Business Removing

34 DOING BUSINESS IN 2005
tles won’t lead to more credit if collateral laws make it
expensive to mortgage property and inefficient courts
prevent banks from seizing collateral when a debtor
defaults. Not surprisingly some studies document cases
where titling failed to bring the expected increases in investment
or income. 8
Efficient property registration reduces transaction
costs and improves the security of property rights. This
benefits all entrepreneurs, especially small ones. The rich
have few problems protecting their property rights. They
can afford the costs of investing in security systems and
other measures to defend their property. But small entrepreneurs
cannot. Reform can change this. Improving the
security of property rights in Peru was shown to increase
productive activities. 9 Across countries, firms of all sizes
report that their property rights are better protected in
countries with more efficient property registration. But
the relationship is much stronger for small firms. 10
Who makes registering property easy—
and how?
An entrepreneur wants to buy property in the peri-urban
area of Lagos. It is a simple case—the seller has agreed
and the property is officially recorded and free of dispute.
Title registration begins. The entrepreneur starts by hiring
a lawyer, mandatory in Nigeria. She obtains application
forms, tax clearances, a plan of the property, assessments
and stamps of the deeds. Next she pays stamp
duties and deposits fees, conducts a search of the land
registry and submits the application for consent to the
governor of the state. And then waits for 6 months. After
obtaining consent, she pays another 3 separate fees and
taxes and submits the receipts to 2 more agencies. The
property is inspected by state valuers and the transfer
recorded in the land registry. Twenty one procedures,
27% of the property value in official fees and 274 days
later, she owns the property. If she wants a mortgage, the
bank must go through a similar procedure to obtain consent
for registering it.
The process is so cumbersome that the standard
practice is to go through all the procedures to register a
business—no mean feat in Nigeria—and then put the
property in the name of the business. That way the property
can be traded by buying and selling the company
rather than facing all the costs of registering property
again. 11
Compare this with what a Norwegian entrepreneur
experiences when buying property in Oslo. He goes to
the land registry, submits an application form (which
can also be obtained on the Internet or in bookstores)
and pays the registration fee and 2.5% of the property
value in stamp duty. Registration is complete in a day.
Some other countries also make it simple (box 5.1).
In New Zealand the buyer checks the legal status of the
property with local authorities, then pays a conveyancer
0.17% of the property value to register the transfer online.
Registration is complete in 2 days. In Sweden, too, 2
days are all that are required—the entrepreneur need
only submit registration forms and pay 3% in taxes and
fees at a bank. The same is true in Thailand, which has a
world-class system where all contracts are prepared in
the land office as a part of registration. 12 In Singapore
the buyer conducts all due diligence and pays taxes on
the Internet. Registration is over in 9 days.
A number of transition countries speed up registration
by offering an expedited procedure: a buyer can pay
a higher fee for faster processing. In Lithuania using the
fast track costs 25% extra but cuts time from 29 days to
3. In the Kyrgyz Republic and Slovakia the expedited
procedure saves 15 days, in Russia 20 days and in Kazakhstan
12 days. 13 Outside the region Argentina also has
a fast track service saving 21 days. And Spain has an innovative
system to improve speed: the registry’s fees are
cut by 30% if the process exceeds 15 days.
No such luck in most other countries. Much of the
difficulty is caused by overly complex procedures. Ghana
is switching from a system that records deeds of transfer
to one that provides guaranteed title. The transfer must
be registered in both systems, a process that involves 6
agencies and 382 days. Only 8% of properties are registered.
Austria, Honduras and Yemen require the buyer to
go to both notaries and the courts. In Ukraine and
Uzbekistan the land is registered separately from the
building, effectively doubling the complexity of the
process. In 2004 Russia reformed, combining land and
building information into a unified cadastre. The authorities
in Shanghai, China did the same.
In a third of countries, delays in recording at the
property registry are the main obstacle, including in the
Dominican Republic and Portugal. An entrepreneur in
Guinea can complete the due diligence requirements in
3 weeks. Unless he has connections, however, he’ll then
wait 3 months for the registry to finish processing.
Threatened with delays, the entrepreneur may be
tempted to offer a bribe to move the process along. And
on top of that, he must pay 16% in taxes.