investments The huge variation among countries in size, on land will have no incentives to make such geography, and political and social systems rules investments. out any universal approach to land reform that Land property rights remain poorly defined in can be simply transplanted from one country many developing and transition economies. This to another. Moreover, comprehensive land re- situation often stems from lack of developed land forms, requiring enormous resources, political cadastres--the systems that record physical char- capital, and legislative effort, typically take 10­15 acteristics and identify boundaries--and of regis- years. Countries seeking to encourage private 3 tration systems that record legal ownership of investment cannot afford to wait that long, and land. Another source is failure to unify these sys- many are looking for practical interim solutions. tems, which results in conflicting records. These Some have carried out pilot experiments at the problems are sometimes exacerbated by the subnational level. This approach has often transfer of responsibility for registration systems proved to be a useful way to kick-start private from central to subnational authorities. investment while providing learning and In a situation typical of much of Africa, less demonstration effects for national initiatives. than 4 percent of the land in Mozambique has been surveyed, and even less registered. Even Developing a market-oriented long-term where property is registered, investors may still lease system face big delays in recording land transactions. In some countries where privatizing land has In Nigeria an entrepreneur seeking to buy prop- not been politically acceptable, governments erty free of dispute and officially recorded must have turned to long-term leases to meet complete 21 procedures--a process that takes a investors' basic needs. China's government staggering 274 days and requires official fees offers renewable and transferable long-term amounting to 27 percent of the property value. It leases of 40­70 years. Such arrangements need not be so. In Norway the same process takes appear to give foreign investors the assurance only a day and requires payment only of a regis- they need to make strategic investments on the tration fee and 2.5 percent of the property value land. Long-term leases have also provided a par- in stamp duty (World Bank 2004a, figure 5.3). tial solution to problems in accessing communal land in Botswana and Mozambique. Land development procedures Most investors are prepared to comply with host Streamlining access countries' laws and regulations governing what, In countries where the state plays an important how, and how fast they can build. Nevertheless, role in allocating land, whether through sales or investors are frustrated by lack of regulatory clar- long-term leases, many governments have rec- ity, overlapping institutions, and time-consuming ognized the need to streamline the process to and often discretionary approval procedures encourage efficiency and prevent corruption. relating to such issues as zoning, construction To facilitate tourism investment in Egypt, the standards, and environmental protection. In the government created the Red Sea Tourism Zone, Arab Republic of Egypt in the 1990s, for example, where the land was precleared for private invest- obtaining location and construction approvals ments by all government ministries concerned. could take 12­36 months in a process involving That greatly simplified the procedures for access- multiple authorities at central and local levels. ing land and immediately boosted investment. Dealing with the plethora of agencies and China's government, recognizing the need authorities responsible for approvals needed for for more transparent mechanisms to distribute site development often discourages serious public land to the private sector, conducted the investors while encouraging illegal construction country's first public land auction in 1987, in the and corruption. In Turkey corrupt and illegal Shenzhen Special Economic Zone. Developers construction practices led to massive losses of responded with bids far exceeding the govern- life when earthquakes struck cities and villages. ment's expectations. In 2002 the government L A N D M A R K E T S P R O M O T I N G T H E P R I V A T E S E C T O R B Y I M P R O V I N G A C C E S S T O L A N D amended the national land law to formally have chosen pilot approaches to simplify proce- extend the Shenzhen experiment with public dures in demarcated areas by introducing clear auctions throughout China. guidance on land development for investors Recent efforts in southern Africa, including and executing agencies. Many of these zones in Botswana, Mozambique, and South Africa, offer blanket approvals for zoning and environ- viewpoint have improved the process for accessing cus- mental requirements along with readily avail- tomary land. These efforts have shown that pos- able infrastructure. But the real solution to the itive results can be achieved if the three main problems lies in medium- to long-term reforms is an open forum to parties--local communities, strategic investors, to the land use planning processes that can be encourage dissemination of and the state--recognize that they have differ- applied nationwide--reforms that will require public policy innovations for ent interests but work toward sharing costs and strong commitment from government to bal- private sector­led and benefits in a transparent, consultative process. ance the imperative of economic growth with market-based solutions for the need to safeguard environmental and other development. The views Securing property rights socioeconomic conditions. published are those of the Many countries have recognized the importance authors and should not be of improving cadastre and property registration Conclusion attributed to the World systems to increase the security of property Land has long been a central issue in the policy Bank or any other affiliated rights. Working since the 1980s, Thailand has debate over environmental protection, natural organizations. Nor do any of developed a world-class land titling system with resource management, and rural and urban the conclusions represent two procedures and a two-day turnaround. In development. What has been missing is a sys- official policy of the World Peru efforts persisting over more than 10 years tematic exploration of the land issues from the Bank or of its Executive produced a modern titling system providing perspective of private sector development. This Directors or the countries secured property rights that the rural and urban Note suggests a taxonomy to capture the multi- they represent. poor have been able to use as collateral for busi- layered and interrelated obstacles facing private ness loans. investors seeking access to land. To order additional copies Other countries have resorted to relatively But more important, the Note gives examples contact Suzanne Smith, simple ways to improve land registration. Some of proven interim or pilot steps in land reform to managing editor, have shown that it is possible to simplify or com- reduce obstacles to investment. These approaches Room F 4K-206, bine procedures. In Bolivia and Brazil the reg- have been a useful way to kick-start private invest- The World Bank, 1818 H Street, NW, istry checks for payment of taxes rather than ment while providing learning and demonstration Washington, DC 20433. putting the onus on the entrepreneur, while in effects for national land reform initiatives. Cambodia and El Salvador the registry auto- Telephone: matically forwards the notice of registration to 001 202 458 7281 the municipality rather than adding another Fax: step to the process. In Costa Rica and Lithuania Note 001 202 522 3480 the registry and cadastre systems have been Except where otherwise specified, the detailed country Email: linked to improve consistency between the two. information in this Note comes from country advisory ssmith7@worldbank.org And in China and Mongolia broader access to work and knowledge development case studies by the previously restricted information in the prop- Foreign Investment Advisory Service. Produced by Grammarians, erty registry has helped entrepreneurs identify Inc. owners and reduced the need for due diligence. References McKinsey Global Institute. 2001. India's Growth Printed on recycled paper Streamlining use Imperative. Mumbai. Some countries have tackled the problems in World Bank. 2004a. Doing Business in 2005: Removing land development through comprehensive Obstacles to Growth. New York: Oxford University Press. reform. In Slovenia the government overhauled ------. 2004b. World Development Report 2005: A Better the land use planning and construction legisla- Investment Climate for Everyone. New York: Oxford University tion to make the national land development sys- Press. tem simple, transparent, and efficient. Other FOREIGN governments, such as in China (Shenzhen), the INVESTMENT ADVISORY Czech Republic, and India (Andhra Pradesh), SERVICE T h i s N o t e i s a v a i l a b l e o n l i n e : h t t p : / / r r u . w o r l d b a n k . o r g / P u b l i c P o l i c y J o u r n a l