|
Article Excerpt
The paper develops hedonic analyses of the pricing of leasehold versus freehold estates in Ghana. The motivation of the paper is the passage of Act 267(5) in 1992 that effectively abolished outright sale of stool lands in Ghana. Stool lands are lands controlled by tribal "chiefs." Act 267(5) prohibits the sale of freehold estates for stool lands. There are two important findings in this study. The first is that freeholds tend to attract premium prices relative to leaseholds. This supports the bundle-of-rights argument. The second is that the effect of the 1992 Act is indeed capitalized into land prices because of the relative increase in the supply of leaseholds vis-a-vis freeholds. Specifically, the price of freeholds increased relative to the price of leaseholds after the constitutional event. The study also finds that transactions involving stools and individuals, usually perceived to be associated with litigation risk (or title insecurity) relative to government lands, are sold at a discount. Transactions noted to have a history of litigation are also associated with price discounts. The estimated coefficients on all the variables representing services to the site like water, electricity and access roads are significantly positive, indicating a high demand for such essential services.
**********
The "land markets" of African countries are severely encumbered by customary rights and traditions. Perhaps the most intractable public policy problem facing African governments today is how to remove the institutional constraints imposed on their economies by the traditional African land tenure systems that impede economic development. In Ghana, "chiefs" dominate the traditional land tenure system. These chiefs control a system of land holdings, which can be described as "usufructs," also known as stool lands. (1) Most economists view the African institutional structure as an outdated anachronism that impedes economic progress and therefore should be changed by external political means to eliminate all the vestiges of the traditional system (see Ault and Rutman 1979).
Following the imposition of colonial rule in Ghana (then the Gold Coast), laws were passed between 1876 and 1883 to break the stranglehold of the traditional system. These laws were to facilitate the acquisition, administration and registration of private interests in land (see Somevi 2001). (2) Upon Ghana's attainment of independence in 1957, the Land Registry Act, 1962 (Act 122) (3) was passed to unify all procedures for registration of deeds throughout Ghana. This also was supposed to set into motion a gradual movement toward the establishment of a title registry and thus the creation of private interest in property.
Despite all attempts since 1876 to move away from the traditional system of land holdings and toward private interests in property (freeholds), the chiefs still continue to dominate the land market. However, at the urban scene the traditional system of landholdings (or the usufructs) was slowly transforming into a relatively more modern system within which the chiefs were offering transactions with freehold titles side by side with transactions that closely resembled leaseholds (or possessory estates). Anecdotal evidence suggests that the trend after independence in 1957 was that the majority of land transactions at the urban scene were on a freehold basis until a recent Ghanaian Constitution, Act 267(5) 1992, effectively reversed this gradual positive movement to freehold titles (4) with a new act that prohibits outright (freehold) sales of all stool lands. The act states: "Subject to the provisions of this Constitution, no interest in, or right over any stool land in Ghana shall be created which vests in any person or body of persons a freehold interest howsoever described." The practical implication of Act 267(5) 1992 is to provide a legal framework for the usufructs and to effectively make them function as real leaseholds with reversionary interests that are supposed to be vested in the stools. The objective of the new law is to preserve the status quo by making sure that the native land titles, vested in the stools, will never extinguish. The government of Ghana, at that time, made a lot of noise about this constitutional event. Of course, this provision only reinforces the stranglehold of the chiefs and their anachronistic systems that impede economic development.
This Ghanaian constitutional requirement creates a practical and unique opportunity for research on the leasehold (possessory) estates that are rapidly emerging as a result of Act 267 that abolished freehold transactions for stool lands. The following section presents a framework of how such partial interests would be priced with reference to certain peculiar features inherent in the Ghanaian system.
Institutional Setting and Conceptual Framework
Among other things, this paper examines the link between possession rights and land values. There are two conceptual arguments for this link: a "bundle-of-rights" argument and a "security-of-rights" argument. These two arguments are discussed below.
The bundle-of-rights argument suggests that, everything being equal, freeholds should be more valuable than leaseholds since the bundle of rights inherent in freeholds is typically superior to that found in leaseholds. The security-of-rights argument suggests that security of rights matters. Everything else being equal, properties with rights that are perceived to be unsecured will be less valuable than properties with titles that are perceived to be secured. See, for example, Demsetz (1967) and North (1981) for theory of property rights.
The bundle-of-rights argument is discussed thoroughly in this paper using the framework for analyzing partial interests in real property. On the security-of-rights argument, the traditional view is that the dimension of security of rights that matters most to investment is freedom from expropriation by the government. However, as stated correctly in Besley (1995), Ghana is not a country that has a significant history of expropriation. In Ghana the traditional system is powerful enough to be able to deter potential future expropriation by government. However, there are three other important dimensions of security that might be relevant to Ghana. These are lack of security in title rights (or title insecurity), lack of security in future transfer of rights (or transfer insecurity) and lack of security in the reversionary rights in leaseholds (or reversion insecurity).
Title insecurity is the fear of losing your land to another party due to the absence of a proper title registration system. This problem is especially pervasive in Ghana and affects both freeholds and leaseholds. While the theoretical link between title insecurity, investment and value is obvious, this cannot be tested directly due to a paucity of data. Title insecurity is discussed to a limited extent in this paper under litigation risk. Transfer insecurity is the fear that people may not be able to dispose of their land to whomever they please, at any time they want, without interference from any customary authority. While this type of insecurity may be associated with all types of transactions in Ghana, anecdotal evidence suggests that it is more prevalent with transactions involving stool (and family) lands. This issue is also discussed in this paper under litigation risk. Reversion insecurity deals with the fact that leasehold interests in Ghana have "quiet" reversionary titles. As described below, people are uncertain about whether their leasehold interests will revert to the chiefs rather than their progeny when their leases expire after the 99-year period (when they have passed away). This may be yet another reason why, everything else being equal, leaseholds should be less valuable than freeholds. In this paper, reversionary insecurity is discussed under "quiet reversionary titles."
There are also certain peculiar vestiges of the old usufructuary system that still affect the way the leasehold estate system is practiced in Ghana, both before and after the new Constitution, that can potentially affect pricing. (5) The following aspects are particularly notable and thus need to be understood:
1. Drink Money Tradition: In the past, all land transactions (freehold or leasehold) were supposed to be free of charge. All that a person had to pay was a bottle of aromatic schnapps or a token sum of money appropriately called "drink money." With the passage of time, "drink money" has become a misnomer. Customers for freeholds and leaseholds...
|
