Friday, September 4, 2009

Property rights

In his famous book “Mystery of Capital,” Peruvian economist Hernando de Soto explained that the key difference between a developing and developed nations lies in its ability or inability to create capital with property.

A certificate of property rights or entitlement is a necessary basic factor for creating a capital from a property. A title represents a property and circulates like money because this piece of paper confirms a property’s value and its current owner, whose rights are certified and guaranteed by the government. Any financial and banking institution recognizes the certificate exactly as the property itself and gives loans and even raises money solely based on the title. As a result, circulation of properties increases and the nation’s amount of accumulated capital grows exponentially. While the property remains on its location without movement, its representation can wander anywhere in the world and makes money while the owner sleeps.

Depending on the character, property divides into three types: intellectual, material and land. Unfortunately, classic understanding regarding owner’s rights of an intellectual property is almost nonexistent in Mongolia and this subject will be discussed separately. This time, let’s look more closely at problems regarding material and land property.
Mongolian government‘s current operations intentionally create barriers and obstacles, instead of opportunities for building capital from properties. It is pitiful that because government authorized organizations reciprocally negate each other, two ministries of the same government have to sign an agreement to coordinate their business. Let’s look at concrete examples of the capital city.

In Ulaanbaatar, boundary distinctions between a private and a public land property do not exist. As a result, it is up to some political party official, who may separate or unite the building owner’s rights from the land owner’s rights, to give or not give a property title and rights to one or the other individual. Where authorities change in the party’s name in however way the property rights and title owners, a group of few people have become accustomed to plunder a long time ago.
The capital city’s many buildings are constructed and keep being constructed by the dozen on public land including children’s playground space, pedestrian roads and flood dams. As a result, another public authority refuses to give permission for operation of those properties. In addition, once the construction has started, citizens who believe in public governance prepay to reserve a residence in the new building. When the construction is complete, they move in but cannot get title on their property.
At the moment, a whole district with a large shopping center and an apartment complex for thousands of families that is constructed on the source of drinking water for the city, is awaiting its sales on the market. Its future residents will clearly not be able to receive their title on their properties.
Furthermore, residents of apartment buildings which were constructed and sold under the so called “tourism development purpose” in Zaisan valley of Bogd Mountain’s supposedly national protected area, have still not received their titles of property although they have been living there for already a few years.
Political election is the only hope for residents in any similar situation dispersed throughout the city. If any incumbent boss with a strong political power campaigns for parliament election, as an accepted standard, s/he makes sure that their political party gets those titles signed by related authorities. “In general you cannot, but if you prove that you really want, than it is possible,” is the principle of Mongolian public governance.
Because citizens cannot get titles on those properties they paid for with their lifelong savings, so much property is blocked and cannot circulate in the economy to get a “life” of its own.

Since there is no title on properties, there is less chance to get a proper market assessment; the owners cannot exercise their property rights and even receive insurance services. Since they cannot insure against fire and flood, the costs of risk management soar. Just recently during the flood, basements of Zaisan valley’s newly constructed residential houses overflowed with water and permanently damaged many expensive cars. Residents of the new apartments with leaking roofs, walls grown with fungus, and no heating system also share the same luck. Because there is no legal basis to make assessment and it is not clear who owns the property, the government is not able to collect property taxes up to 2 per cent of its market evaluation. When there is no such tax on that property, its maintenance and related services are barely done with the money collected from residents and not by the city administration.
Because the government does not guarantee the citizens’ creation of capital with their own properties, the people are poor and the government continues to ask for assistance from foreign countries every year trying to meet ends.
The main gateway to development is by making sure that every property has a title and an owner who is responsible for that title.

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