The real estate market, foreign investment, customary disputes, evictions – land issues are rarely out of the Vanuatu headlines. To get a sense of what is happening in the real estate market and with land issues generally, Daily Post Editor Jane Joshua had a wide-ranging discussion with Douglas Patterson, Principal of Island Property, one of Vanuatu’s leading real estate and property development companies, that has been developing and selling Vanuatu land and property since 1991.

Mr Patterson was chairman of the Private Sector Committee, which was formed before the 2006 Vanuatu Land Summit, and he presented that committee’s submission to the Summit. He was the private sector’s representative on the Land Steering Committee that was set up to follow through with putting into practice the 20 resolutions of the Land Summit, which received the endorsement of the Vanuatu Government’s Council of Ministers.

He has also represented the private sector on several high level Government committees ranging from the Lands Tribunal Act consultation process to the Customary Land Management Act Advisory Committee and more recently the Ministry of Land’s Subdivision policy. He has written numerous business and promotional articles published in Vanuatu and regional magazines.

Away from the workplace he was the founding chairman in 2004 of the charity that oversees the operations of ProMedical, Vanuatu’s paramedic ambulance service, which he chaired until last year, and he is the creator of Kranki Kona, the regular cartoon that has been published in this newspaper since 2001. He has lived in Vanuatu since 1986 and is a naturalized citizen.

How would you describe the present real estate market?

In many ways it’s not too different from how it has always been, with some things selling and some not. The main change in recent years has been the steady increase in buying by Chinese investors, particularly commercial and tourism properties and the larger development sites.

Is it true that nearly all the foreign investment goes into Port Vila and Luganville?

Not only most foreign investment, but most local investment too. The Vanuatu Investment Promotion Authority (VIPA)’s current figures, as well as their historical annual data, show that quite clearly. Around 85% of foreign direct investment (FDI) is made in the urban areas of Port Vila and Luganville, which cover only 1% of Vanuatu’s land area. It’s understandable in some ways considering that’s where the infrastructure, government offices, banks and customers are – 25% of the country’s 300,000 population lives in Port Vila and Luganville.

What are the reasons people come here to invest?

Many, but not all, investors from China, and to a lesser degree from New Caledonia, have said that it is not so much the appeal of Vanuatu as a business destination that has brought them here, other than the fact that there is no limit to what foreigners can buy, and no limit to how much money you can send here or take away. Their overriding priority is to get their money out of their home countries. The possibility to legally buy a Vanuatu passport has, not surprisingly, accelerated the Chinese investment, even though China does not recognise dual nationality.

VIPA’s data in relation to Chinese investment is unavoidably distorted because so many new Chinese investors are arriving for the first time in the country already in possession of a purchased Vanuatu passport, which means they don’t need to obtain a VIPA new foreign investment approval certificate.

Do we still have Australian investors coming to Vanuatu?

At times in the last few years it was hard to avoid all the pessimistic articles about an overdue downturn in the property market in Australia. Some recent commentary says that this may be changing, but many pundits still believe the market could still see a downturn if the recent growth is fuelled by too much debt.

Borrowing money there has probably become more difficult, especially after the Banking Commission findings, so we are bound to see less investment from Australia.

The Australian dollar has also lost considerable value from when it was on a par and even stronger than the US dollar just a few years ago. The growing concerns around the world about slowing economic growth, also dampen the market.

Do we have a retirement market, where people from Australia and New Zealand buy land or houses here for their retirement?

This used to be quite a strong part of the Vanuatu investment market, and prompted some of the early out of town subdivisions ten to fifteen years ago, but certain recent land legislation has undermined that.

Legalising the forfeiture of land titles that aren’t developed “more than 50%” within a certain period obviously kills off a fair bit enthusiasm for Vanuatu, especially when the term “development” is not defined. “Improvements” are defined in the Land Leases Act, and there is a definition for “Development” in Section 1 of the Physical Planning Act, but naturally enough, very few people will buy something in a foreign country with a future development or retirement plan in mind if that title – including any part of it that may already be developed — may be subject to possible forfeiture.

People don’t typically wait until they are retired to buy or build their retirement home, they tend to plan this while they are still earning, so inevitably there will be a delay between buying and building. There are other issues of course, such as the absence of an international standard hospital anywhere in the country, which is a vital issue for retirees, but needless confusion and anxiety obviously erodes investor confidence.

Does possible forfeiture only apply to foreigners who own property?

Ironically, because many more locals own land titles than foreigners, the risk of forfeiture is actually far greater for locals. For example, there are hundreds, and possibly thousands, of rural land titles that have been bought by locals in areas outside of the main towns to move to when they finish working, or for vegetable gardens or for other members of the family to occupy. Many of these titles are nowhere near “50% developed.”

At the same time, I have spoken to quite a few rural lessors who thought they might be able to forfeit leases, but dropped the idea when they realised that they would not automatically become the lessors in any new lease if they did not have a “Green Certificate” legalising their ownership – as most do not — and they would need to apply for a new lease using the Custom Land Management Act. Punitive laws like this seem to be so counterproductive when it is so urgent for us to generate confidence and attract investment in the country.

How are things going for our existing investors and business community?

I think if you were to speak to most business owners today they would tell you that they are experiencing as difficult a time as they ever have done. Vanuatu’s current economic stagnation needs to be seen against a backdrop of Cyclone Pam in 2015, the consequences of the self-inflicted disaster of flight suspensions throughout 2016 because of the Bauerfield “runway issue”, and the corrosive effect to investor confidence of the drawn out uncertainty throughout 2017 and 2018 of whether or not the Government would introduce additional tax measures.

Business owners already installed here have no choice but to try to survive. However, uncommitted potential investors can continue to “wait and see”, which means many have chosen not to invest for now.

Perhaps if the Governments of Australia and New Zealand in particular encouraged their citizens to invest here by giving tax incentives we might all be able move all away from the long held view that people investing in Vanuatu must somehow be doing something wrong or a little shady because of our historical status as a tax haven. Small business enterprises hiring and training locals are far more sustainable than the average aid project.

Is it true that the Custom Land Management Act of 2013 (CLMA) has stopped titles being created in the rural areas?

In a meeting this time last year with the Prime Minister and a few others, the Director of Lands confirmed that only a handful of leases had been registered since the gazetting of the Act in October 2013. So on the face of it, it’s very easy to conclude that the CLMA has been a dismal failure and should be radically amended or repealed.

On the other hand, I have heard certain politicians and chiefs saying that this is a good thing because leasing land only creates family disputes and the temptation to sell, and it is much better for the rural population to rely on a “custom economy.”

So it depends on your perspective. There has apparently been a review of the CLMA but I understand implementing any suggested changes has stalled, and that a review of the Land Reform Act is also being proposed.

You were one of the private sector representatives on the advisory committee for the CLMA so you must be aware of why this legislation was proposed in the first place?

We were told that part of the political drive behind the CLMA was to get a greater control over the land leasing system, prevent abuses by politicians and middlemen, and some investors, and to try to ensure that the correct landowners became the lessors on any lease.

But there was also the idea that “leasing land means losing land” because a registered lease is something you can sell. So those behind the Act seem to have wanted to make it difficult to obtain a new title on previously unregistered land. It was obvious from the start that the practical challenges of creating a new lease using the CLMA requirements would be enormous, and this has proven to be the case.

Are you saying that it is almost impossible to create a new title on land that has never been registered before?

Unfortunately, that is what the last six years have shown us. I know of numerous applications, including those submitted by senior government officials and politicians in a private or personal capacity, that have sat frozen for one or two years or more, simply because the meetings that are meant to take place to consider them never take place, and there is no alternative legal way to deal with it if these meetings don’t occur and approve things.

How much of Vanuatu’s land is affected by this?

Precise data is difficult to obtain, but we know that not much more than 10% of Vanuatu’s land area is actually registered with a lease title over it. That means 90% of the country is unregistered or “customary” land. It’s all very well in theory to say it’s much better for the rural population, estimated at around 75% of the population, to rely on a “custom economy.” However, it’s difficult to raise people’s standards of living in such circumstances, or to secure any investment they want to make. Even without applications to create lease titles, there are often such strong disputes over land ownership that no one is able to use it at all.

Thousands of ni-Vanuatu families struggling daily to pay school fees to educate their children is abundant evidence that people want much more from their lives, and for their children’s lives, than a “custom economy.”

Is having a registered lease title the only way to ensure development?

Not having a land title usually, but not always, means that no development takes place, other than the traditional planting and harvesting of the custom economy. Little or no new rural development of a commercial nature means decentralisation gets stalled and urban drift accelerates. We see that in the growing squatter areas around Port Vila, that will be an explosive problem in the coming years.

But the repercussions of this go further. If an ordinary family cannot obtain a registered title, building a home with any sense of security is impossible – and of course no bank will lend money if there is no registered title to secure the loan. Any ni-Vanuatu coming from an outer island to Efate, or to any other part of the country outside of his customary area, cannot claim customary land ownership, and so he or she is no different from any foreigner when it comes to buying a land lease title, or securing any investment he or she wants to make.

Does that mean that “Customary Land” has no market value?

Unregistered customary land can’t really have commercial or market value, except in a hypothetical scenario. Unregistered customary land cannot be bought or sold, it has no title, it cannot be subdivided, it cannot be rezoned, it cannot receive planning permissions, it cannot be used as security with banks, and mortgages cannot be registered upon it.Customary land therefore would seem to have only usage value, perhaps a rental value, but not a market value.

The use of the word “market” implies that something can be sold, when in fact unregistered customary land cannot be sold. All these things are only possible if a registered title exists. In the end, a political decision will need to be faced — are we likely to experience more problems from widespread squatting, limited development and land disputes, or from opening up new parts of the country, including some agricultural land close to the towns, with new titles for economic investments and other developments?

Do you think that some of the recent land legislation has been a reaction to seeing so much land being leased since Independence?

If that was the reason, then I believe it was misconceived, because much less land has been leased in the last 40 years than many people probably think. For example, much — and perhaps most — of the ten percent of the country that is actually registered in titles today, especially in and around the towns, was already registered as freehold titles at the eve of Independence in 1980.

During the 1980s these former extinguished New Hebridean freehold titles were re-registered as new Vanuatu leasehold titles to the former freehold title holders, who received an “Alienator’s Certificate” to let them do this. Even if we were to say, for argument’s sake, that only half of the registered leasehold land area today was registered as freehold titles in 1980, that would mean only about 5% of Vanuatu’s total land area has been registered in the last 40 years. Is that really too much too quickly? – especially given the rapid population rise, and the urgent need for properly registered home sites that this creates?

Is it true that many of the land subdivisions have blocked the public having access to the sea?

Most subdivisions, whether coastal or inland, and whether they are urban or rural, were created by surrendering existingtitles rather than being issued as new first time titles. For example, the subdivisions of Bukura, Narpow Point, Pangona, Havannah Harbour and Undine Bay were derived from already existing titles. The public were not deprived from having access to the coastline by any of these waterfront developments because the land was already held as private titles, mostly as Agricultural properties.

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