Improving Nigeria’s Land Markets: Recommendations From the FIAS Assessment Stephen B. Butler NORC at the University of Chicago FIAS/IFC Land Policy Advisor World Bank Conference on Land Management for the Millennium Development Goals Washington, DC March 9-10, 2009

Land and the MDGs? = = Business Access Start Up to Employment and Land Investment Employment = =

Current Policies Unfocused land grants and land subsidies Non-transparent budgetary expenditures for state land programs Very high taxes/fees on land transactions Complex, time consuming and burdensome land transaction procedures Complex procedures and high thresholds for creating legal titles

Current Outcomes A room at the Airport Sheraton in Lagos costs over $600 per night! That’s right … the Sheraton! Scarcity Rapidly Increasing Prices Speculation (mostly by elites) Underutilization Inefficient Market Mechanisms Non-transparent (political) allocation of state lands Informality

The dilemma of underutilized land grants Land Allocation Incorrect pricing and subsidies can lead to wasteful land use and speculation – including government speculation The dilemma of underutilized land grants Need to increase the costs of acquiring and holding vacant or underutilized land

Land Allocation cont’d Market pricing and cost recovery – target land subsidies to specific groups and needs Budget transparency for land programs – how much do they cost and who benefits? Increase use of auctions Eliminate “retail” land allocation programs – rely on concessions and public private partnerships that place more burden on the private sector to serve the poor Enforce development covenants - prevent flipping or establish ridiculously high “flip” taxes

Simplifying Transactions Governor’s approvals – an extreme result of nationalization Widespread agreement that they have outlived their purpose – e.g. see Central Bank action plan Best solution – eliminate; Second best - phase out over time Problem: Widespread corruption and fraudulent land transactions – is state supervision of all land transactions the best approach to this problem? Place more reliance on private sector professions

Simplifying Transactions cont’d Eliminate mortgage approvals – banks have incentive to assure compliance - President recently called for abolition for mortgages and subleases Free up state resources for other tasks Reduce transaction costs and accelerate loan disbursements

Simplifying Transactions cont’d. Eliminate or accelerate approvals of solicitor assisted purchase/sale transactions Rely on self-regulating incentives for professionals Establish appropriate sanctions for violations

Reducing Transaction Costs High transaction costs encourage informality in a system in which there are no consequences for informality Informality may (or may not) result in keeping land out of the market for business use Charges imposed on transactions are easily avoided and avoidance is widespread today Land transfer charges make up a surprisingly small portion of local budgets (mostly because of avoidance) – why not just lower them? Long term: greater reliance on recurring land and real property taxes – supports formality and hard to avoid

Reducing Transaction Costs cont’d. Reduce land transfer fee – at 8% to 30% on average (depending on state) too high by international comparisons Alternative: Impose transfer fees on progressive scale, relieving burden on lower end of the market Reduce registration fees (2 to 3% of transaction value) – registration fees should be based on sustainability, not profit, and registration fees should not be a hidden tax Reduction of fees and taxes can result in capture of more transactions and higher revenues – See, e.g., Egypt 2006-07