Quo Vadis - International Conference
FIG Working Week 2000, 21-26 May, Prague

Proceedings

Lessons Learnt from the Emerging Land Markets in Central and Eastern Europe

by Peter Dale and Richard Baldwin

Key words: 

Abstract

This paper reports on the findings of a study into land markets in central and eastern Europe carried out under the Action for Co-operation in the field of Economics (ACE) programme of the European Union (EU) which was carried out during 1997 and completed in the first part of 1998. It examines progress in six countries en route from a command driven economy to a market based economy that is compatible with the requirements of membership of the European Union. The investigation involved detailed case studies in the Czech Republic, Hungary, Latvia, Poland, Slovakia, Slovenia and sought to identify those elements that are necessary for an effective and efficient land market. This led to the establishment of a three pillar model of the land market and a set of indicators for the assessment of land market development. The paper tries to identify the bottlenecks that may hinder land market development and summarises the findings of the comparative assessment in the study countries and their progress to reform. Finally, it makes a series of policy level recommendations aimed at the establishment of stable, efficient land markets able to support general economic development and the anticipated needs of EU entry.

Professor Peter Dale
University College London
Tel. + 44 171 504 2745
Fax. + 44 171 380 0453
E-mail: pdale@ge.ucl.ac.uk

Dr. Richard Baldwin
GIS/LIS Projects Director
BlomInfo A/S
E-mail: Richarolin@aol.com

Lessons Learnt from the Emerging Land Markets in Central and Eastern Europe

1. Introduction

In 1996 a study was commissioned to examine the progress of land market development in central and eastern Europe and to seek to identify policies that would be useful in overcoming transitional problems and in establishing a well regulated functioning land market, especially during the period leading up to EU accession. Members of the study team are listed in the acknowledgements in Appendix A to this paper.

The study sought to develop an understanding of land markets in countries in economic transition and hence to identify ways in which they can be developed so that they meet the needs of the societies that they serve. In particular, the aim was to identify policies that should have a positive impact on the land market in a manner that enriches the common good, facilitates economic growth and strengthens democracy. By understanding the framework within which both urban and rural land markets operate, it should be possible to bring about a general improvement in the "quality of life" of citizens and hence provide greater social stability and economic growth. Policy recommendations also need to be consistent with the broad objectives of countries seeking eventual membership of the EU.

It should be emphasised that there is no such thing as a completely open land market since all countries have restrictions of one kind or another, especially in the agricultural sector. Many of these restrictions are concerned more with who, and under what conditions, the land may be used, and with local social considerations, rather than with economics or law. For these reasons, the study did not seek a purely economic analysis of land markets, but rather sought to understand the broader political, social and historical factors that shape the attitudes of people.

The focus throughout the study was primarily on rural land markets and on agricultural land rather than forest areas. Urban land markets in the transition countries are characterised by a lack of access to capital and credit in the domestic sector (mortgage banks are a recent introduction), whilst the privatisation and restructuring of industry produced a surplus of (relatively) low grade commercial premises. Investment has stimulated property development, resulting in major growth in sectors such as retailing development in response to consumer demand.

Generally, the urban land markets are most buoyant in the capital cities, although progress is still hampered by incomplete reform of the administration (such as technical delays in the land registration process). Property investment is still perceived as high risk, especially where bankruptcy or mortgage laws are considered inadequate to safeguard an investor’s interest, or where the valuation system is perceived as weak or inconsistent.

Currently the land markets are much more active in urban areas than in rural. This is in part because in many countries rural land values are so low that owners are unwilling to sell and in part there are still major disincentives that arise owing to structural impediments in the market arising from the socialist legacy. One consequence is a growing leasehold market in rural land that permits contractual arrangements for the use of land while circumventing the need for the formal transfer of land ownership rights.

The transition and land ownership

During the last fifty years, the countries of central and eastern Europe have experienced two profound changes in the dominant political ideology - a transition to a socialist command style economy during the early 1950’s, followed by a transition back to a market economy in the years following 1989. The socialist years had a significant impact on the socio-economic and legal framework. The land policy that was practised during this period was driven by an ideological belief in the common or social ownership of property; the allocation of resources according to centralised planning including state intervention processes; and the associated suppression of the individual private ownership rights in property. This policy had a powerful effect on the legal framework and especially on the relationships between land, property and people and can be characterised by:

• changes in the legal framework associated with defining property and rights of ownership,
• concentration upon usage rights, as opposed to ownership rights,
• the passage of legislation which discouraged or inhibited trading in land and property, and
• the expansion of the state as owner / occupier or user of land.

This led to the discouragement of private land ownership with the result that the government organisations that had recorded this ownership focused instead on recording land use. In several countries, agricultural land was either taken into state ownership, or the individual private farmers were forced to join co-operatives. Many citizens found that their property was expropriated by the state. Additionally, the pattern of agricultural land was changed so as to create large fields that were the optimum for agricultural production. The evidence of the boundaries of the earlier smaller plots then disappeared from the landscape. In the urban sector, new socialised building took place without regard to the historical property rights, and the individual apartments and buildings were often not registered. There was no need for a functioning land market in this environment.

Calls for property restitution or compensation for loss of property followed the changes of 1989. There are interesting differences as to how these issues have been approached in the study countries, driven by the political aspirations and the mood of society in the country concerned. In Poland, there has been no large-scale restitution or compensation. Land taken into the possession of the state is subject to privatisation; as of March 1998, of the estimated 4.6 million hectares of agricultural land in the possession of the state, less than 650,000 hectares have been sold ⁽¹⁾. In Latvia, Czech Republic, Slovak Republic, and Slovenia, the restitution of actual property has taken place where reasonable and possible. The claimants must be citizens of the countries concerned and compensation is paid where restitution of the actual property is not possible. In Hungary, the approach has been fundamentally different: rather than carry out large-scale property restitution, the state adopted a policy of compensation for all claimants. By June 1998, more than 200,000 urban and 230,000 rural properties had been restituted in the Czech Republic and the process was more than 90% complete. There were approximately 60,000 cases for restitution in the Slovak Republic of which more than 80% were complete. By June 1998, Slovenia had settled more than 60% of the estimated 40,000 cases. Today, in all countries, the existing restitution is approaching completion.

Due to large scale border movements at the end of the Second World War (Poland) and mass migrations (Poland, Czech Republic, Latvia, Slovak Republic), there are large groups of potential applicants who are unable to claim under existing legislation. In Hungary, land was awarded in a compensation process and also granted to the former workers in co-operatives and state farms. More than 2.1 million new land units have been created, and the total area subject to compensation is more than 5.6 million hectares (50% of the area of the country).

A second major effect of the socialist period has been the impact upon field structure and the separation of usage and ownership. This problem is particularly acute in the Czech Republic and the Slovak Republic, where the owners lost their rights of disposal and independent farming and were forced to farm co-operatively. The effect on the land fabric was to eliminate the historic field boundaries. Today, there is no evidence on the ground of these parcels, and they can only be registered in simplified form (because there is no boundary data). This affects 9 million parcels in the Czech republic and 6 million parcels in the Slovak Republic (out of an estimated total of 23 million and 12 million respectively).

The third major effect was to reduce the importance of the regulatory authorities. Private financing disappeared, land valuation became oriented towards optimising agricultural production through detailed soil ecological analysis, and the land registers and cadastre were modified to reflect usage, not ownership, or in many cases were not updated at all. Financing was a state responsibility.

Land as a commodity

Land has a number of characteristics that distinguish it from other goods and services that may be traded in the market place. While the economist may view land as a commodity that is immovable and strictly limited in supply, the landowner may not view it from an economic perspective but rather as a cultural heritage. Concerns by the Czechs over the ownership of real property in the Sudetenland, by the Poles over the areas once known as Prussia or by the Latvians over areas occupied by people of Russian origin add a dimension to the land market. What may make short-term economic sense, drawing investment back into a country, may be totally unacceptable for political and social reasons. There is an emotional element that enters into the ownership of land that constrains the land market and hence cannot be ignored.

In many countries an informal market appears to have operated with transactions being agreed locally, for example over who should use the land and who should benefit from it. In all western communities there has been fragmentation in land management between the control of ownership and use rights, the former often being controlled at a central government level and the latter at the municipal or local authority level. This pattern is being repeated in many countries in transition. Confusion is compounded in the case of valuations that are sometimes a central government responsibility and sometimes a municipal task.

Within the land market, tenure, value and use are inter-dependent and yet at the administrative level they are treated quite separately making a formal understanding of land markets more difficult to achieve.

It is of course essential within market driven economies that land markets are supported by a clear legal basis that is administered by regulatory authorities who oversee the safe keeping and update of the legal title to property. Land and its associated buildings are traded according to their market value; they can be bought and sold, transferred from one owner to another or leased. The manner in which land or buildings may be used is, however, controlled by physical planning laws. Planning regulations affect the price that a purchaser will be willing to pay for any property since the permitted land use directly affects its market value. In looking at land markets, therefore, it is necessary to look at the factors that determine land values. These factors include matters particular to the individual land parcel such as the security of tenure and the nature of the use rights, and externalities such as the availability of credit.

In most countries land and property are subject to taxation for occupation and usage. As the monetary value of land and property is high, it is usual to borrow capital in order to finance the purchase. The borrower needs security for the loan in the event of default and this will normally involve a charge upon the property. The various rights and privileges of the owner, the mortgagor, mortgagee, the lessor, the lessee and the occupier must all be defined in law. On the event of death of the owner, the inheritance must be settled and this often leads either to the fragmentation of parcels (with one farmer owning many small plots scattered over a wide area) or fragmentation of owners with many people having claim to a single piece of land. Parts of Poland provide an example of the former. In some parts of the country a farmer may own fifteen fields each being less than two hectares and spread over an area of forty square kilometres. Slovakia offers an example of the latter where a single field of twenty hectares may have more than three hundred owners and over a thousand co-owners. In Slovakia changes in the law to prevent such multiplicity of ownership were rejected as they were judged to be contrary to basic human rights that in turn are protected by the Slovak Constitution.

Any proposed land market model must take all these factors into account. It must also recognise that in mature markets there is a range of parties involved and a variety of goods and services. In the land market, this means there will be a range of participants, including private individuals, corporate investors, speculators and financial institutions. There will also be supporting services including valuation, estate management and a mechanism to put the buyers and sellers in contact with each other (real estate brokers). Each of these contributes to the market and to the efficiency and effectiveness with which it operates.

2. Modelling the Land Market

There is a general consensus that in order for a land market to work, there must be

• a clear definition and sound administration of property rights;
• a minimum set of restrictions on property usage consistent with the common good;
• the transfer of property rights must be simple and inexpensive;
• there should be transparency in all matters; and
• there must be an availability of capital and credit.

These requirements are necessary but not sufficient to guarantee an efficient and effective land market. It is obvious that underpinning all land and property development there need to be clear and consistent land policies that operate within a stable institutional framework.

In general under communism the policy was clear and consistent since most matters were under central control. With the breakdown of communism new policies had to be developed and new legislation prepared. In the early days in Bulgaria, for example, there were at least thirteen versions of a proposed new cadastral law in circulation while in several countries conflicts remain between different pieces of legislation introduced by different government ministries and departments. Because of the fragmented way in which land and property are administered, it is important that there is a national policy that is coordinated between the different Ministries.

The market operates through participants buying and selling goods and services. These market operations need to be supported by three regulated sectors - land registration and the cadastre, valuation services, and financial services. The efficient functioning of these elements is essential if the land market is to operate smoothly and formally. These supports may be regarded as the regulatory pillars that stand on the base of land policy. In the communist era, the first regulatory pillar (land registry and cadastre) was modified to focus on land use, the second regulatory pillar (valuation) reflected the potential use rather than market value of the land, while the third regulatory pillar (financial services) was almost non existent.

Regulatory Pillar 1 – Land Registration and the Cadastre

In all market economies the basic legal relationship between real property and its owner is officially documented in land registers that also record obligations or encumbrances that are charges upon the land. The official recording of this information is normally carried out by the state administration although professionals in the private sector may be empowered to carry out some of the processes. In many countries there is, in addition to the land title registers, a cadastre that was created to support land and property taxation. Unlike some land registers, the cadastre is map based, the plans recording the precise extent of the property boundaries. Many central and eastern European countries have followed the old Austrian practise of having the Land Register (the Land Book or Grundbuch) separate from the Cadastral Map. In some countries (e.g. Hungary, the Czech Republic and the Slovak Republic) both the land register and the cadastral map are integrated into one register and managed by a single authority. In others (e.g. Slovenia and Latvia), the land register and cadastre are maintained by separate authorities.

Regulatory Pillar 2 – Valuation

In many of the land reform programmes, great emphasis has been placed on cadastral reform and on computerising the land records. Only when this began to gain momentum did the focus move towards property valuation, a process that aims to establish the connection between monetary value and the property itself by producing an estimate of the capital value of the asset. There are various ways used to calculate this capital value that may involve estimates of the income potential or the actual market value of the property. The methodology may need to take into account such factors as access, utilities, improvements and, for agricultural land, the quality and permitted use of the land. In the case of the EU, an additional factor is the assignment of quotas for instance for milk or wine; if a land unit has an assigned quota then it may have a greater market value than land that has no such quota.

During the communist period, there was no need for an assessment of market value as the agricultural land value was connected to its potential productivity. In all of the central and eastern European countries, a system of land quality indicators was developed that involved soil type and estimated productivity of that soil type for a particular crop. This was assessed within a particular district or region. Using this approach, the communists hoped to be able to optimise the agricultural production across the country.

In the early stages of land restitution several countries delayed the introduction of land taxes, partly in order not to discourage land owners from reclaiming their rights. Now that the restitution programmes are nearing completion, the infrastructure for providing a valuation service and for the mass appraisal of real property is being put in place. In Latvia, for example, the mass appraisal that will form the basis of land taxes is itself based on the data gathered in the communist era since it can reflect the local comparative value between properties, even if in absolute terms it bears little relation to the market price.

Where property taxes exist, there is a general consensus that the amount of tax paid should be proportional to the value and amount of land held by the landowner. More recently, land taxation has been viewed as a land mobilisation tool, in that it can be used as a mechanism to promote good land management practices. By varying the tax rate, the actual usage of the land can be influenced. In order to adopt this practice, up to date and accurate information is needed regarding the land occupancy and its actual (rather than intended or possible) usage.

Valuation has suffered from a lack of expertise and a lack of data about market prices. Even today the methodology for valuation is weak in many of the transition countries and mass appraisals are based on ‘cadastral’ values that are calculated from land parcel areas, soil types and other objective criteria rather than on estimates or recordings of market price. In the command economies, land value was a tool for the efficient allocation of resources through the planning process. In a market economy, land value supports the re-allocation of resources according to market forces (supply and demand). The land valuation practices that developed in the socialist countries did not produce transparent, reliable estimates of monetary value that are required for an efficient and secure land market. New valuation procedures are currently being developed.

Regulatory Pillar 3 - Financial Services

The third regulatory pillar that is needed to support the land market is the delivery and regulation of financial services. A market economy requires that adequate financing mechanisms are in place to support the buying, selling, leasing and development of property assets, and it is essential that these financing mechanisms are regulated and supported by appropriate law. In the socialist economy, land resources were controlled by direct allocation of resources, without regard to their monetary value, and hence, in all socialist countries, this pillar was largely absent. In market economies it is normal for the private sector to provide the products and services within a clearly regulated institutional structure.

The financing mechanisms needed by a market economy require that investment in the property sector will give sufficient returns to warrant the risk and trouble of that investment. As such, property financing has to compete with other forms of investment such as interest earning deposits, stocks, government bonds and other securities. In the market economies, there is a range of financial products that can be used for property investment. Different financial instruments tend to be used by different types of investors such as government, co-operative groups, individuals or companies. Typically these will invest for different reasons; government will be concerned with infrastructure, establishing support services and housing while companies may invest purely on the expectation of financial gain or in order to use or develop a particular site. Individuals will normally invest in order to obtain secure living accommodation. For all investors who lack capital, financing will come from loans or grants.

Loans secured by charges upon the properties are mortgages and these are normally protected and regulated carefully by law. These form the principal financing mechanism available to the private investor and in countries such as the USA, the value of mortgage and house savings funds can total more than 45% of the annual GDP. Raising capital for investment can also be obtained from the stock markets and capital markets and both of these require a secure and well-regulated financial sector, plus confidence on the part of the institutions that make up this market - without confidence, investors stay away. Alternatively, governments may make development grants available such as rural credit or rural guarantee funds in order to support policies and programmes that they wish to prioritise.

Figure 1. The Three Pillar Model of Land Markets

The Three Pillar Model - Comparative Analysis of the reform process

The Three Pillar Land Market Model is shown in Figure 1. The three regulatory pillars are constructed upon the legal framework of the country and are strongly shaped by the land policies adopted by government. Regulatory pillar one (land registration) provides the connection between land and property on the one hand, and people and legal entities on the other. Regulatory pillar two (valuation) provides the connection between land and property and finance mechanisms, while the third regulatory pillar (financial services) establishes the connection between finance mechanisms and people and other legal entities.

If government is able to adequately establish and support the pillars then the land market will provide a dynamic environment that includes

• the participants (land owners and tenants);
• the goods and services (the land and its use); and
• the financial instruments (mortgages, credit, capital financing,etc).

An efficient and effective land market can be characterised in terms of the effectiveness of the regulatory pillars; the land policy; the regulatory framework; and the dynamism of the market itself. Table 1 identifies those elements that are considered to have a significant impact. Where these elements are present, or are well supported, then this is a positive factor, while if the elements are clearly inadequate or weak, then land market development will be inhibited.

The elements can be used as indicators of the current status of the land market. The land market can then be examined in terms of the elements identified in Table 1, and each element can be scored (minimum value 0, maximum value 5) as a land market indicator according to Table 2. Using this scoring methodology, it is possible to assess the state of development of each of the regulatory pillars; the policy and regulatory framework and the state of the market, and also produce an overall score for each of the study countries.

On the basis of the scoring methodology put forward in Table 2, an overall score of less than 1.5 would indicate a very closed command economy with inadequate or missing regulatory pillars, communist style land policy and very little market activity. A score greater than 4 would be indicative of a market economy with adequate regulatory mechanisms of registration, valuation and finance, and a range of participants, goods and services, financing mechanisms and a favourable land policy.

Table 1. Characteristics of an efficient and effective land market

The detailed case studies carried out as part of the ACE project enabled the study team to assign scores for each of the indicators of Table 1 for each of the six study countries. Although the numerical values are obtained from qualitative assessments and are therefore not rigorously derived, they should be consistent and provide a means of measuring a country’s progress in comparison with other countries.

The scores were then used to prepare a Land Policy Framework Matrix (Table 3) that was used to summarise the key issues that arise during the reform process and to give a visual check on progress. The Matrix illustrates the overall progress that is needed in the reform of each of the land market sectors (land registration, valuation, financial services, market activity and land policy). The results for each of the six study countries are given in Appendix B. These tables

• help to quantify the current land market status of the study country,
• illustrate the progress in the overall reform process,
• identify and characterise the principal bottlenecks and inhibiting processes,
• allow comparative analysis, and
• facilitate the development of recommendations to support land market improvements.

The countries are progressing through four phases, starting with a command economy, moving through a transition period into a market driven economy with the final intention of reaching the status of the leading members of the European Union. Thus a score greater than 1.5 shows that the transition process has begun while a score greater than 3 shows that the land market is becoming active. A score in excess of 4 would suggest that a level has been reached that equates with that in the EU.

Measuring performance

While the earlier analysis indicates the state of development of the land market in the reform process, it takes little account of the actual performance as measured in terms of how active the market has become. Empirical evidence suggests that there is a direct correlation between progress in the transition towards the market economy and the level of market activity although as discussed earlier the performance is much stronger in urban rather than in rural areas. Table 4 identifies performance indicators that may be used to assess the market activity. The performance indicators are compared with EU norms, obtained from examining the statistics of five EU countries - Denmark, Finland, Netherlands, Sweden and the UK (reported in the Land Administration Inventory of Europe, Part 2 published on behalf of MOLA by the UK Land Registry).

Table 3. Land Policy Framework Matrix

Table 4. Land Market Performance Indicators

Based on the definitions contained in Table 4, a Land Market Performance Indicator of 100% would indicate a land market reaching the same level of market activity as that which may be found within one of the more advanced EU member states. The Performance Indicator is defined in such a way that it reflects the availability of land that has clear title, with no regulatory impediments for sale, as well as the general market activity that includes enquiries, sales and mortgages. It is possible to develop this further and to include indicators based on area, land value and number of new constructions although this was not done in the present study.

The overall Land Market Model has two distinct measurement domains

• Land market indicators measuring the overall status of the land market in its transition from the command to market economy.
• Performance Indicators showing the overall level of activity compared with EU norms.

A plot of the Land Market Indicator against the Performance Indicator should produce a diagram like that in Figure 2 (overleaf). A Performance Indicator of the order of 90-100% (Table 4) and a Land Market Indicator of 4.5 or 5 (Table 1 & 2) corresponds to the land market status in most developed EU states, while scores of <20% and <1.5 correspond to a closed command economy. In improving land markets the aim would be to increase both the market activity and the market reform, thus increasing the Land Market Indicator and the Performance Indicator towards their maximum values. The case studies suggest that the market has three phases of development:

The Land Market requires a certain amount of reform from its pre-1989 position before it can significantly develop. There must be a critical mass of property with clear title, secure boundaries and disposition rights. The legal basis must support private property, the regulating institutions must be in place and there must be a critical mass of participants with access to suitable funding. This implies that this phase is dominated by initial legal, institutional and regulatory reforms. There will only be a slow increase in market activity, linked to improvements in the technical infrastructure, once the initial conditions have been established. As the reforms become more substantial, the access to disposable property and the amount of available property becomes clearer, the regulating institutions begin to work, the financial institutions develop and the risks are seen to reduce resulting in increased market activity.

The Land Market now has most of the institutions in place and they are functioning. The data quality is good and the regulating institutions are sound. The credit facilities are available. The market becomes open to a wider range of participants and it is the dynamic energy of these that drives the development. Significant increases in market activity take place for relatively little improvement in the institutional reform position. Land prices will rise significantly during this process and wealth creation is achieved.

The market is beginning to saturate as it approaches the levels consistent with market economies and the EU member states. In order to finally reach the EU levels, there is a further reform (or harmonisation) of laws and regulations that are required. These are more concerned with environment and the creation of instruments to implement EU policies such as the CAP (Common Agricultural Policy). Market activities will not be suddenly stimulated during this period unless significant distortions are introduced externally (e.g. the agricultural land market is suddenly liberalised overnight).

Figure 2. Land Market Indicator and Performance Indicator

Figure 3 shows the development of a Transition Curve, which can be expected to represent the path of a transition country as it experiences the different phases and identifies the dominant forces during the transition from the command to market economy.

Figure 3. The Transition Curve

3. The Case Study

The theoretical analysis outlined in §2 above was developed through the gathering of data and a series of workshops in which various ideas and components of the model were discussed. The model was then tested and scores evaluated both by members of the research team and by representatives of the six countries concerned - the Czech Republic (CZ), Hungary (HU), Latvia (LA), Poland (PL), Slovakia (SK) and Slovenia (SI). The elements identified in Table 1 were quantified on the basis of the criteria that are given in Table 2. The results are given in Table 5 based on data gathered in 1997 since when the markets have continued to progress.

A summary of Table 5 is provided in Table 6. In general, as can be seen from Tables 5 and 6, the market reforms have progressed fastest in the land registration and cadastral pillar and less quickly in pillars two (valuation) and three (financial services). The reforms in pillar one have received significant support from organisations such as EU PHARE and the World Bank and have enabled the land restitution and compensation programmes to be largely completed. This has been both a political priority and an economic necessity in satisfying the aspirations of the former landowners, and reducing the role of the state as the principal landowner and land manager.

The development of the valuation pillar has been more slow. The reasons for this are related to the lack of a historical role for property valuers and the lack of a central agency or institution charged with responsibility in this area. In addition, the relatively small number of commercial transactions during the early reform years and the lack of property taxes in most countries in the region have also caused progress to be slow. There is also a significant lack of information and expertise concerning valuation which has historically been concerned more with productivity than with monetary value. The financial services are mostly provided by the private sector, so naturally this pillar will only strengthen as the market deepens and there is an increased demand for financial products and services. Necessary precursors for this include mortgage laws to protect the interests of the various parties and clear, strong foreclosure and bankruptcy laws to lessen the risk of debtors defaulting and creditors being unable to obtain re-possession or adequate compensation. The generally higher level of interest rates in these countries also restricts demand.

Table 5. Land Market Indicator scoring for the six study countries

Table 6. Overall Assessment of the Land Market Indicators

The Policy Framework supports all these activities. Governments must adopt clear policies and priorities and provide a sound organisational structure. There are often conflicts between Ministries concerning their respective areas of interest and this will influence the policy framework. The governments have had to develop transition policies for all sectors of the economy and it can be difficult to prioritise the aim of developing land markets in competition with other sectors.

Land Policy Framework Matrices were produced for each country studied and provided a profile of the overall reform identifying the major impediments at the time (see Annex B). The land market performance indicators described in Table 4 were calculated for the six study countries, based on information gathered during the case study, and the results are shown in Table 7.

Table 7. Land Market performance indicators for the six countries

When applied to Figure 3 the position of each country on he transition curve becomes apparent, as shown in Figure 4.

Figure 4. Transitional Curve for the case study countries

4. Recommendations

In making recommendations, the study team made certain assumptions, namely:

• The basic reforms and market transition that are underway in the transition countries will continue and there will be no substantial change of political direction or orientation.
• The process of EU accession will continue.
• The governments of the transition countries are committed to open transparent land markets as a long-term objective.

The recommendations are presented as actions for governments to undertake. The emphasis is on encouraging governments to put in place the right base conditions and supporting framework to allow the land market to develop. Governments must of course be wary of over–regulation, yet must provide enough support to ensure that the regulatory measures are soundly implemented. Inevitably, whatever policies are adopted, they represent a compromise between the interests of the different parties, and what the government perceives as its political priorities. In particular:

1. Governments should concentrate on maximising the potential involvement of the private sector by providing the necessary base conditions and ensuring that the necessary legal and institutional frameworks are in place to support the buying and selling of land.
2. Governments should dispense with their role as a major land owner.
3. Governments should assume the responsibility for the initial modernisation and restructuring of the three regulatory pillars of land registration and cadastre, valuation, and financial services. They should identify measures necessary to support and encourage an increasing number of participants in the land market.
4. Governments should emphasise accountability, openness and transparency at all levels.

The policy recommendations that follow concentrate on those aspects that will bring real sustainable benefits in the development and nurture of land markets. It is not the intention to make specific recommendations for the individual case study countries, as each has its own specific set of circumstances. Instead, some general policy level recommendations are presented that appear to apply to all transition countries. These relate to:

• The completion of the transition process
• The establishment of a coherent national land policy
• EU accession and land ownership
• Land Administration – Institution building
• Land Market support measures

Recommendation No 1. Completion of Transition Process

The relationship between the ownership and use of land and property was broken or suppressed during the socialist era, limiting the citizen’s powers of disposal with, in some cases, the land itself being expropriated. Large socialist agricultural enterprises and co-operatives were created and in many cases, the evidence of the earlier field boundaries was destroyed. In some countries, the land ownership records were not updated, even in the case of inheritance. As a consequence, the relationship between people and property became uncertain.

Land restitution programmes have addressed the issue of expropriated property. In the case of eligible claimants in the central and eastern European countries ⁽³⁾, the programmes of restitution are largely complete though in some countries the problems of boundaries have not yet been addressed. In several central and eastern European countries there are still substantial inconsistencies or inadequacies in the completion of the land registers owing to the "missing parcels" and "missing owners" resulting from the socialisation of agriculture. The market mechanisms cannot work until the basic state directed reassignment of property relationships is complete and the records show a position that accords with reality. This does not mean that the old boundaries must be marked out in the field, but it does mean regularising the new and old records in order that people can have clear title and also can see where the properties are located. This will mark the completion of the state intervention into the rearrangement of land ownership relations

1. Establish national policies for regularising all available land and property records, including the identification of owners and property boundaries.
2. Formulate and enact supporting legislation.
3. Create clear policies concerning restitution, indicating whether former landowners will be compensated for the loss of their properties either through physical restitution or other forms of compensation.
4. Develop a restitution or compensation scheme with supporting infrastructure.
5. Ensure that any existing pre-socialist land records are available and accessible for consultation.
6. Establish a democratic and socially acceptable process for settling all potential claims, including clear and independent appeals procedures.
7. Set up a temporary authority with responsibility in law for making decisions on a case by case basis. These decisions must then be recorded in the official land register.
8. Make optimum use of the resources of the private sector.

1. The establishment of a clear land reform policy that is acceptable to the populace and represents a balance between the interests of the different parties.
2. All potential claimants have received consideration with no disenfranchised groups and no further claims outstanding.
3. All land ownership has been regularised and the land records harmonised.
4. The official land records ( land register and cadastre) are being kept up to date.

1. Legislation that does not allow all potential claimants including expatriates to be treated fairly.
2. Legal difficulties with the restitution or compensation legislation.
3. Inability to trace historical owners and their heirs, possibly through the loss of title records.
4. Loss of cadastral records showing old property boundaries.
5. Loss of physical boundary information as a result of enforced collective farming.
6. Lack of base land values that ensure fairness when restituting in kind or through compensation.
7. Technical problems with supporting the restitution and compensation work-flow.
8. Inadequate recording of rights (e.g. use rights) within the land registers.

Recommendation No 2: The Establishment of a Coherent National Land Policy

The establishment and operation of land administration systems and functioning land markets involves substantial co-operation between several different sectors of government. The transition countries are characterised by a lack of institutional co-operation and an absence of "ownership" of land issues that can lead to politics operating in a vacuum. There is a real danger that wider issues become lost and specific issues are addressed only within the narrower confines of a single ministerial brief. There are also dangers that policies in one sector will significantly impact on policies or ongoing programmes in other sectors, thus creating confusion and waste.

The state has potentially conflicting roles as landowner, as land administrator and regulator, and as creator of measures in support of land market development. There needs to be a coherent and integrated approach. The land market requires a clear national land policy that is implemented within a legal and regulatory environment that is certain, with government policies that are not subject to sudden change. All too often there is a lack of a high level integrated policy in land matters and little formal mechanism for inter-ministerial debate on land matters.

1. Create a National Land Policy Forum that includes representatives from all Ministries and organisations concerned with land. Ideally the Forum should include private sector representatives drawn from the professions. The Forum should act as a high-level Policy Committee on land matters.
2. Establish a working group, responsible to the National Land Policy Forum, that will prepare a Land Policy Statement setting out the immediate and near term policy objectives. The statement should also identify the roles and responsibilities of the various agencies involved in land administration.
3. Ensure that the mandates of the key land management agencies are clear and without conflict or competition so that the work of different Ministries and organisations can be harmonised. In particular, ensure that matters such as rural development, environmental protection, land use recording, taxation records, and agricultural monitoring are harmonised with land registration, cadastre, valuation planning and local land use controls.
4. Clarify the legal basis of land ownership so that support for private property is clear and unequivocal, and the public understand the necessity for registration.
5. Clarify the role of the state as landowner so that it retains only such land as is necessary for its operations.
6. Recognise the need for a range of financing measures, and ensure that adequate safeguards are in place for mortgage encumbrance and foreclosure.
7. Encourage openness and transparency in all land dealings and ensure that contract law is adequately structured for conveyancing so that land dealings can be simply and speedily transacted.
8. Ensure that land taxation regimes are stable and are not subject to sudden change.
9. Ensure that land market activity is monitored and information is made easily available to the private sector.
10. Avoid over-regulation.

1. There is a clear and consistent policy statement concerning the land market.
2. An inter-ministry forum for policy debate concerning land issues has been established.
3. Policies are promoted that emphasise broad sectoral issues and involve active co-operation between Ministries and land-related organisations.
4. There is awareness by the public of the legal necessity for registering dealings in land.
5. The Land Laws and associated regulations are clear and well understood.
6. Transaction costs are low.
7. There is minimal regulation consistent with necessary legal and financial safeguards.
8. There is connectivity and compatibility between the databases maintained by Ministries through the use of standardised property identifiers.
9. There is routine monitoring and publication of data on the land market activity.
10. There is strong FDI (Foreign Direct Investment) in the land market in line with legal ownership legislation.
11. There is an effective Rural Development policy that ensures the social and economic well-being of rural communities.

1. The public may not understand the need to register property transactions.
2. High transaction costs may lead to unregistered transfers that are not recognised legally.
3. The Law may not be clear as to what constitutes land and property. For example, if the law recognises different ownership of buildings and the underlying land then there can be difficulties with the security of mortgages.
4. Legislation may prevent or discriminate against certain participants in the land market who would otherwise be buyers, sellers, interest holders, or users.
5. The legal basis for ownership by different parties (e.g. private individuals, legal persons, banks, foreign physical and legal