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Ashoka Fellow Darin Gunesekera has succeeded in securing deeds to a brand new condominium to more than 670 families–4,000 people – in Sri Lanka who formerly lived in a slum. Property and regulatory system reform has gained momentum in recent years, and this model suggests significant potential for adoption by governments and landowners worldwide. Yet the challenges of replicating this successfully completed project speak to the immense difficulty of untangling the complex legal and social barriers to property regulations in the developing world.

In Colombo, Sri Lanka, the high cost of land forces low-income residents to squat illegally on public or private land. The squatter has physical occupancy of the land, but his opportunity cost is high because he cannot obtain services or invest in his house as long as he is there illegally; the landowner has legal title to the land but his opportunity cost is also high because he cannot realize the value of the land as long as the squatters are there.The crux of Gunesekera’s Stock Market Housing Exchange is a deal in which squatter and landowner trade in their main items of value – physical occupancy and title – in order to unlock these opportunity costs. The land is sold and former squatters receive the rights to condominiums in a new building financed by the proceeds of the sale. The landowner receives the difference between the sale price of the land and the cost of the new construction. Former squatters choose the new building’s design: bidding developers submit proposals and the winner is selected by vote.

The residents now have a stake in keeping the condominium safe and clean, as well as in building up the areas nearby. The building includes a commercial area on the first floor where leases to companies generate revenue for building upkeep and services such as a bank are easily accessible. Further, the residents now have access to line of credit through their deed with which to start new enterprises.

It is surprising that Gunesekera’s success has not received more attention given the enthusiastic reception of economist Hernando de Soto?s groundbreaking work on advancing the importance of property rights and systems for enabling private property. In recent years development agencies, governments, and private sector leaders have embraced de Soto’s work with his organization the Institute for Liberty and Democracy (ILD) based in Peru.

Their enthusiasm derives from the society-wide benefits of property and legal reform that extend well beyond those in the extralegal realm who are directly affected. As de Soto explains in his book The Mystery of Capital:

?Builders and construction material manufacturers will find their markets expanding, as will banks, mortgage companies, title agencies, an insurance firms. Formalization will also help the suppliers of public utilities to convert home addresses into liable terminals. It will provide governments and businesses with information and addresses for merchandising, securing interests, and collecting debts, fees, and taxes. In addition, a formal property system supplies a database for investment decisions in health care, education, tax assessment, and environmental planning.?

Still, this compelling vision is not enough to drive reform. The people who are in a position to reform the system are also usually its primary beneficiaries. Though they may stand to gain more from changing it–the owner of the shantytown in Colombo certainly did–it nonetheless represents a major change to the status quo, and a potentially messy one at that. Acknowledging that squatters have a right to the land sets a dangerous precedent. It also represents a regulatory nightmare for the countries whose legal systems are far from comprehensive. As de Soto points out consistently, without the proper legal framework in place former squatters cannot take advantage of their titles to gain credit or start new enterprises. Gunesekera succeeded in convincing the right people to take action, but the replicability of his model depends highly on the coercive and structural forces at play.

Part of what made Gunesekera’s efforts so effective was that he took an entire section of a slum–drug dealers and other criminals included–and had every single one of them move into the condominium. The positive results are plain to see. Indeed, they have also been observed by de Soto in his own efforts. Once the poor no longer have to resort to illegal activity they often drop it entirely. Still, for a government to agree to give legal land titles to squatters, much less criminals, takes some significant convincing.

These and many other challenges remain for governments, civil society and the private sector worldwide to help untangle. Though Gunesekera’s Stock Market Housing Exchange idea has not been widely replicated or discussed, it adds another model to the set of success stories.