Improving Nigeria’s Land Markets: Recommendations From the FIAS Assessment

1. Improving Nigeria’s Land Markets: Recommendations From the FIAS Assessment Stephen B. Butler NORC at the University of Chicago FIAS/IFC Land Policy Advisor World Bank Conference on Land Management for the Millennium Development Goals Washington, DC March 9-10, 2009

2. Land and the MDGs? Access to Land Business Start Up and Investment Employment = =

3. Current Policies • Unfocused land grants and land subsidies • Non-transparent budgetary expenditures for state land programs • Very high taxes/fees on land transactions • Complex, time consuming and burdensome land transaction procedures • Complex procedures and high thresholds for creating legal titles

4. Current Outcomes A room at the Airport Sheraton in Lagos costs over $600 per night! That’s right … theSheraton! • Scarcity • Rapidly Increasing Prices • Speculation (mostly by elites) • Underutilization • Inefficient Market Mechanisms • Non-transparent (political) allocation of state lands • Informality

5. Land Allocation • Incorrect pricing and subsidies can lead to wasteful land use and speculation – including government speculation • The dilemma of underutilized land grants • Need to increase the costs of acquiring and holding vacant or underutilized land

6. Land Allocation cont’d • Market pricing and cost recovery – target land subsidies to specific groups and needs • Budget transparency for land programs – how much do they cost and who benefits? • Increase use of auctions • Eliminate “retail” land allocation programs – rely on concessions and public private partnerships that place more burden on the private sector to serve the poor • Enforce development covenants - prevent flipping or establish ridiculously high “flip” taxes

7. Simplifying Transactions • Governor’s approvals – an extreme result of nationalization • Widespread agreement that they have outlived their purpose – e.g. see Central Bank action plan • Best solution – eliminate; Second best - phase out over time • Problem: Widespread corruption and fraudulent land transactions – is state supervision of all land transactions the best approach to this problem? • Place more reliance on private sector professions

8. Simplifying Transactions cont’d • Eliminate mortgage approvals – banks have incentive to assure compliance - President recently called for abolition for mortgages and subleases • Free up state resources for other tasks • Reduce transaction costs and accelerate loan disbursements

9. Simplifying Transactions cont’d. • Eliminate or accelerate approvals of solicitor assisted purchase/sale transactions • Rely on self-regulating incentives for professionals • Establish appropriate sanctions for violations

10. Reducing Transaction Costs • High transaction costs encourage informality in a system in which there are no consequences for informality • Informality may (or may not) result in keeping land out of the market for business use • Charges imposed on transactions are easily avoided and avoidance is widespread today • Land transfer charges make up a surprisingly small portion of local budgets (mostly because of avoidance) – why not just lower them? • Long term: greater reliance on recurring land and real property taxes – supports formality and hard to avoid

11. Reducing Transaction Costs cont’d. • Reduce land transfer fee – at 8% to 30% on average (depending on state) too high by international comparisons • Alternative: Impose transfer fees on progressive scale, relieving burden on lower end of the market • Reduce registration fees (2 to 3% of transaction value) – registration fees should be based on sustainability, not profit, and registration fees should not be a hidden tax • Reduction of fees and taxes can result in capture of more transactions and higher revenues – See, e.g., Egypt 2006-07