What is Title Guarantee Worth in Land Markets? Evidence from Bengaluru, India - Working Paper

Land reform has been a constant topic not only on development literature but also in economics and politics for many years. Many popular movements (specially agrarian) have been focused on land distribution and ownership, although in later years the theme has been losing visibility (partly due to the diminishing role of agriculture in many economies, partly due to its association with 'marxist' movements vis a vis 'free market'). On the other hand the issue of titling urban settings, specially in relation to squatter/slums in developing countries has garnered more recent attention (probably it most well known leader being Peruvian Hernando De Soto). Venkataraman's "What is Title Guarantee Worth in Land Markets? Evidence from Bengaluru, India" falls in this last group by looking at the premium generated not only by a solid/guaranteed claim but also adequate planning in urban settings.

Abstract:     

"Land reforms require urgent attention in emerging market economies, and there is a vast body of literature that deals with the economic impact land reforms, especially land titling (Acemoglu et al., 2001). India, like other developing economies, has a presumptive titling system which is notoriously inefficient: a law that is in the draft stages of consultation is the Draft Land Titling Bill, 2011, which seeks to replace presumptive titles with conclusive ones. However, there is no study that has looked at the cost of not having an appropriate titling system. In this study, I attempt to quantify the premium paid towards title by using a quasi-natural experiment on differential titles that is available in the Indian market, utilizing land prices in Bangalore, India. The differential title to land comes about as a result of State's activity in using eminent domain to acquire land parcels, conferring superior title on the parcels so acquired. A hedonic model is applied to a data set of 2263 observations of appraised land values to tease out the impact of guaranteed land title on land prices."

The paper finds that the land title premium represents, in this case, a 4.3% increase in price. While this increase might not be significant enough for a private owner, as the costs of securing rights may easily overcome any expected profits, it begins to become significant for larger private developers and governments. The author calculates that for Karnataka real estate alone the welfare loss (fancy word for the amount the % increase is not currently realized) is at least 430 million USD, while the cost to the state to deliver title guarantee is 6.6 million USD (although probably that budget would dramatically increase if it were to cover the whole state, I would imagine). A very large unrealized potential.

To note that, in the study, the solid title is produced through the use of eminent domain, wiping out potential competing claims through compensation and legal standing. A methodology that may be hard to scale up or replicate. Nevertheless, the study shows both the advantage of clear and uncontested land titles, and also the role of the state in providing a registration and guarantee service.