Creating

30 DOING BUSINESS IN 2006
What to reform?
To ease property registration, Doing Business in 2005
recommended simplifying and combining procedures,
linking and then unifying the agencies involved and providing
easier access to the registries. It warned against
viewing technology as a panacea, especially in poor
countries. The analysis here shows that those reforms
work. Here are 3 more ways to ease property registration:
• Make registration an administrative process.
• Simplify taxes and fees.
• Make the involvement of notaries optional.
Make registration an administrative process
Property registration is an administrative matter, not a
judicial one. Involving the courts in the process costs the
entrepreneur on average 70% more time (figure 5.3).
Croatia, Bosnia and Herzegovina and Slovenia have
some of the longest court delays, extending the registration
process by months or even years. Poland’s 2004
reforms to digitize land records helped. But they missed
the main bottleneck—a 6-month court delay.
Judges who deal with property registration have
less time for their main business—resolving commercial
disputes. Poland and Syria involve judges. They also
rank among the bottom countries on the time to enforce
commercial contracts. In Croatia and Slovenia property
transactions in the courts account for half the case backlog.
One solution: let court clerks, not judges, handle the
registration, as in Norway and Sweden.
Taking registration entirely out of the courts means
that it can be more easily unified or linked with the
cadastre. That makes it easier to detect overlapping and
duplicate titles, saving time in due diligence and improving
the security of property rights. Entrepreneurs
in countries where the cadastre and registry are in the
same agency spend on average 40 fewer days to register
property. Unifying the cadastre and registry is the second
most needed reform cited by Doing Business respondents
(after computerization). Among countries that
involve courts in registration, only 15% have a unified
cadastre and registry. Among countries without courts
in the process, more than half have a unified registry
and cadastre. El Salvador took registration out of the
courts and unified the registry with the cadastre in 1999,
cutting several months off the time to register property.
Honduras is following its lead in 2005, and so is Serbia
and Montenegro. Sweden plans to do the same.
Simplify taxes and fees
To register a property transfer, a Filipino entrepreneur
has to visit 3 agencies—to pay a registration fee, then a
transfer tax, then a stamp duty. On top of that he pays
for the deed to be notarized. And after that he pays capital
gains tax and value added tax. Another 41 countries
require 3 different types of transaction taxes. More than
20 of those require notarization, value added tax or capital
gains tax as well.
In countries that demand a range of fees and taxes
for property registration, the cost is significantly higher,
even relative to country income levels. These countries
also have more procedures, since each fee is usually paid
at a different agency. The higher cost encourages informal
transactions and underreporting of property values.
And the complex process breeds opportunities for corruption.
The solution is to consolidate fees. Thirty-one
countries, from Mongolia to Denmark, combine the fees
into a single payment, usually at the property registry.
Beyond simplifying payments, reformers can cut
them. That doesn’t mean reducing revenues. Take India.
There, transfer costs of around 13% of the property
value were discouraging formal real estate transactions.
Evasion was rife. Some buyers did not record their transactions.
Others used cumbersome and often less secure
ways to legally avoid taxes, such as replacing deeds with
cooperative housing, long-term leases, agreements without
possession and transfers under court decrees. And a
$17 billion business in fraudulent stamps was thriving, to
the benefit of some police officials. 4 In July 2004 the state
of Maharashtra cut stamp duties from 10% to 5%—and
boasted a 20% increase in overall stamp duty revenues,
about 80% of which come from property transfers