Investment in Land in Developing Countries

Development is the prior factor in every country. However, at the heart of this development lies the issue of land as the backbone to a stable investment in property market held by the systems of land laws in place. In the question of real estate investments, wealth creation by the State, development, economic growth and poverty alleviation landed property laws are significant in the determination of success to all. In the developing nations, the property market is associated with high risks of investment due to the declined robust land laws to govern the whole process involved in trading in the business by external investors. Currently, in Britain alone, over 11.8 million individuals own mortgages from loans acquired worth £1.2 trillion where the returns form this investment contribute to 6% of the annual Gross Domestic Product (GDP) (Abdulai and Hammond, 2010, p 230). In developing countries, the case is entirely different when most of the residents primarily depend on land as the solely owned property. Although land accounts for about 50% to 70% of wealth and survival measures in developing countries, landed, property and security issues are the major problem in these nations. The essay depicts on the property market as backed with robust land laws about the investment risks as witnessed in developing countries.

According to Schulte et al. (2005, p101), real estate investment in developing nations has encouraged economic growth of such countries and encompassed the change in the landed laws to facilitate the external investment by foreigners in these regions. The property markets are much dependent on the security matters of the land, and thus ownership of the area underinvestment is essential when it comes to building for commercial purposes in both developed and developing countries. Developed nations such like the United Kingdom (UK) and the United States (U.S.) have had their citizen’s easier access to loans and establish mortgages in the country due to the ease within the process due to robust land law systems. Contrary to these States, developing countries more such as those in the African continent to mention of Ghana and Kenya have a complicated and tiresome process to the acquisition of mortgages from loan awards due to the weak systems aligned to land laws. For robust systems in the land laws, there must be a precise identification of the land by its rightful ownership recognised by the country’s constitution, members of the society and subject to protection in case of arising of any dispute.

Financial markets find it difficult to allocate loans to the individuals with the land title deeds in the developing nations due to the mentioned risks feared in land laws within these States. The risks mentioned above of security and legal procedural in acquiring the piece of land reduce the urge to invest in property markets in the developing and undeveloped countries. The investors fear the loss of their properties and monetary value when it comes to arise of disputes over the piece of the acquired land underinvestment (Newell, 2016, p 413). Therefore, lack of quarrels over landed property ownership as well as the reinforcement on the right ownership of the land on simple clarity basis is all parameters of robust land system viable for investment. Anticipated potential investors are not likely to invest in developing countries due to the fear of disputes and where unlikely no protection over the allegations against their ownership of such lands. Thus, as observed in the most developed countries, security of land ownership is the robust element in encouraging potential investors in any given State development activities.

Admittedly, insecurity on land systems is equally an enticement to invest in not only the developed nations but also the developing countries. According to Stokes and Blankfield (2017), the past researchers held investment in trees, buildings, irrigation furrows and other fixed structures may give a litigant in case of arising in dispute; even though insecurity is the disincentive in investment, at times, it turns to be an advantage. As the lost investment in most States including the developing countries heavily compensate their investors in land-based matters as guaranteed by the legal protection acts on land issues used in fixed investments. However, partaking visible investment on land in the developing countries may demonstrate the person’s presence as well as the occupation of the area and the property structured. The identity relates the investor with the land but cannot be assumed as the rightful owner of the property by the legal system and the community thus the risk of investment in such places. In fact, investing in the land that is not rightfully owned will itself create dispute or trigger arguments instead of eliminating the violence.

Reading through the past reports on land investments, investing in land activities do not solve the underlying disputes instead reinforce on the problem and exacerbates the situation (Kasatuka and Minnitt, 2006, p852). It is, therefore, the role of the developing States to notice that security is the role index of any investment; the countries should concentrate in cleaning up the menace embroiling the land legal systems to enforce on investments. The demonstration that land registration is the primary element in answering the issue of insecurity in landed property ownership stands obviously. Thus, efforts in securing land ownership are traditionally carried out by land registration act. However, the past research findings in developing countries demonstrate that land registration has failed to guarantee financial investors security on property markets due to dispute arise. Moreover, the reports on land security in the developing nation’s states that individuals from these countries started enjoying their privileges of land ownership before the formation of land registration act. According to other researchers depict that the previous finding may have confused in the set methodology on what exactly land security matter happens to be regarding ownership. It is evident in some studies that land registration can result in insecurity problems to some extent.

Despite the argument on investment in developing countries by the laid land system laws; the evidence based on land registration and that of ownership security are significant to the matter under study. The detailed information given to land registration in the developing nations is that it guarantees access to financial aid such as bank loans used as the collateral security in issuing the credit funds. The credited funds are most likely invested in mortgages that lead to investment, development and wealth creation by the State. Since 1975 when the World Bank recommended for the land registration and acceptance of the title deeds in loan applications, the land systems have always determined the rate of development-induced in the country over its landed property laws (Heltberg, 2002, p75). The World Bank directed the third world nations especial Africa to incorporate land registration as a model for development via foreign investment and financial assistance in use of title deeds as collateral security to access the funds. In 2000, the assertion of World Bank gained momentum when de Soto launched the first publication on book title “Dead Capital” where the author points the undercapitalised nature third world countries’ economic conditions (McAuslan, 2005). The book depicted on the increased poverty rates these countries with the non-registration of the land ownership resulting in increased underdevelopment due to the scared investors in partnering with the local parties to build up these countries.

According to the historical land ownership in the developing nations, the land in most communities is managed by the communities based on the traditional geographical measures and lack legal framework to own the area. However, such properties are termed the public land and are under the management of the government as they lack legal ownership identity thus lowering the usefulness of such assets due to fear of investing within such places by potential investors. These unregistered lands are the ones referred to as ”Dead Capital” in the book written as mentioned above. In comparison to the western countries, there is the comprehensive measure of the land systems making it robust enough for use by the residents as the countries in the region are developed (McAuslan, 2005). According to Tryckeri (2011), the World Bank in its statement in 2006 World Development Report (WDR) reinforced that land registration asserts property ownership rights and security which has the enormous benefits. Also, the World Bank concluded that insecurity of landed property or non-registration ownership is the primary cause of declined investments in the developing countries as its associated to the poor governance this inhibiting economic development in the third world nations especially Africa.

As noted in the published report on the Millennium Development Goals (MDGs), the role of the secure property was envisioned to give ownership of land property via land registration to help reduce poverty in developing countries and achieve economic development (Deininger and Feder, 2009). There is the need to the formation of International Commission on Legal Empowerment to aid in educating the individuals in the developing countries that land registration is the primary index in clearing poverty as the legal ownership will give room for investment by potential investors. In recent years, third world countries have continuously pursued land registration supposedly to guarantee the landed property security hence accessibility to foreign investment and availability of loans from the financial institutions. The move by these nations has realised an increased reduction in poverty index and massive development in industrial and infrastructural sectors as well improved living standards of the citizens in these countries more so African continent.

The other discourse of the paper sets the regional comparison of the developing nations with Ghana as an example to that of the developed countries with Britain as the representative. The study aims to depict the claim that robust land systems in-laws have relational to improved investment due to the reduce risks in the property management. To discuss these aims, the following objectives are examined this essay:

To identify and analyse the factors considered by the micro-finance institutions in lending out investment loans; and

To depict the extent to which robust land law systems determine an individual’s access to financial aid.

The model market practice always has two sides of the demand and the supply (Locke, 2013). However, the essay will depict on the demand side to demonstrate on the financial accessibility as related to land registration. Nonetheless, the rest of the discussion will hold the supply side. The methodology in the paper describes the argument that western countries are highly capitalised and developed due to high investments resulting from the comprehensive land registration system. The section on western nations will handle Britain to examine to what extent is the nation’s development related to the land registration processes in place. Lastly, the methodology will assert the results by looking at risks involved with investment bound on poor land registration systems in developing nations with Ghana as an example.

The Research Methodology

The writing adopted the qualitative research methodology. The research based on the secondary means of data collection by visiting the school library and checking through distinct books, online studies of journals and articles. The previous analysis held in Ghana by the World Bank in 2009 incorporated 18 banks randomly selected out of the 26 present banks in the country signifying a population of 69% sampled (World Bank 2017). The central bank of Ghana structured questionnaires and handed to the selected bank’s investment loan officers. An open-ended format was used in doing the survey thus allowed the respondent reply as they felt was fit. The fields covered by the questionnaire include requirements for the loan acquisition, interest rates charged by the banks on the investment project loans and the forms of land registration deed accepted by the banks for the mortgage loans. The administration of the questionnaire happened in two ways. The first means, the researcher met the respondent an explained the intentions of the survey. The questionnaire was then given to the participant to fill at their assigned time. The second means happened at the later date when the researcher met the respondent and collected the filled questionnaire.

Land Registration in Britain

As earlier on explained that property market can only be viable if supported by the robust systems of land law; it is necessary to examine the land registering systems of such developed systems found in the well-based countries of the western in particular Britain. As argued, it is less risky to invest in most developed nations that have robust land laws than investing in developing third world countries with fewer security measures on the landed property (Khanjanasthiti et al., 2017). It is, therefore, useful to carefully look at the land registration systems impounded in Britain used as the sample representation to the western and developed countries. The measure will assert the mindful argument that there is a relational balance between land registration systems and investment accorded to the nation through access to financial support. Globally, there exist two types of land ownership referred to as the deed and title land registration systems. Through the introduction of land registration from the older means used in 1086 as placed in Domesday Book; the exercise has quite improved from the intended levying program to identification and ownership rights and privileges in the contemporary days across the world.

Britain in the recent days operates under the Land Registration Act 2002 that directs for the compulsory registration exercise. However, there is still the relief for voluntary registration. The individuals under the registration enjoy the provided privileges of mortgage transactions, allocation of the freehold interest, vesting assent; more than seven-year leasehold interest and assignment of not less than seven years to run the landed property. Nevertheless, if the individual owned the unregistered land before 1990 and still holds as the owner, they are not subject to registration until the property triggers dispute (World Bank 2017). Also, the owner is free to apply for the voluntary registration before the event of disagreement happens. Britain is estimated to have about 65% of the land owned registered while the other 35% being pestered by the government to register at a discounted rate of 25% for the voluntary action taken towards registering the landed property (World Bank 2017). The mentioned analysis cuts off the assumption that the western developed nations with comprehensive land registration systems have all their landed properties registered. Britain is among the G8 most developed countries with high industrialization and massive capitalization that accounts for merely 65% of the world’s economy.

Regarding residential mortgages in the developed nations as observed in Britain practices, land registration is never the prerequisite requirement but rather a post-requirement (Marlow, 2010). The unregistered title deeds presented are acknowledged by banks for mortgage issues. With the individuals holding unregistered land, the exercise is conducted for the first time by the banks and mortgage transaction recorded as hindrance title to notify the world about the existence of the property under the registered individual. The practice, in turn, showcases that financial capability is the determinant to accessibility to the bank loans as demonstrated by the developed nations and not just dependent on the robust land system laws as expected of the developing countries. It is therefore evident by the western developed States that the land registration policies do not determine accessibility to financial funding for investment, wealth creation and nation-building.

Trailing to the investment risks on landed property in developing nations; it is necessary to understand that there exist two primary systems of land ownership namely, private and public land. The private area is held under the management of the communities in the surrounding while the public property refers to that owned by the State using various enactments. In developing countries, private land is estimated to cover 90% of the total region. Thus the private individuals are the leading suppliers of space for various functions (World Bank 2017). The process of gathering land from the private sector to the State for development purpose is quite expensive and time-consuming to allow for full compensations. The marks mentioned above some of the risks of landed property in investment by the potential investors as the government has no direct control over the land. Due to the delayed and complicated land matters in the developing countries, the nations are left struggling with poverty, poor development and less wealth creation and not necessarily caused by land system laws in registration.

Data analysis, Presentation and Discussion

Property ownership accepted by financial institutions as evidence for mortgage purposes as follows:

Physical land possession and occupation: as noted at the beginning, this form of ownership is related to any identified documentation, proof of ownership is dependent on the physical address of the property. All the respondents to the study conducted by the World Bank affirmed that the banks in the developing countries do not accept such kind of evidence as collateral to offering mortgage loans. Evidence given in explanation lacks any form of proof of ownership except the oral communication.

Land allocation note: although the notification asserts as a documentation paper, the surveyed population affirmed that banks do not accept such evidence for mortgages. The reason accorded was that the note is not legally documented.

Registered and unregistered land title deeds: in developing nations the title deeds is termed as formal property ownership identity means as compared to the two mentioned above. The responses of 16 out of the total sampled 18 representing 89% loan officers affirmed that their banks accept the documents for mortgage loan purposes. The reason for their acceptance is that the individual proofs to have the capability of paying back the loan having the property as collateral security.

Factors of access to finance in developing countries

In the concluded research by World Bank, the participants were asked to identify one determinant to consider essential in awarding financial aid from banks for investments and offer the explanation to their response. All the respondents solidly gave the same reply that they based on the ability to pay by the borrower thus dependent on the person’s income-earning capacity. The summarized explanation state that the loan award is based on the person’s banking history determined by the bank statement; the credibility strength be investigated as it determines the individual’s ability to pay back the principal together with the interest rates. In response to the reasons to why the financial lending institutions in these developing countries did not consider landed property registration in the priority; the participants claimed that banks are much concerned with the ability of the applicant to pay the loan over a scheduled period. It, therefore, emerged that land registration documents will not apply as though used as collateral to loan the individuals perceived not capable of repaying the amount in the given timeline (Henisz and Zelner, 2010).

In conclusion, the argument of property market maturing only in the presence of robust land law systems as accorded in the developing countries based on risks of investment is ineffective as evident by the research comparison from the World Bank research across the developed States and the developing nations. It can be viewed that the developing countries are mounted too high risks of investing due to unregistered landed property and the weak system in land laws. However, the demonstration of what happens in the developed States is quite distanced from land law systems to improve on investment projects and development measure. The robust system in land laws applied in the western countries is not efficient in any way to investment conducted in the region, but instead development projects gain most from financial aids based on the individual’s capability to repay the loans.

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