Tradeoffs between tenure systems

Informal or customary forms of land tenure are the status quo in large parts of low-income cities. These can provide important de facto tenure security to landholders, but typically lack legal enforceability and marketability, best conferred by freehold or long-term leasehold titles. Intermediate forms of tenure can represent flexible and low-cost methods of making land rights legally enforceable, but are typically less easily marketable than freehold or leasehold titles.

Informal land tenure

‘Informal land tenure’ is an umbrella term for tenure systems that are not formally recognised by the state within the legal system. This can range from de facto rights obtained by long-term occupancy, to well-established customary systems of tenure. Informal land rights are not synonymous with insecure land rights. In fact, in some circumstances perceived tenure security of households and firms can be higher under informal, accountable local bodies than under a weak and corruptible formal tenure system. However, where community ties have been eroded by urban development and land ownership is contested between a web of different actors, the result can be fragile tenure security.

Without formal state recognition, informal land rights lack the benefits of legal enforceability, impeding effective urban planning, and depriving governments of important revenue flows from land and property taxation. Informal land rights also limit the marketability of land in two ways. First, without formal legal recognition of new ownership, buyers and banks may not be confident that their full rights to land will be respected the prevailing informal authorities. Second, without the publicly observable record of land transactions and historic valuations that a well-administered formal land market can provide, informal land transactions fail to generate the common knowledge of market prices that is essential for a well-functioning land market.

In many cities, prime central land is occupied by vast informal settlements, such as Kibera in Nairobi (above). Weak land rights leave investors reluctant to purchase this land to use it more efficiently – for commercial property or medium-high rise housing. (Photograph: Schreibkraft)

Freehold and long-term leasehold titles

Freehold and leasehold titles are the predominant form of land rights in developed economies. Under freehold tenure, a private owner, such as an individual or corporation, has full and perpetual rights to develop, collateralise, and sell the land they own. Under long-term leasehold tenure, a landowner, typically the government, issues a lease conveying such rights to a leaseholder for a period typically lasting 49-99 years.

If accompanied by well-functioning legal and administrative systems, freehold and long-term leasehold titles are the gold standard of land ownership, capturing the full benefits of secure, legally enforceable and marketable land rights. In Lima, the issuance of over 1.2 million freehold titles to urban households increased the rate of housing investments by over 60% and unlocked significant land market activity. Land values for titled properties rose by 20-30%, and land market transactions increased by 134% between 1999 and 2003.7

However, freehold and long-term leasehold titles are politically and financially challenging to register. In particular, since freehold titles convey perpetual land ownership, issuing such titles in the context of informal settlements on contested land is often far less politically feasible than implementing intermediate forms of tenure such as short-term occupancy certificates. Furthermore, surveying procedures are typically more stringent and expensive than for intermediate forms of tenure; collective titles issued to whole communities can be four times less costly to implement than private land titles.8 Freehold and long-term leasehold titles also require strong legal systems to prevent land-grabbing post-titling, and strong administrative systems to ensure land transactions are efficient and based on fair valuations.

Intermediate forms of tenure

Where existing legal and administrative systems are particularly weak, or where registering freehold or leasehold tenure is as yet politically or financially infeasible, legal recognition of differing forms of tenure can act as a useful temporary measure towards official freehold or leasehold land titles. These alternative forms of tenure can often be well-suited to the needs of informal settlements, particularly in peripheral areas. This is because they increase tenure security, and unlock the process of urban planning, infrastructure provision and land taxation that comes with legal enforceability. However, they are poor forms of collateral for banks, and are also less able to be transacted than freehold and leasehold titles, making them less suited for more central urban areas where efficient land use is key.

In Trinidad and Tobago for example, Certificates of Comfort have been granted to squatters on state lands. These do not confer full ownership on titleholders (this remains in the hands of the state) but do provide a lifetime guarantee against the threat of eviction, as well as facilitating service provision and tax collection. However, these cannot be transferred either through sale or through inheritance, and act as poor quality collateral.

In Thailand, the 2003 Baan Mankong programme issued collective land titles to informal settlers as a key part of its slum-upgrading scheme. These were developed in collaboration with communities, based on concerns that private freehold or leasehold titles would be costly to implement and could lead to the disintegration of the community. The programme integrated communities into city planning processes, and proved highly successful in increasing homeowner investment; the share of urban dwellers living in houses made from durable materials increased from 66% in 2000 to 84% in 2010.9 However, collective land titles may frustrate the ability of land markets to transfer land to more efficient uses. They also risk institutionalising powerful local leaders, who may become reluctant to relinquish control over group tenure.

Footnotes

  • 7 Cantuarias, F. and Delgado, M. (2004) “Peru’s Urban Land Titling Program”, Scaling Up Poverty Reduction: A Global Learning Process and Conference in Shanghai, World Bank
  • 8 Indufor. (2014) “Analysis on the Costs of Securing Communal Land Rights: New Technologies and Approaches Offer Potential for Scaling Up”, Prepared for the Rights and Resources Initiative, Helsinki, Finland
  • 9 Mattingly, M. 2013. Property Rights and Development Briefing: Property Rights and Urban Household Welfare. Overseas Development Institute, London.