LAND REFORM IN EASTERN EUROPE: WHERE NOW?

David Harris & Nick Land
Ordnance Survey, Romsey Road, Southampton, SO16 3LZ, United Kingdom
Tel: +44 1 703 792484; Fax: +44 1 703 792230; e-mail: nland@ordsvy.gov.uk

ABSTRACT

Land reform in Eastern Europe has taken place at a frenetic pace in recent years. The emphasis has been on achieving equity in land and property ownership, mainly by restoring the rights of those who were dispossessed by the communist policy of nationalising land. It is appropriate now to take stock of what has happened with a view to improving efficiency. This will enhance the development of a well functioning market in land. This paper highlights a number of measures needed to improve the efficiency of a land market including:

• Developing a co-ordinated national land policy
• Institutional reform, including suitable organisational structures and the development of effective management skills
• Refining legislation, including the clarification of property ownership rights where formal registration has not taken place and allowing unrestricted ownership of land and property
• Handling dealings in land and property quickly and accurately; this is a major administrative challenge and is vital to support dealing in land
• Simplifying property related information systems where their maintenance is unsustainable
• Marketing of the land information held by Government organisations, thus increasing Government revenue
• Critically assessing the suitability and cost effectiveness of formal farm consolidation schemes before attempting to implement such schemes

RESUME

La réforme foncière s’est développée à un rythme frénétique en Europe orientale au cours de ces dernières années. L’accent a été mis sur la réalisation de l’équité dans la propriété de la terre et des biens fonciers, avant tout par la reconnaissance des droits des personnes dépossédées par la politique de nationalisation pratiquée par les régimes communistes. Le moment est venu d’évaluer ce qui a été fait pour accroître les performances. Cette évolution a pour conséquence de favoriser le développement d’un marché dynamique de la propriété foncière. Cet article met en lumière un certain nombre de mesures requises pour accroître l’efficacité de ce marché et notamment :

• Le développement d’une politique foncière nationale
• La réforme institutionnelle, y compris la création de structures organisationnelles adaptées et le développement de compétences réelles en matière de gestion
• L’amélioration de la législation et en particulier la clarification des droits de propriété en l’absence de tout système d’enregistrement, permettant la propriété illimitée de la terre et des biens fonciers
• L’exécution rapide et précise des opérations portant sur la terre et la propriété foncière ; il s’agit là d’un défi majeur pour l’administration et d’une mesure d’une importance vitale pour le commerce de la terre
• La simplification des systèmes d’information concernant la propriété foncière lorsque leur mise en œuvre est difficile
• La mise sur le marché des informations détenues par les pouvoirs publics en matière foncière entraînant ainsi un accroissement des revenus de l’Etat
• L’évaluation critique de l’efficacité et de la rentabilité des plans formels de consolidation des exploitations agricoles préalablement à toute mise en œuvre de ces mesures.

ZUSAMMENFASSUNG

Osteuropa erlebt seit einigen Jahren eine mit atemberaubendem Tempo durchgeführte Bodenreform. Der Schwerpunkt liegt auf der Durchsetzung von Ansprüchen an Land und Immobilien, wobei überwiegend die von den ehemaligen kommunistischen Regierungen im Rahmen ihrer Bodenpolitik enteigneten Eigentümer in ihre früheren Rechte wieder eingesetzt werden. Mittlerweile besteht Bedarf daran, die bisherige Entwicklung mit dem Ziel der Verbesserung der Effizienz aufzuarbeiten. Dies wird die Entwicklung eines gut funktionierenden Grundstücksmarkts fördern. Das Papier hebt eine Reihe von Maßnahmen zur Verbesserung der Effizienz des Grundstücksmarkts hervor, und zwar:

• Entwicklung einer landesweit koordinierten Bodenpolitik;
• institutionelle Reformen, z.B. die Entwicklung geeigneter Organisationsstrukturen und effektiver Verwaltungsfähigkeiten;
• Verbesserung der Rechtsgrundlagen wie Klärung der Eigentumsrechte in Fällen, in denen keine amtliche Eintragung erfolgt ist und unbeschränkte Rechte an Land und Immobilien gewährt werden;
• Schnelle und genaue Abwicklung von Bodenverkäufen als entscheidende Herausforderung an die Verwaltungsbehörden und wesentliche Voraussetzung für den Grundstückshandel;
• Vereinfachung der Informationssysteme bezüglich Immobilien, deren Aufrechterhaltung unrealistisch ist;
• Vermarktung der von Regierungsbehörden erfaßten Bodeninformationen zwecks Steigerung der Einnahmen der öffentlichen Hand;
• Kritische Beurteilung der Eignung und Kostenwirksamkeit formeller Konsolidierungspläne für Agrarbetriebe vor dem Versuch der praktischen Umsetzung solcher Pläne.

BACKGROUND

During the 1990s, radical changes have taken place in Eastern Europe following the demise of communist governments and their centrally planned economies. The changes have been economic and social as well as political. One common theme of change has been with regard to equity in the ownership of land and property. Land has been brought back into private ownership after its nationalisation in the communist era; the descendants of the pre-communist owners have often been given the ownership rights of their forbears. The change in ownership of rural land has often been accompanied by the fragmentation of large state and collective farms. The pace of change in recent years has been incredible.

But what now? Is more of the same needed, has recent change been all for good, are improvements needed?

THE LAND MARKET

In a market economy, land is one of the commodities which can be bought and sold. It is the principle source of a nation’s wealth, accounting for between half and three quarters of nations’ total wealth. Therefore the development of a property market is vital for promoting investment in the economy. Measures to help and enable land markets to develop are extremely important. Three key elements of a land market are:

Mortgages

Land and property represents a very large portion of any country’s national wealth. It is the basis of all economic activity, whether that is a large arable farm or a small office providing financial services. In countries with developed market economies, a large part of this wealth is ‘released’ by mortgaging the property. The economic development of the transition economies will be greatly enhanced by enabling property owners to raise money for business development via mortgage funds. However, if this is to happen, then lenders of the money need to be assured that they have full rights over the property when borrowers default on repayments. They also need to be assured that fraudulent mortgage applications will be largely prevented. This can only be achieved by effective legislation and well designed registration procedures.

Conveyancing

In developed land markets property changes hands frequently. For example, in the united Kingdom it is estimated that on average residential property changes ownership every 7 years. For this level of activity to take place, procedures for conveyancing must be well designed. The requirements for this include:

• good legislation
• co-operation between government land registries, property owners, and property professionals (e.g. banks, valuers, lawyers, estate agents)
• clear and unambiguous recording of property rights, including ownership and mortgages

Property Valuation

This is an intrinsic part of a land market. Valuation skills are needed in the public and private sectors. Valuation information is needed by mortgage lenders, tax authorities and insurance companies. Valuation procedures must be quick as well as accurate, and must be related to real market values, rather than theoretical formula based values (often known as cadastral values).

IMPROVING THE EFFICIENCY OF THE LAND MARKET

Legal Reform

Legal systems to support land ownership and the property market were introduced quickly in the early 1990s in Central and Eastern Europe. The laws have often been adapted piecemeal to deal with immediate problems. As a result the legal basis for land ownership, and particularly for the transfer of ownership, needs improving. Legislation may need refining to ensure that the long term development of the property market is not hindered (for example see the points in section 0 above). This includes ensuring that all relevant legislation is unambiguous.

Data Protection

There has been a lot of progress in developing computerised databases recording land and property information. This is one of the pre-requisites for well functioning land markets, so that full and accurate property information can be quickly obtained by interested parties. However, the combination of a free market and easily accessible information has dangers as well as benefits. The rights of individuals need to be protected, and individuals have a right to know what information is held about themselves and their interests in property. Data protection laws should ensure that the rights of individuals are protected, while retaining the benefits of computerised information systems.

Copyright

Property information has many uses beyond the immediate requirements of the land market; for example in market research and planning. The potential uses increase when data about many properties is combined in computer systems, making complex a variety of analysis possible. But collecting and maintaining these information systems is expensive. In order to protect existing investments and reduce these costs (which are largely born by tax payers) the data should be protected by copyright legislation.

Land Markets - Non-Citizens and Foreign Ownership

Some eastern European countries (e.g. the Baltic States) have large numbers of their population who do not have full citizenship rights, the result of centrally planned Government economic and social policies before 1990. The lack of citizenship tends to go hand in hand with a lack of rights to own land. This of course applies to non-citizens who do not live in the country, as well as those who do. Irrespective of the political reasons for restricting land ownership in this way, it may well restrict foreign investment in such countries. Such policies are also against EU norms. This issue is by nature very sensitive, but the benefits of allowing unrestricted ownership of land and property should be evaluated.

EU Accession

Many eastern European countries are eager to join the European Union. This will mean that aspects of their land related legislation will have to be changed to meet EU norms. The signs are that EU money (e.g. via the Phare programme) is being directed toward achieving this, but as with all such programmes, full commitment will be needed from the beneficiary governments.

Efficient Land Registration

Certainty of Ownership

Many people in eastern Europe are now able to prove their ownership of land and property. Others are not able to do this, even though they met the criteria for property ownership in the early days of freedom.. The reasons for uncertainty for many people is that the processing of applications for registering ownership was obstructed because of expensive or inefficient procedures. Some land remains unused because of competing claims for it. Uncertainty of ownership will contribute to a lack of investment in the land. Clarification of property ownership rights where formal registration has not taken place is needed.

This will require:

• simplifying procedures for registering property rights
  (e.g. survey and valuation procedures)
• reducing the costs of registration
• removing restrictions on property ownership
• promoting the benefits of registration
• improving the management of the administration of registration procedures

The emphasis in the first half of this decade has been to register land and property rights. Not enough thought has been given to the handling of transfer of ownership and mortgage applications in the future. In the future, initial registration will be less important and subsequent transactions more important. Handling dealings in land and property quickly and accurately is a major administrative challenge and is vital to sustain a land market.

But this is more of an administrative challenge, rather than a legal and technical one; technical issues in particular have tended to dominate activities so far; the need to address legal impediments has been emphasised above. However, functioning land registries are large administrative organisations, which should require relatively little legal input. For example the Land Registry of England & Wales employs about 8000 people; only 150 (less than 2%) of these are lawyers.

Automation can speed things up, but only if the administration underpinning it is well run. Automation is not a ‘cure-all’, but a useful tool if used in the right way.

Sustainable and Affordable Technology

A range of computer database systems have been developed to support the recording of property information related to ownership, boundaries, mortgages, burdens, land use and value. Unfortunately, these systems have sometimes been developed without regard to the costs of maintaining them up to date. If maintenance of current information systems is unsustainable, then systems may need to be simplified.

Meets User Needs

The aim of systems must be to meet user needs. User needs concern not just the type of information recorded, but also the accuracy, cost and availability. Users are no longer just Government departments but a vast range of private sector organisations and individuals.

Affordable

The slow rate at which some databases are being populated suggests that procedures need improving. Experience shows that initial data capture is very expensive, and that simplification of data types helps enormously in speeding up the creation of databases. This factor is particularly relevant in countries whose transition economies are by nature short of money for all types of Government activity.

Kept up to date

It is pointless creating databases if they cannot be kept up to date. Updating procedures should be part of initial database design, but have not always been taken account of. Updating, like initial data capture, must be quick and accurate.

The emphasis has been on recording rather than using data

Even when data is kept up to date, it is not fulfilling its purpose if it is not used. Assuming that the type of data is what users want, there must be in place policy and technical procedures which enable users to obtain the data quickly at reasonable cost.

Cost Recovery

There has been large investment, often via aid programmes from the EU and World Bank, in advising and developing a variety of land information systems to support land reform. These systems need to be maintained; there is a significant cost to that maintenance which will be within an environment of reduced aid and competing financial claims from other areas of Government. The competition for scarce resources can be lessened by developing products and services from the data held in land information systems, and marketing this to increase Government revenue.

Aid Funds will Reduce

As transition economies develop, the inflow of aid funds (e.g. from the European Union & World Bank) will reduce. To sustain operations which have been partly created by such funds, alternative sources of income will be needed.

Need to Finance

The pressure on Government to reduce costs does not lessen as economies grow. So the growth of eastern European economies will not take away the pressure on the funding of activities. Government Departments will have to put a lot of effort into both reducing costs and increasing revenue so that registration systems can be maintained and expanded.

Marketing

As mentioned above, the systems must meet user needs; but investigation is needed to find out what user needs really are, and to develop the market for land related information. Well run land registration systems can recover all of their costs and support the continued development of land markets and related activities.

Land Consolidation

Where fragmentation of large collective farms has taken place, there is a wish by some Governments to increase the average size of farms by consolidating holdings and reducing the number of farms. The economic rationale for doing this is to increase farming efficiency. However, the economic justification for this is unclear; though larger farms have the potential to increase average farm income, they would not necessarily increase crop yields.

Formal consolidation schemes, as done in Germany and the Netherlands for example, are expensive and take a long time to implement. If such schemes are to be implemented in Eastern Europe, then a formal assessment of the cost effectiveness should be made before investing large sums of money.

Institutional Issues

Skills and Training

There has been much investment in training during recent years. However, the focus of this has often been on technical matters such as surveying and computer related tasks. Important though these are, the emphasis should be changed. Management training has often been neglected. However, long term success will depend on good managers even more than having good technical systems. Investment in management training is essential for the long term development of key institutions.

Inter Departmental Co-operation

Land and property issues are relevant to many public sector departments, as well as the private sector and private individuals. If Government policy on land and property matters is to be effective, then co-operation and co-ordination between departments is essential.

CONCLUSIONS

The paper has highlighted that the development of land markets in Eastern Europe requires a wide range of measures involving many organisations in the public and private sectors. The emphasis of the past seven years needs to be changed in a variety of ways to improve the efficiency and effectiveness of the current policy and procedures.

If significant progress is to be made, then Governments should take the lead in developing an integrated land administration policy for their countries. This does not mean dictating and regulating on all matters, but in creating a solid regulatory and institutional framework, to enable a free land market to grow and operate.

BIOGRAPHICAL CAMEOS

David Harris is a senior consultant with Ordnance Survey International. He originally trained as a land surveyor, working in the Middle East and Africa. He then worked for Ordnance Survey managing a region office responsible for updating large scale topographic maps in London and the south-east of England. Following MSc studies in Cadastre and Land Information Management at the then Polytechnic of East London, he spent time working in Ordnance Survey’s internal management consultancy division. For the past 4 years he has worked extensively in Eastern Europe on EU Phare funded land registration and cadastre projects. He is currently team leader on a Phare "Land Policy & Cadastre" project in Macedonia.

Nick Land is Director of Ordnance Survey International responsible for Ordnance Survey’s international consultancy projects, the majority of which are in the areas of land registration and cadastre. He is a land surveyor and geographer who has worked in the Middle East, Eastern Europe, southern Africa and Bermuda. He is currently team leader on a Phare project in Estonia designed to accelerate land reform and prepare for EU accession in the land sector.