When informal land is valued, transferred, or titled, it comes with many opportunities, but also great risks. James Kavanagh on beneficial standards and governance approaches.
An estimated 70 per cent of people in the developing world live on land for which they have no formal land rights. This can result from the urbanisation of refugee camps, slums or the non-recognition of customary or tribal land rights. While informal land markets develop, the lack of tenure security can lead to serious problems around social and economic instability.
The formalisation of land and property rights is intended to counteract these problems. It usually involves the valuation, recognition of legitimate ownership, and the titling of land. However, conventional national-agency-led land formalisation initiatives can be monolithic, time-consuming, and expensive. Perhaps the time has come to embrace a more localised format for achieving the primary goals of formalisation: tenure security, attribution of value, appropriately functioning land markets and taxation systems, and basic land-based revenue generation.
Informal Land Markets Work, But Carry Risks
When I was a young land surveyor working for the United Nations Relief and Works Agency (UNRWA) in the Palestinian Occupied Territories, I was tasked with mapping and evaluating the urbanised UN Palestinian refugee camps. I worked with a team of local surveyors and their knowledge was invaluable. The camps of Gaza may have been initially set up on a rigid grid basis but as they evolved and grew, a thriving informal land market also took shape. Families grew, people needed space or wanted to be closer to amenities, loans were arranged, and a thriving unregistered and informal land market emerged. This is basic human nature – land markets have always developed without the need for formal government approval, in many cases quite the opposite.
Research on the valuation of unregistered land has shown that, even without the formalisation of land, assets are valued and land markets function, albeit inefficiently. However, informality comes with the inherent risk of a perceived lack of tenure security. This can lead to problems such as high lending rates and skewed banking systems, the lack of access to secured lending, the need for continued occupation, low tax revenue and the maintenance of a power imbalance between local elites and others. Accordingly, a waspish local dignitary once said to me: “Better to have an informal population rely on your favour than a formalised population that holds you accountable”.
The Valuation of Unregistered Land
Many land acquisition disputes are directly connected to land informality. For example, about two-thirds of pending cases in India’s courts are land-related which affects 7.3 million people and threatens more than 200 billion US Dollars in investments. In China, land expropriation conflict endangers the stability of society; and an estimated 10 million people are displaced by development projects every year.
Valuation of unregistered land and property is a key element of a formalised land administration system, as it can be done without a full title registration. A valuation is an estimate of the value of land rights and can kickstart all kinds of benefits – from localised taxation and service provision to helping the locals understand the intrinsic value of their assets and even provide admissible evidence in court during disputes. Usually, it is a financial estimate of the transfer price or market value of land rights. Valuations are often required when land rights are being transferred, expropriated, provide security for a loan or form the basis of assessment for land taxes.
Land rights may also embody multiple forms of value. They may have a market value of their economic capital, and a non-market value of their natural capital and socio-cultural capital. Natural capital may relate to forests or rivers, for example, whilst socio-cultural capital may be invested in anything from sacred or ceremonial sites to places of cultural heritage and significance. The development of the UN Global Land Tool Network (GLTN) manual has opened a very important debate within the valuation profession on how we start to understand and include non-market values as accountable assets to help create a more holistic and inclusive view of the true value of an asset.
Reducing Risks in Land Transfer
Land transfer, acquisition, and fair compensation is indeed an emotive and difficult process. Most countries have “acquisition” legislation on their statute books. Its appropriate use in practice can be quite another thing. Therefore, a strong framework for the development of standards, such as the International Land Measurement Standard (ILMS), is necessary.
The ILMS has been developed by the Royal Institution of Chartered Surveyors (RICS) and a global coalition of surveying sector professional bodies. It outlines eight minimum requirements for enabling due diligence processes and reducing risk in land transfer. This can help to simplify requirements in a data-rich environment as well as establish a benchmark for basic needs in a data-poor environment. The coalition advocates that the adoption of ILMS promotes better land governance, robust conveyancing, secure lending, and land registration. ILMS wants to engender behavioural change in markets and is linked directly to the UN Sustainable Development Goals.
Localised Revenue Generation by ILMS and Valuation
ILMS and valuation also have a direct bearing on land and property taxation as well as revenue generation. When we look at land-based financing and Own Source Revenue (OSR), we see the impact of unregistered land valuation and informal markets on localised revenue generation.
The African Property Tax Initiative (APTI) highlights that in developed countries, property taxes are the mainstay of local funding, accounting for 2.2 per cent of the gross domestic product, while it averages only 0.38 per cent in Africa. Localised tax initiatives can result in improved tenure security based on local knowledge, service provision, and a more equitable governance framework. This can be structural and capacity related but also deliberate as “vested interests” seek to avoid taxation, fiscal decentralisation and to maintain a dysfunctional and inefficient system. In some studies, the majority of land tax arrears are owned by large landowners. Sometimes systems are deliberately dysfunctional to benefit a few, and breaking through that governance issue is more difficult than proposing technological fixes and other solutions.
A recent World Bank publication on land and property taxation is an important milestone in better understanding this critical issue. Land formalisation, tenure security, valuation, appropriate taxation, and service delivery are intrinsically linked and interdependent. Large scale land formalisation projects can be the enemy of localised fiscal capacity, starving local authorities of funds and entrenching power. They can work on a national level but work much better at a more localised or city-based level.
Yes, the land titling and formalisation industry has had some success but more often than not they fail to achieve their lofty goals. With a localised and improved governance approach, however, that combines local knowledge and political will, these goals can be achieved.
Or, as my old Palestinian colleagues would have said: “The best way to eat Maqluba is one bite at a time”.