Measures to Enhance Trust in Land Administration Systems and Engender their Proper Use

1. Measures to Enhance Trust in Land Administration Systems and Engender their Proper Use Richard Grover Oxford Brookes University United Kingdom School of the Built Environment

2. What do Land Administration Systems do? • Since demise of centrally planned economies, primary function is not to administer or manage land • LAS are facilitators and enablers of efficient land management • Role of LAS to ensure that fair, efficient and orderly property markets exist • Means to the end include: • Recording information about tenure and land rights • Recording and regulating land use • Recording and taxing land values

3. Core function of LAS To provide an orderly market in which real property rights can be traded efficiently so that assets pass to those able to make best use of them Results include: • Freeing up of capital contained in real estate assets through mortgages and secured debt • Providing access to real estate assets through lease markets to minimise up-front costs • Those making poor use of real estate assets either selling or leasing them to those able to make better use

4. The core function of LAS implies: • That markets are a more efficient means of allocating resources than the alternatives • BUT that real estate markets have tendency towards market failure and inefficiency • THEREFORE that real estate markets require the intervention of a regulatory body

5. Sources of inefficiency in real estate markets • Informational inefficiency – market participants not fully informed about prices and characteristics of real estate assets • Allocative and operation inefficiency due to: • Externalities • Common property resources • Monopoly • Public goods

6. Informational efficiency of land and property markets • Efficient market is one in which prices fully reflect information • Random movement of prices when new information becomes available • Fama (1970) classification of markets according to information reflected in price: weak (historic data); semi-strong (public information); strong (inside information) • Role of valuers as conduit of information • Some studies confirm weak and semi-strong forms in property market but critics argue basis is not proven • Wide variability in informational efficiency between countries eg Jones Lang LaSalle Real Estate Transparency Index

7. Role of LAS to improve informational efficiency in real estate markets • Scattered trading rather than in a central market place • Cultural of secrecy and confidentially in transactions • LAS can improve market information and transparency eg: • Opening up land registers • Publishing property price data from land registries • Publishing evidence of market values collected by government valuers • Publishing property tax assessments • Using transparent tax and compulsory purchase valuation methodologies • Making freely available laws, rules and regulations • Making freely available public policies and decisions • Supporting private initiatives to improve market transparency

8. Market transparency – a human rights dimension • Universal Declaration of Human Rights requirements on information: • Right to seek, receive and impart information and ideas (article 19) • Right of peaceful assembly and association (article 20) • Freedom of thought (article 18) • Universal Declaration of Human Rights requirements on protection of property rights: • Equal protection of law for individuals (article 7) • Right to effective remedy through courts for violation of rights (article 8) • Determination of rights and obligations by fair hearing in public before competent, independent and impartial tribunal (article 17)

9. Operation inefficiency • Externalities • Common property resources • Monopoly • Public goods School of the Built Environment

10. Externalities • Costs or benefits to third party from a legitimate activity – go beyond the repercussions of legitimate competition • No individual’s welfare just the result of his own actions • Intervention of LAS where externalities cannot be internalised: • Too many interested parties for negotiations to be practicable • High transactions costs • Equity issues in outcome • “Buy-in-him” does not produce same result as “let-him-buy-his-way-out”

11. Tools available to LAS to secure internalisation of externalities include: • Spatial planning and zoning controls • Subsidies and taxes • Planning gain and infrastructure contributions by developers • Compulsory purchase powers

12. Common property resources • Not privately owned so no access fee – a free good • No-one has incentive or power to protect them • Damage likely from excess consumption • Role of LAS is regulating access • But LAS could be a “club” managing common property resources for a group with a defined membership

13. The New ForestHampshireEngland School of the Built Environment

14. School of the Built Environment

15. Monopoly • Location can give firm a degree of monopoly power • Firms can exploit barriers to entry from location: • Acquiring sites from which rivals could operate • Land banking of alternative development sites • Restrictive covenants to prevent rivals from using sites • Restrictive agreements with landlords • LAS drawn into competition policy eg which sites firms should be compelled to dispose of

16. Land purchased but not yet developed by the four largest supermarket groups in the UK Source: Office of Fair Trading (2006) The Grocery Market, p62

17. Protection of property rights as apublic good • If provided for one then provided for all • Public agencies can recoup costs through taxation or compulsory charges – no free riders • LAS protection of property rights more efficient than private protection • Allows development of asset-backed loans and securities • Evidence of increased land values, better access to credit, increased investment and improvements in labour productivity

18. Governance in land administration • LAS can only perform functions if there is good governance in land administration • Weak governance can be the result of • Lack of technical capacity – human, capital, financial, administrative • Corruption eg bribery, embezzlement, theft, fraud, extortion, nepotism, misconduct • State capture – the powers of the state and the LAS used to further the interests of a group, tribe, clan or family

19. How LAS can be improved • Setting service standards • Improving systems and processes • Building capacity • Securing finance • Developing a human resources policy • Establishing independent auditing • More effective use of information technology and communications • Use of professional bodies • Democratising of customary institutions

20. Conclusions • LAS do not have to manage or administer land – best left to market forces • Land and property market have features that make them prone to inefficiency • Role of LAS to regulate land markets and improve the efficiency with which they function • LAS cannot do this effectively if they lack technical capacity • LAS cannot do this effectively if riddled with corruption or captured by sectional interests • Human rights element to good governance in land administration – freedom of information, assembly and association and rule of law in determining property rights