- Introducing time limits that are complied with
- Setting low fixed fees
- Streamlining procedures
- Using electronic services (information and communication technology)
Property registries around the world confer different legal effect on the information they record. Not all offer conclusive information on property ownership. Some simply keep a record of property transactions—that is, they record the transfer of deeds. One example is the Registry of Deeds and Documents in the Bahamas. Others record the changes in the holders of property rights that occur as a result of the deeds presented to the registry—that is, they record the changes in holders of rights or title. An example is the land registry in Spain. And some, such as that in Ghana, include both a deed and a title system (1).
Title systems usually provide conclusive evidence about who holds the rights in a given property. The rights registered are opposable to third parties and in some cases cannot be voided or annulled. To know who the rightful owner of the property is and whether anyone else has rights over it, the buyer need only to consult the property information at the land registry (2).
Deed systems, by contrast, do not provide conclusive proof of who owns property. Deed systems record property transfers, but the fact that a transfer is registered does not necessarily mean that it was valid. Because the last registered owner could be holding a title that is not valid, a buyer will usually hire a lawyer to determine the “good root” of the title he or she is buying. To establish this in The Bahamas, lawyers conduct searches on the title to the property at the Registry of Deeds and Documents—but also at the courts and at the company registry—to check whether the companies that previously owned the property owned it lawfully and transmitted their property rights lawfully. These searches add B$300 and 45 days to the purchaser’s due diligence.
To increase the security of property transactions— and save purchasers “the trouble and expense of going behind the Register to investigate the history of the vendor’s title and to satisfy themselves of its validity” (3) —Sri Lanka decided to transition from a deed to a title system. Since making such transitions is not easy, some economies prefer to keep a deed system while improving the conclusiveness of the records held in the registry. This too increases the security of property transactions. Argentina, which has always had a deed system, qualifies it with a 20-year statute of limitations. This means that lawyers have to go back only 20 years in checking the good root of a title. In other economies with a deed system, buyers can purchase title insurance to increase the security of property transactions. This is the case in the United States. If an acquired title has defects, title insurance can compensate for any financial loss incurred by the buyer.
At the end of the day all systems are trying to do the same thing: maintain an up-to-date database of rights in property. And deed and title systems can be equally efficient (4). Comparison of property registration systems—based solely on the procedures, time and cost to transfer and register property as measured by Doing Business—suggests a number of common good practices.
INTRODUCING TIME LIMITS AND COMPLIANCE
Time limits give citizens a reference for how much time a procedure will take at most. If the procedure is not completed within that time limit, they know they need to follow up.
In the past 10 years 22 economies introduced time limits. But time limits work only when the agency has the capacity to comply with them. In most economies time limits therefore supported broader changes. Ten economies— including the Russian Federation, Bosnia and Herzegovina, Burundi, Cyprus, Czech Republic, Israel, Italy, Mauritius, Ukraine, and Poland —introduced time limits while at the same time streamlining procedures through computerization and reorganization. In the Russian Federation the creation of a unified electronic land and property database eliminated the need for applicants to visit the Bureau of Technical Inventory offices and obtain cadastral passports. This reform reduced the time to transfer property by up to 22 days.
SETTING LOW FIXED FEES
Property transfer taxes are an important source of revenue for many governments. But when transfer fees and taxes are too burdensome, even registered property might quickly become informal if subsequent transactions are not registered. This not only weakens the protection of property rights. It also reduces potential revenue from property taxes.
Over the past 10 years 52 economies lowered transfer taxes and other government fees. Twenty eight of them are in Sub-Saharan Africa, where costs have been the highest. For example, Guinea decreased the transfer tax from 10% to 5% of the property value. Senegal lowered the transfer tax from 15% to 5%. The Bahamas reduced the stamp duty from 12% of the property value to 2.5%. Chad cut the property transfer tax from 15% to 10%. Côte d’Ivoire lowered the transfer tax from 10% to 4%. Malawi reduced the stamp duty from 3% to 1.5%. Niger cut the transfer tax from 5% to 3%. Last but not least, the United Arab Emirates reduced the transfer fee from 2% of the purchase value to 10 U.A.E. dirhams for each square meter of land, with a minimum fee of 10,000 U.A.E. dirhams.
In many economies property registration fees or transfer taxes represent only part of the total cost. Additional fees and duties apply throughout the process. Even where these additional fees add little to overall revenue, they may increase red tape for entrepreneurs if the process for paying them is unnecessarily cumbersome. Armenia and Burkina Faso simplified the process by making it possible to pay several fees at a single location. Others eliminated these additional fees altogether. Madagascar, Mauritius, Rwanda and the Slovak Republic all did so since 2006, reducing the transfer cost by an average of 4.5% of the property value.
Making cost of the property transfer neutral to the value of the property helps to increase the transparency of the real estate market. Ten economies across the world set up fixed fees for the transfer of a property. These usually include either fees for the notary service, the registration of a property transfer or an access to the public databases for encumbrances. Georgia, Slovak Republic, Palau and Rwanda are countries that fixed fees for every step of the property transfer process.
Fifty economies streamlined procedures and linked or improved agencies’ systems to simplify property registration in the past 10 years. These measures reduced interactions between entrepreneurs and agencies—saving between 1 and 2 procedures on average—while maintaining security and controls. For example, Kosovo and Montenegro introduced new notary systems and combined procedures for drafting and legalizing sale and purchase agreements, while Rwanda cut two procedures by eliminating the property valuation requirement for tax purposes.
In 2010/16, Eastern Europe and Central Asia, exhibited 27 such property reforms. In 2012/13 Ukraine introduced a new system of registration of property rights and encumbrances over real property. The system requires sellers to re-register titles before transferring them to buyers.
One-stop shops are an efficient way to minimize interactions between agencies and entrepreneurs. Burundi and Ghana did this to simplify the process of registering property. But not all economies can afford to bring all agencies involved in property transfer under one roof. Even so, many have been able to coordinate the functions or records of at least 2 institutions involved in the property transfer process. In most cases this coordination has linked the land registry to the tax agency or valuation agency. One way to do this is to have a representative of one of the institutions present at the other—as in Ethiopia. Another is to link agencies electronically—as in Denmark, Latvia, Lithuania, Peru and Portugal. In Latvia the land registry gained electronic access to municipal tax information on real estate. That freed entrepreneurs from having to provide this information in a paper format.
Some economies streamlined procedures by eliminating the requirement to obtain the municipality’s approval for property transfers. Recently, Lesotho eliminated the ministerial approval for property transfers and recruited new staff at the registry. Belarus, Sweden and Uruguay have also done so in previous cycles. Rather than requiring a certificate for every transaction, the municipality instead checks a list of the properties subject to preemption rights and contacts only the parties concerned (5). This makes sense. In economies that require waivers of preemption rights, the number of buildings affected is usually small compared with the total number of transfers. Only 4 economies worldwide—France, Germany, Latvia and Senegal—still require waivers of preemption rights for every transaction.
USING ELECTRONIC SERVICES (INFORMATION AND COMMUNICATION TECHNOLOGY)
In 61% of economies the property registries have electronic files (6). Digital records have advantages over paper records. They take less space, and backup copies ensure that property records will not be compromised in the event of natural disasters or civil wars. Electronic systems also make errors and overlapping titles easier to spot. But this does not mean that paper registries cannot be efficient. Thailand had a very efficient manual system before going electronic. And having digital records is no assurance that an economy has a good system in place to manage this information.
Still, transferring property takes about half as much time in economies with computerized registries as in those without them. All 32 OECD high-income economies have electronic registries. Eleven, including Denmark, the Netherlands and New Zealand, offer electronic registration. In South Asia and Sub-Saharan Africa, by contrast, 71.4% of economies still have paper-based systems. It is no surprise that OECD high-income economies have the fastest property registration, taking 22 days on average.
Fifty one economies as diverse as Mauritius, Netherlands, Sierra Leone, Portugal, Samoa and Swaziland computerized their registries in the past 10 years. In 2013 Liberia stopped writing deeds by hand and computerized its land registry – reducing the time to transfer property by 6 days. In Bosnia and Herzegovina the registry has been able to register 33% more title transfers following computerization, and in 2012, computerization allowed Bosnia and Herzegovina to cut registration time by 8 days. Angola, Portugal, and West Bank and Gaza are others that have started to reap the benefits of years of computerization efforts at their registries.
Computerized systems at the cadastre or registry can make access to information easier and eventually allow information to become available online. Among the 200 economies with a cadastre or survey, 63 make their information available online. In 2013 Singapore introduced an online fast-track registration process for single transfers, enabling property transfers to be completed in 1 day. In 2011, Costa Rica made cadastral and property certificates available online to all users on a single website. This reform merged previously independent procedures into one website.
Fully implementing computerization and electronic filing takes decades, and the cost can reach millions of dollars, depending on the amount of surveying and cadastre work involved. So it is no surprise that many economies seek the financial and technical support of donor institutions. International organizations such as the World Bank and the Organization of American States have been engaged in land administration projects involving the digitization of records (7). So have national aid agencies, including those of Australia, Finland, Germany, the Netherlands, Spain and the United States.
Given the challenge (and the opportunities) of going electronic, many economies take a gradual approach to implementation—first moving from paper-based to electronic records and computerization, then introducing electronic registration. This was the approach used in Denmark, New Zealand and Norway, which today have among the most efficient property registration systems in the world.
In 2009 the Danish government began modernizing its land registry by digitizing and automating property registration. Processes had to be streamlined and reorganized. The centralized land registry initiated its computerization and records were progressively digitized. Once digitization was complete, the land registry introduced electronic lodgment of property transfers. By 2011 property transfer applications were only accepted online and the information technology system started screening applications in a fast and efficient way. As a result, over a period of 5 years the time to transfer a property was slashed from 42 days to 4 days.
New Zealand digitized its property records between 1997 and 2002. Then it introduced electronic registration. But by 2005 only about half of property transactions were being submitted electronically. A final push was needed. In 2008 the law made electronic registration mandatory. Registration can now be completed in just 2 steps, at a cost of 0.1% of the property value.
In Norway in 1995 the registry’s paper records required 30 kilometers of shelving, and storage needs were growing by 1 kilometer a year. Following the merger of the land department and survey information, title certificates were digitized between 1997 and 2002. The next step was taken in 2002, when the 50-year-old Land Transfer Act was amended to allow online titling. Online registration has been required by law since 2008.
1. Property in Ghana falls under either the title or the deed system, depending on where it is located. This is as a result of the phased introduction of the Land Title Registration Law of 1986, which introduced the title system in Ghana. The capital city of Accra falls under the title system.
2. The title systems offering the strongest conclusive evidence are those that do not allow any kind of legal claim against the registered rights (that is, the registered rights are absolutely indefeasible). Other title systems are less absolute in the indefeasibility of the registered rights and allow claims in exceptional circumstances (for example, in the case of a registration that occurred on the basis of a property sale-purchase agreement that is declared null and void after registration took place).
3. Lord Watson, in Gibbs v. Messer (1891), as quoted in O’Connor (2009, p. 201).
4. Whether an economy has a title or a deed system has no influence on its ranking on the ease of registering property. There is no statistically significant difference in how economies rank based solely on their choice of registration system.
5. Preemption rights in this case are the municipality’s rights to acquire the property, in preference to any other buyer, when the owner decides to sell it.
6. Doing Business database.
7. For a concise and thorough overview of World Bank support for land administration and management projects, see Bell (2009).