Building Institutions that Make Property Markets Work

Property rights scorecard

Hernando de Soto famously asked: although cities across the developing world are teeming with entrepreneurs, why do those countries seem unable to become prosperous market economies? The answer, he argues, is that they hold “resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them.”

CIPE and partners Association for Foreign Investment and Cooperation in Armenia, Unirule Institute of Economics in China, Institute of Economic Affairs in Kenya, Institute for Solidarity in Asia in the Philippines, and Saratov Chamber of Commerce and Industry in Russia set out to explore this crucial question in more detail, identifying the barriers small entrepreneurs face in urban property markets using the International Property Markets Scorecard.

The Scorecard provides a methodology for property market system analysis to investigate the six core elements necessary for sustainable market development: property rights laws and enforcement, access to credit by small businesses, efficiency of governance, rational dispute resolution, financial transparency, and appropriate regulations. This approach not only illustrates the linkages between property market elements but also helps identify gaps and advocacy priorities where some of those important institutions remain weak, either due to a lack of proper legal and regulatory framework or its weak implementation.

Following an in-depth analysis of the available secondary data such as international indices and national statistics, CIPE partners conducted fieldwork in two select cities to localize the results. This work was tailored in each country through a mix of focus groups and interviews to obtain the most accurate snapshot of the conditions entrepreneurs face in dealing with the government, banks, and professional services providers in the property sector. These views from small businesses have a unique power to illustrate key problem areas because of the real, personal experiences they reflect.

Property markets are multi-dimensional institutional frameworks that touch upon issues key for all citizens but particularly vital for small businesses. As such, property markets are a microcosm reflecting the state of a country’s institutions that build democracies and market economies alike.

This Feature Service article summarizes key findings – both shared and country specific – as well as reform recommendations for the next advocacy-oriented stage of our efforts. You can also read full country reports here (China coming soon): Armenia, Kenya, and the Philippines.

Article at a Glance

  • Understanding of property rights often remains limited to property titles, without deeper appreciation of the underlying and interconnected institutions that make property rights meaningful and allow property markets to function.
  • Although private property rights are legally protected in most countries, that protection varies greatly in practice because the implementing regulations and institutions that build property markets remain weak.
  • The development of competitive and transparent property markets for small businesses requires not only legally protected rights but also strengthening of the broader institutions of good governance and market economy.

Comments are closed.