Dept. of Real Estate & Construction School of the Built Environment Measures to Enhance Trust in Land Administration Systems and Engender their Proper.

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Measures to Enhance Trust in Land Administration Systems and

Engender their Proper Use 

Richard Grover

Oxford Brookes University

United Kingdom

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 rightsRecording and regulating land useRecording and taxing land values

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

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

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:ExternalitiesCommon property resourcesMonopolyPublic goods

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

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

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)

Operation inefficiency

• Externalities

• Common property resources

• Monopoly

• Public goods

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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”

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

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

The New ForestHampshire

England

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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

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

Protection of property rights as a public 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

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, administrativeCorruption eg bribery, embezzlement, theft, fraud,

extortion, nepotism, misconductState capture – the powers of the state and the LAS

used to further the interests of a group, tribe, clan or family

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

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