Immovable Property Rights: A Case for Law Reforms in Punjab
PREFACE
Pakistan has faced severe economic crises in the past and is still facing one. Inflation has remained very high during the past few years making it hard for the majority of the poor and lower-middle class even to survive on the bare minimum. In these testing times, the state has little or hardly anything to offer due to squeezed fiscal space. It has to increase taxes and energy prices to pay for public debt, pensions, and independent power producers (IPPs). This economically alarming situation requires some drastic cost-effective policy interventions to encourage local and foreign investment. Only private sector investment is likely to bring economic turn-around for the country be it job creation, improved forex reserves, or more public revenues.
An effective system of property rights and contracts provides the fundamental foundation for improving the confidence of investors in any system. Unfortunately, both of these have remained neglected areas and mainly the colonial system continues with some land reforms which too remained inconclusive. People are left to themselves to settle their property and contractual disputes or left at the mercy of decades-long court proceedings to settle them. This situation has caused frustration and, many a time, resulted in a series of conflicts causing the loss of precious lives. As a student of law and public policy for over three decades, it has baffled me and always wanted to contribute to systemic reforms in a meaningful way.
I appreciate RASTA and the Pakistan Institute of Development Economics for providing an opportunity to research property rights, one of the most important aspects of the economy which is affecting millions of lives of the poorest of the poor. As explained in this report, we need some drastic reforms to have a system where property rights are protected. An interesting aspect of the proposed reforms is that hardly much public spending is required on the implementation of these reforms with benefits ranging from reducing conflicts and encouraging investment. In my humble view, huge benefits outweigh the costs of adapting the proposed reforms.
In the end, I think that hardly any debate is required on the statement of the problem regarding property rights in Punjab but do acknowledge that there may be a difference of opinion on conclusions and recommendations. This study does not try to reinvent the wheel and is based on the existing knowledge base. This study will be meaningless if no time-bound property law reform agenda is set for Punjab by the elected representatives of that province. I would welcome any ideas based on reasons which are most likely to make property rights effective.
EXECUTIVE SUMMARY
Immovable property is a precious and limited resource. It has always attracted human attention for ownership and possession. Be it the feudal system of the West or the Jagir system of the Indian subcontinent, immovable property played a significant role in evolving social structures in any society. Even the communist philosophy revolved around it. During the past more than a century, the proper use of immovable property has played a pivotal role in the economic development of various nations. This has been done through systemic reforms by enacting laws for the protection and enforcement of property rights.
This report takes the reader from the introduction of property and property rights, their etymology and history to the protection and enforcement of property rights in various jurisdictions of the world. The position of Pakistan in property rights protection based on international reviews, indices, and rankings is captured to identify problems relating to such rights. It contains a detailed introduction and analysis of the Torrens system before analyzing gaps in the property rights system of laws in Punjab. Based on these deliberations, certain conclusions have been drawn and specific recommendations have been made for systemic reforms requiring legislative intervention.
Property rights are internationally recognised rights and almost every nation has laws for the protection of private property rights. Apart from a hiatus of less than a century of communism, private property rights remained a predominant feature of every nation’s legal system. Even the present-day communist nations have started creating room for private property rights for economic development. After independence, Pakistan did not focus on property rights except for an unfinished agenda of land reforms. The digitisation of land records is more of an administrative reform than bringing a sea change in the system of property rights.
The Constitution expressly provides for property rights but the laws to protect those rights were mostly made during the colonial era with a different mindset and for different times. Land laws applicable to rural areas, transfer of property laws, eminent domain law, legal restrictions on land alienation, and property dispute settlement laws are all colonial laws inherited by the state after independence. Some of the laws relating to immovable property passed after independence, like preemption, possession, katchi abadis, and electronic transactions laws went the other way instead of promoting property rights. The law relating to strata titles and condominiums is conspicuously missing from the property laws of Punjab.
As expected, Pakistan fared poorly on all the international indices on property rights. It has consistently performed poorly on the World Bank, Infrastructural Development Association’s Country Policy, and Institutional Assessment (CPIA) on property rights, and occupies 156th rank out of 175 countries ranked on the property rights index of the Heritage Foundation. Worse still is the 104th rank out of 125 countries on the International Property Rights Index (IPRI). It consistently ranked very low on the measure ‘registering property’ in the erstwhile Doing Business Index of the World Bank. A similar ranking is expected in the forthcoming B-READY Index of the World Bank which will replace the Doing Business Index.
The existing property law reforms in Punjab are sporadic and are not likely to provide an impetus for economic revival. Reform measures should come as a package and not cover a single aspect of property-related laws. In recent years, it did make some progress on the digitisation of land records, ensuring inherited property rights of women and honouring tenancy agreements other than agricultural tenancies.
A comparative analysis of the legal systems relating to property rights shows that economic progress made by Singapore, New Zealand, and Australia is based on a solid foundation of one of the most effective property rights laws in the world. An analysis of the property rights system of England and Wales has also been made apart from a detailed analysis of Indian laws of property. This story is repeated throughout the world that the developed economies either have robust property rights laws or the fast-growing economies are trying to catch up on property law reforms to hasten their economic progress.
Sir Robert Richard Torrens has the credit of coming up with a novel initiative some 170 years ago on property law reforms. The system is named after him as the Torrens system based on mirror, curtain, and guarantee principles. This initiative has since changed the world’s view of immovable property being a private affair of the owner with hardly any responsibility of the state other than the state being the custodian and guarantor of title to the private properties. This system has its positives and negatives but it is still regarded as one of the best possible systems for protection and enforcement of property rights.
In Punjab, the deed registration system for immovable property transactions has been prevalent for more than a century. That too is not universally applied and many entities, including private societies and companies, are the custodians of property transactions. This has resulted in a lack of investment in general and especially in the development of private properties. Financial institutions are reluctant to provide credit to small farmers and for large holdings they hedge. Hence, credit on land security does not come cheap; rather it is costlier than other securities. There are huge conflicts over property disputes and these conflicts have overburdened the judiciary. These conflicts invariably turn violent and have resulted in the loss of many precious lives. Multiple factors in our legal system are responsible for defective titles and consequential conflicts.
Universal registration of all property transactions by a sole state agency, the introduction of the Torrens system, the digitisation of entire land and strata properties in juxtaposition with cadastral maps, the rationalisation of taxation on property transactions, allowing online property transactions, capacity building of land administration officials in modern technologies, and reforms in laws relating to eminent domain and katchi abadis is a way forward for introducing an effective system of property rights in Punjab. This will require the repeal of some laws, substitution of few, amendment of others, and enactment of new laws.
