What is the purpose of property rights?

10 August 2018 | Economics

Two types of property rights govern the land on which most Namibian families live: customary land rights and freehold rights. Customary land rights confirm traditional and/or historical entitlements to occupy the land which occupants may use for residential and crop growing purposes. Commercial uses are not allowed, and the land rights may not be sold. These rights are believed to be appropriate for families in communal areas.

Freehold rights confirm ownership of land which may be used for a variety of commercial and other purposes, although special permissions may be needed for particular uses in certain areas. The land may be bought and sold, and is therefore an investment. Freehold rights are regarded to be appropriate for private property in urban areas and for surveyed land that is not communal.

Clearly, Namibia has double-standards: one tenure system allows and facilitates the use of land to generate wealth, the other not. Divisions between the two were based on race before independence, now they are used to separate the classes. Not surprisingly, lots has been written and argued about the comparative merits of the two systems. Most discussion is about the tradability and collateral value of communal land. Supporters of the status quo offer a range of ideas on why communal land should not be traded, and on why collateral is inappropriate or unnecessary in communal areas. Their arguments favouring customary land rights are intense, but weak in defending the role of customary land rights in maintaining poverty.

The fixation on collateral as the only value of tradable rights bedevils these debates, because other benefits get ignored. But first a few comments on loans and collateral. Financial institutions need a range of validations before lending money. Most critical is the simple ability of the borrower to repay a loan, which is assessed from such qualities as the potential borrower’s employment record, earnings, age, health and even life insurance. These are important measures of the chances of a financial institution getting its money back. Having property as collateral can be useful, but other assets are of greater value.

What about those other benefits of being able to buy and sell land? Number 1 is the use of land as investments to produce wealth. By definition, any item only has investment value if it can be sold. How much of the wealth in Namibia has been generated by buying and selling land? We don’t know, but it is considerable, and many families are better-off as a result. Recall that cattle and other livestock in communal areas are used as investments, so the value of investments has been clear to everyone for a long time.

Second are the options that come from having freehold land. For example, it is easier to fund special ventures or needs by selling all or part of a property, or by using the land to help raise a loan. Expensive medical treatment or higher education for a child becomes affordable, and enterprises are easier to start, for example.

Third, fixed property provides an address, a place on a street map where owners are traceable, and a place that provides credentials. These are measures of status, which are hard to provide to land with customary rights. Fourth – and as a consequence of third point – tenured, registered properties are likely to have better access to public services than others.

Fifth, freehold titles are more secure, both in real and perceived terms than other land rights. The chances of dispossession are therefore lower than for other properties. Sixth, secure freehold properties provide their owners with confidence, a sense of permanence and greater options to plan for the future.

Seventh, owners of freehold title can decide, and be certain of who inherits their property. Traditional authorities and/or other members of the deceased’s family determine how customary estates are inherited, by contrast.

So there are seven more reasons. Together with the value of collateral, that makes 8 benefits. Each has its own merits, but it is the combination of values that offer create options, confidence and security. In turn, they raise levels of social and economic well-being, and convert houses into homes. In that, there is much to gain.

And now recall (from the article in this column on 6 July) that two-thirds of all Namibian families can’t enjoy the benefits of property rights! That is deplorable. Furthermore, those who decide that poor people in communal areas or informal settlements should not own land are largely freehold landowners. That is remarkable. In effect, those who have, know what’s best for those who have not! Or perhaps those of us who are wealthy assume that the poor can’t use property to improve their lives.

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