NOTES AgriculTurAl & rurAl DEvElOpmENT 42696 Land Policy and Administration Kyrgyz republic: Benefits of Securing and registering land for Development iSSuE 35 FEBruAry 2008 By EDwArD cOOK Since independence in 1991, the Government of structures. Determining the extent of land holdings to the Kyrgyz Republic has sought to promote market be assigned to enterprises and multiple unit structures reform. An important part of this reform is a program was likewise seriously problematic. For most of these, to privatize land and secure property rights in land no land parcel boundaries had ever been determined. and other immovable property. Prior to independence, Even for parcels that had been defined on the ground, all land was state property, with use rights granted to the question of legal boundaries was considered open occupants. Most commercial buildings and structures to review. In rural areas, the process of privatizing the were, likewise, state property. Rights to residential state and collective farms needed to be worked out, properties were presumed to be held by occupants, and the allocation of land rights to the members of but there was no clear legal support or guarantee to those farms needed to be carried out. these rights. The large majority of agricultural land was farmed collectively. Workers on these state and By the latter part of the 1990s, the privatization collective farms were allocated small household plots program was well advanced. In rural areas, most agri- for their own production. cultural land had been divided into private household farms. In urban areas questions remained concerning Following independence, a program was undertaken the legal formation and land rights of condominium to privatize state property. The program appeared associations, and land rights of these enterprises. relatively straightforward in that most current occu- Securing formal rights to immovable property was pants would be recognized as owners. Yet a number recognized as an essential step towards providing a of complications arose. Some related to the privatiza- stable, long-term framework for investment in the tion of state-owned enterprises, and to developing land and for enabling land markets to begin function- the concept of condominium for multi-unit residential ing efficiently and transparently. In 1996 the US Agency for International Development (USAID), World Bank, and other development agen- cies began working with Kyrgyz experts to draft the Registration Law that would be adopted in 1998. In 1999 the State Agency for Registration of Rights (Gosregister) was established, based on the examples of a number of existing institutions, including the Soviet era Bureaus of Technical Inventory and the Land Agency, which maintained information on land in urban and rural areas respectively. This solution offered two significant advantages to the property registration effort. First, the new Agency would start with staff, physical infrastructure, and direct access to existing databases on immovable property. Second, it meant that one agency was responsible for registering rights to land and maintaining the land cadastre. Reviewing field survey procedures in Gosregister THE wOrlD BANK THE Kyrgyz lAND process continues to unfold in a AND rEAl ESTATE phased manner consistent with rEgiSTrATiON sound business justification. prOjEcT Gosregister leadership and The Project became effective in the Government commitment to the spring of 2000 following impor- Project's objectives ensured rela- tant preparatory work supported tively strong performance in terms by the Policy and Human Resources of service delivery. Prior to begin- Development Fund (PHRD). It supports the development ning operation, LRO staff underwent a training program of markets for land by securing and protecting property followed by a certification exam. Former BTI directors, rights through a parcel-based title registration system. who were now slotted to become heads of the LROs Specifically, it aims to: were also evaluated - many were released. The LRO facil- ities were designed to be user-friendly, with appropriate · Increase the productivity and value of land and other client reception areas, posting of important information real estate. in both Russian and Kyrgyz, and separation of client · Facilitate the use of property as collateral and reduce reception from back-office operations. transaction costs in title transfer and mortgaging. The Government decided to establish the system of The project has two main components: registering rights on a self-financing basis. A national · It establishes a system for registering rights, including fee schedule was established and LROs were allowed to the development of business regulations and process- retain the major share of revenues. 10 percent of rev- es and the establishment of a nationwide network of enues were channeled to the center and were available Local Registration Offices (LROs) for secure registration for transfer to lower revenue generating offices. LROs of real estate parcels and associated rights. were established in all rayons to ensure access to services in sparsely populated areas. Some, therefore, needed to · It supports an extensive program of systematic reg- be cross-subsidized to sustain operations. istration of rights, covering roughly three-quarters of the properties in the country in both urban and The second major direction of the Project has been rural areas. the program of systematic registration. The Project has The project initially focused on building upon the 1998 utilized pragmatic, low-cost procedures in land parcel Registration Law to develop registration procedures, and surveys and adjudication, drawing upon information on on getting the LROs up and running. Cost, affordability, immovable property in existing databases and relying on and quality of services were important considerations. village and neighborhood community structures. In using The Project benefited from the country's high educa- existing mapping and survey information and using low- tion levels and relatively low labor costs. When the cost, pragmatic field survey work, the program sought Project got underway, however, the level of informa- to balance the accuracy of land parcel depictions with tion technology and related capabilities in Kyrgyzstan market demand for accurate information and the ben- was relatively low. The early priority was therefore the eficiaries' willingness to pay over the longer term. Village elaboration of an efficient, paper-based registration and neighborhood block organizations have played a system that was introduced in all LROS, and that could central role in communicating with the population dur- be automated over time where market demand for ing the registration program, from the initial publicity such automation emerged. This demand first became and orientation through the end of the public view- manifest in the Kyrgyzstan's two largest cities, Bishkek ing period. Existing data on land occupancy were also and Osh. There, automated operations led to significant helpful in reducing costs and facilitating roll-out. The increases in efficiency, and this demand soon spread. program focused first on urban areas, where existing Today, roughly half of all LROs are automated and the information was more plentiful and the level of activity in 2 immovable property markets was ments and the situation on the higher. As the program shifted ground. Title to roughly 650,000 to rural areas, the program was property units was regularized coordinated with earlier govern- in this manner. The Project has ment-financed programs to divide made it possible to initiate mort- the state and collective farms gage lending; and although lend- inherited from the Soviet period ing remains largely short-term into individual shares. for the time being, it represents Customer service windows at the a significant departure from con- From the early stages of imple- Bishkek City Gosregister Office ditions prior to the Project. The mentation, the Project had in total cumulative annual value of place a solid system of monitoring and evaluation, registered mortgages reached US$1.6 billion during based on regional monitors located in each of the seven Project implementation, of which some US$70 million oblasts of Kyrgyzstan and with regular reporting to the (4.3 percent) is estimated to be outstanding residen- center. tial mortgages. Using provisional figures, outstanding residential mortgages correspond to 2.3 percent of the BENEFiTS AND impAcTS GDP that was estimated at about US$3 billion in 2006 using the current exchange rate. Hence, development The primary beneficiaries of this project have ranged of the mortgage market has been considerable in com- from private farmers to small- and medium-sized enter- parison with the baseline that showed almost no mort- prises and urban property owners. Under the program of gage activity. World Bank rural finance interventions, sporadic (on demand) registration, over 600,000 proper- particularly the Rural Finance II Project, were instru- ties have been registered, of which more than half are mental in kick-starting the Kyrgyz mortgage market. secondary transactions. These levels of registration and secondary transactions reflect an annual growth of more There has been less impact on lease markets. The num- than 10 percent in land and real estate transactions. ber of leases being registered has been modest, with little growth demonstrated after 2004, indicating that In urban areas, 1.25 million of the total 1.4 million prop- the perceived need for State guarantee of such rights is erties have been registered under the systematic regis- not strong. Tax disincentives may also be playing a role. tration program, with the remaining already surveyed and awaiting further action. In 2004, the program was Transactions costs have declined significantly during the extended into rural areas. By the end of 2008, all the life of the Project. When project implementation began, estimated 1.3 million rural property units are expected the transactions tax on a sale of immovable property to be surveyed and the large majority registered. was 7 percent. The distorting effects of this in terms Comparing the number of total properties covered by of unrecorded sales and gross understatement of sales systematic registration with the share of project costs price led Government to first reduce the tax to 5 percent devoted to this program results in a per property cost and then to replace the transactions tax with a state of about US$2, substantially below international bench- duty that is effectively a much smaller share of the value marks. To reiterate, costs were kept low in urban areas of the property. Currently, land related transaction costs by the availability of existing data on immovable prop- are estimated at less than 2 percent of property value for erty and pragmatic field methods. In rural areas, costs large and expensive estates and less than 1 percent for were held down thanks to the availability of land parcel houses and apartments. information for villages and settlements, and utilization of pragmatic field methods. Despite the decline in the tax rate on transactions, Ministry of Finance data show that actual tax revenues The Project has helped to develop widely used pro- from this source have increased because of the strong cedures for regularizing titles when documentation is increase in property values in the last five years, as well incomplete or when discrepancies exist between docu- as the strong increase in the number of sales. 3 In terms of client perceptions, a mid-term social assess- work rather than the technology used in carrying it out. ment showed broad beneficiary support for the increased A necessary foundation for the success of the Project security of tenure provided by the Project. A more recent was the establishment of the legal and institutional customer survey found that clients generally rate the framework during project preparation. This made for quality of registration services as `average', but that the rapid progress when registration began. The practical overall role of the registration system is considered valu- lessons which later emerged were fed back into the able in terms of securing property rights and improving system through adjustments in rules and procedures, access to credit markets. There is general satisfaction as well as through some amendment to the underlying with the level of fees and accessibility of services, but legislation. Throughout the process, technology was a clear need to do more in the area of public informa- seen to be a facilitator when solid business justification tion, maintenance and upgrading of staff skills, and existed, but not a solution to substantive problems in greater accountability for mistakes entered in the sys- tem. Assessments of corruption are largely inconclusive. and of itself. About one-third of clients and organizations thought There has been good experience with the use of self- that there was corruption, and only about half of these financing for the registration system in combination with directly encountered it. When corruption occurs, it is to a reasonable fee schedule. The use of budget financing `facilitate' procedures rather than to change decisions. in other countries of the ECA region has not been asso- ciated with the same level of service quality. The Project Lessons Learned and Issues also demonstrates that attention to the issues of staff for WIder appLIcabILIty training, public information, and corruption needs to be The Project confirms a number of principles with respect ongoing and continuous. to land administration projects. First, the Project ben- efited very directly from having a single agency respon- The most essential success factor for the Project has sible for registering rights as well as for maintaining the been the continuity and strength of government com- cadastre. In similar cases elsewhere in the region where mitment. Without the strength of leadership in the separate agencies are responsible for registration and implementing agency, as well as the quality and extent cadastre, the results have not been as beneficial for of skills brought to oversee project implementation, the client in terms of speed and cost of transactions. none of the successes that have been achieved would Nor have systematic registration programs with a dual- have been possible. agency approach been effective. The systematic registration program benefited from the references use of pragmatic land surveys, using administrative rath- Suha Satana. Dec. 2007. "Kyrgyz Republic Land and Real er than judicial procedures for adjudication. Significantly, Estate Registration Project; Economic and Fiscal Analysis for the the pragmatic survey methods did increase the number Ongoing and Repeater Projects." of land disputes, and the straightforward procedures for Rural Development Fund. Sept. 2007. "Assessing Gosregister's regularizing titles have greatly expanded the coverage of Performance: Building Monitoring Capacity and Public Opinion the systematic registration programs. Survey Results." Experience from the Project demonstrates the impor- Research and Consulting Agency. May 2004. "Kyrgyz Land and tance of focusing on the substance of the registration Real Estate Registration Project Mid-Term Social Assessment." ARD Land Policy Notes aim to disseminate results from research and Bank ESW, describe innovative operational practices, or point towards areas meriting further analytical attention. Significant contributions to their publication and content come from the DFID- World Bank land policy partnership, the World Bank-FAO collaborative program, the Knowledge for Change Trust Fund, the Global Land Tools Network, the multi-donor trust fund supporting implementation of the Gender Action Plan, and the Norwegian ESSD Trust Fund. The views expressed are those of the author(s) and not necessarily those of the World Bank Group or supporting institutions. tHe WorLd banK 1818 H Street. NW Washington, DC 20433 www.worldbank.org/rural