Transdniestria Law Boosts Private Homeownership, Gives Legal Title to the Poor

Thursday, July 26, 2007

A new law by parliament in Transdniestria (Pridnestrovie) streamlines property ownership for the poor. It makes registration of rural homes possible even when no papers or title exist. The reforms are based on a wealth-creation roadmap by Hernando de Soto, a Peruvian economist.

TIRASPOL (Tiraspol Times) – Coherent legal and property rights systems provide the difference in whether nations are economically successful.

” – The role of government is to protect economic freedom,” says Pridnestrovie’s Mikhail Burla. As an MP and also professor of Economics from the Pridnestrovian State University, Burla is now spearheading the reform-drive to implement sweeping market reforms in Pridnestrovie. “Economic freedom is freedom to claim, earn and exclusively hold private property, to enter into contracts by which to dispose of or use our property, including our labor and talents. Real economic freedom relies on legal protection of the rights that derive from contracts, and of course equality of all everyone before the law.”

To prove this point, Pridnestrovie’s Parliament passed a bill to streamline a straightforward procedure for state registration of title to rural home ownership by prescription and rural real estate transactions. The bill is modeled on ideas developed by a Peruvian economist, Hernando de Soto, on how to create wealth for third world and post-Soviet states.

It provides a manageable program for building an inclusive property system that focuses on the needs of the poor and middle classes. De Soto advocates free land distributed to small farmers, and property rights clarified.
Hernando de Soto

Hernando de Soto explains the role of private property rights in economic development during an appearance at the Milken Institute

The passage of the bill will settle the problem facing rural communities over the past few years: a lack of proper title made it hard, expensive and in some cases impossible to register private property in rural areas. A registration fee of up to 2/3 of the total cost of a house is charged, informs the press service of the Tiraspol based parliament. Houses built without a permit could not be registered either. According to the parliamentary press service, the lack of a proper real estate registration deprive citizens of the right to transactions and inheritance of houses.

Speaker seeks increase in registered homeownership

MP Mikhail Burla drafted and introduced the bill on a straightforward procedure for state registration of title to rural home ownership by prescription and rural real estate transactions to resolve the problem and to facilitate the registration procedure.

The Bill sets out a straightforward registration procedure for rural houses, all the documents will be issued by local authorities. “De facto” owners will now easily register their house even if they have no all the documents required for registration. Appropriate amendments have been introduced to local government, self-government and local administration Law. Under the Bill it will be up to the local authorities to decide on the right of ownership if there are no necessary documents. The rural councils will stand in for individuals in such cases, and will file the documents with the relevant departments to obtain a home ownership or land registration certificate for the owners involved.

Speaker of Parliament Yevgeny Shevchuk said, “This Bill is in fact an amnesty for rural community members, it proposes a straightforward procedure for registration and people won?t have to pay fines.”

” – Under this law the procedure for registration of the right of ownership is transparent and straightforward. The period of registration will be shorter; there will be a decrease in unregistered homeownership,” said Yevgeny Shevchuk.

Access to capital for grassroots entrepreneurs

Grassroots entrepreneurs will have easier access to capital with the new Transdniestria (Pridnestrovie) law, predict experts in the unrecognized state.

In richer countries, if a farmer wants to invest in better seeds or bigger tractors, he can usually borrow the necessary cash using his land as security, writes The Economist. If he fails to pay back the debt, the bank takes the land. But if all goes well, then his easy access to credit allows him to make his land more productive, which in turn increases its worth. Asset-backed lending is a crucial element in the dynamism of advanced capitalist countries. In the United States, for instance, the most common way for an entrepreneur to raise start-up capital is by mortgaging the family home.

To do this will require a mortgage system, which Pridnestrovie has, and also widespread title deeds. Most families in Pridnestrovie now own their own homes, be they houses or apartments. But an estimated 10 to 15% – up to 83,000 people – still “fall through the cracks”: They are the ones who live in rural areas, with property that is not deeded and has no clear title.

” – Sound property rights have great advantages. When people are confident that they will not suddenly be dispossessed, they are more inclined to make long-term investments, such as extending the family home or buying a new plough,” says Robert Guest, an editor at The Economist who has been lauded for his coverage of financial topics.

Although the British magazine – which purports to be a newspaper – gets an “F” in its coverage of Pridnestrovie, its staff writers show more professional when dealing with economics. The magazine’s Robert Guest won the Bastiat Prize from the International Policy Network (a think tank whose work is supported by news organizations around the world, included The Tiraspol Times & Weekly Review).

Property ownership to drive wealth creation

Hernando de Soto’s main thesis is the need for private ownership. He argues that post-Soviet countries lack an integrated formal property system, leading to only informal ownership of land and goods. By contrast, economic success of American and Japanese capitalism relied on a clear system of property rights. A lack of such an integrated system of property rights makes it impossible for the poor to leverage their now informal ownerships into capital (as collateral for credit), which would form the basis for entrepreneurship. Pridnestrovie is now making this informal ownership formal, for example by giving squatters land titles to the land they now live on.

A commission in Pridnestrovie’s parliament recognized that certain underlying legal structures promote prosperity, while others guarantee that most citizens will live in poverty.

The objective is to empower poorer people by creating a legal framework to make ownership of assets formal, as well as also economically meaningful. This requires a well-functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded. It will give greater independence for individuals from local community arrangements to protect their assets, along with clear and provable protected ownership.

The goal is a long-term shift that will affect property ownership for future generations and create wealth from the bottom. Hernando de Soto has identified the former Soviet space as a problem area, pointing to places like Pridnestrovie as areas where untapped wealth is waiting to be unleashed.

” – Four billion people in developing and post-Soviet nations ?two thirds of the world’s population? have been locked out of the global economy: forced to operate outside the rule of law, they have no legal identity, no credit, no capital, and thus no way to prosper,” says Hernando de Soto.

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Source: Tiraspol Times (link opens in a new window)