Can Customary Land Be Bankable?

  • Last week, it was reported that the current Minister for Lands, Hon. Justin Tkatchenko, is working to find a way to make customary land bankable. In other words, the former Minister for Sports is looking at a way for landowners to seek finance from commercial banks and for banks to accept customary land title as security over these loans.

    The move is quite an innovative one and no doubt stakeholders are keeping a look out for how this proposal unfolds.

    Approximately 80% of land is customary owned which in some way is an impediment to development.  The fact that landowners are unable to obtain loans due to banks unwilling to accept customary land as security makes it all the more difficult for landowners to develop their land.

    But is this move by the Minister a good one?

    In terms of development, it seems like a positive one.  But the real problem lies within the owners themselves.

    Customary owners have their own customary problems.  Families don’t usually agree with each other.  One sells a parcel of land without the knowledge of the other.  It can be quite a chaotic situation.

    Their lack of knowledge about finance, investing and general rules and regulations about land ownership makes it an even more difficult task to get them to understand the risks they put themselves into should they go down the path of mortgaging their customary land.

    The banks will obviously assess their risk and if there’s money to be made and the risk is acceptable, they’ll go for it.

    Customary landowners need to be extra careful about taking this path.  One question that arises is this:  In the event that the landowners default in repaying the loan, will the bank exercise its mortgagee rights and sell the customary land to any party (whether customary landowner or not) that is willing to pay?

    Would this mean that the land is no longer customary owned and can be on-sold just like any other freehold land?

    Whatever strategy is arrived at, customary ownership must be protected at all cost.

    Banks are big businesses.  They deal with huge sums of money, they take huge risks.  So it is unlikely that in the event of a default, they will show some form of leniency just because this is customary land.  If they need to get their money back, they will whether it be an existing customary landowner or otherwise.  And here’s the thing.  The likely person to take that opportunity of buying from the bank is a cashed-up non-customary owner.

    The timing of the proposal is also a little suspect.  Current real estate market conditions aren’t favorable for novice investors.  There is so much risk out there businesses of all sorts are looking at ways to cut cost.  Even banks are extra careful in minimizing their risks by requesting additional cash as security.

    If anything, the Government needs to create a more conducive environment for landowners to invest.  Perhaps providing grants for projects with lower risks and monitoring the progress.  You know grants that have a more communal benefit where each landowner plays an active role.  Not to provide a “too good to be true” opportunity placing them a huge burden and a risk that could possibly lead to their once customary land being sold by the bank to third parties. They need to engage in a project they understand well.

    Ultimately, if the system does eventuate many customary landowners need to be educated about the risk. We’ve seen one too many times where buyers throw money at them, money that they’ve never seen before and they just grab it without thinking about the pros and cons.

    If landowners default, the bank is going to grab the money regardless of who the buyer is.

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