Indeed history has shown that the linchpin of a successful economy depends on the degree of property rights of its citizens. From this vantage point, how does CNMI fair? If you answer this question honestly, you’ll see that part of our ailing economy is due to our government not honoring property rights. This occurs on different levels. Article XII is a law that counters property rights. Imagine that you’re a local and you own lots of land or just a homestead. You raise your daughter and she marries a non-local. Their children will still be able to own land, but suppose their children decide to marry a non-local, and so on. Eventually, you reach a point when the next generation will be alienated from the very home their grandma or great grandma have come to know and love. Is this the future we want for our children? I emphatically say no!

Can someone direct me to homestead laws?

For your information, those regulations are already in place. I know because I had my homestead taken away from me after I failed to meet the conditions set forth in my homestead permit.

As for selling the property, let us take a closer look at the CNMI’s homestead regulations and other applicable laws.

A homesteader must develop the property within a 3 year span afforded. Afterwards, DPL inspects the lot for compliance. The homesteader is in is issued a quitclaim deed when found in compliance of the conditions provided under the homestead permit. The homesteader, however, must wait an additional 10 years before the title of the property is transferred to his/her name.

Knowing this, I have to agree with you that homesteaders should be barred from selling or leasing their properties because such action certainly defeats the purpose of the Homestead Act.

For your information, those regulations are already in place. I know because I had my homestead taken away from me after I failed to meet the conditions set forth in my homestead permit.

As for selling the property, let us take a closer look at the CNMI’s homestead regulations and other applicable laws.

A homesteader must develop the property within a 3 year span afforded. After words, DPL inspects the lot for compliance. The homesteader is in is issued a quitclaim deed when found in compliance of the conditions provided under the homestead permit. The homesteader, however, must wait an additional 10 years before the title of the property is transferred to his/her name.

Knowing this, I have to agree with you that homesteaders should be barred from selling or leasing their properties because such action certainly defeats the purpose of the Homestead Act.

Isn’t this already the case?

The CNMI does already have a ton of Public Land. Perhaps instead of leasing it out so quickly we can start issuing it to indigeneous people for homestaead purposes and closely regulating the use of those homesteads. That program can ensure that indigenous still have land. Regulations can be put in place to ensure that Public Lands can not be sold and issued homestead land can not be sold. Should a homestead owner default on their agreement then the land reverts back into the homestead pool.

On a serious note, I admire your gumption and your dedication to your studies. Perhaps if I were as serious as you I would have finished college in half the time it took me. With the time it took me to complete college, people should be calling me “Doctor.”

Okay, back to the Article 12 thang. Hawaii and Saipan are not as different as you think they are. The biggest difference is that the majority of private land ownership does not belong to Hawaiian descendants, but here in the CNMI, the indigenous Chamorros and Carolinians still own the majority of private land. Peter, I would hate to see Chamorros and Carolinians become a minority in their own home!!

Article 12 is as controversial a topic as they come. Once again, you and I will never see eye-to-eye on this topic, but I do believe you have valid points that should be considered.

Regards,
Ed

P.S. Get on the dance floor and do the cabbage patch. Girls looove the cabbage patch!

Let me illustrate what is happening to you in the R/E market, expanding on my point #3 on comment #323, which is undermining the twin purposes of A XII.

I think the issue here is that I pointed out first that the closed R/E market is depressing the price so much so that a comparable tract of land is being leased at a higher price than being sold. This is merely a conjecture based on the asymmetric market size between the NMD descent “buy market” versus the global “lease market,” and one which would need real market research. The way we would go about it is to dig into the public title records of various villages and see the net present value of lease prices versus one time purchases. However, the fact that leasing is more expensive than buying does not necessarily mean that Article XII as a whole is bad. As an economist, I merely wanted to point out the costs of the law. There is an disequilibrium in our market, where we pay more to borrow than to own. But, all in all, the ultimate choice should be reservedly sit in the hands of the indigenous people.

Ed responded very well to the above point that perhaps this isn’t a bad thing. When Article XII is destroyed, the buyer’s market price will skyrocket akin to what has happened in Hawaii and no indigenous person would ever be able to purchase land. To this, I first respond with comment #323’s point #1-2. I also respond that Hawaii’s economy is starkly different from CNMI in comment #357. Palau, which offers longer lease term is still suffering from lack of investment and capital expenditure. In the grimmest scenario, opening Article XII may not lead to such level of investment that our optimism points towards, taking into the fact that the Asian economy has been investing closer to home, in Macau and Hainan, trying to keep capital within borders.

However, I want to go beyond that and point out that Article XII is creating a collusive market where the “low price” in the buyer’s market is really enjoyed by the few, the rich, the powerful, not really spreading and promoting the wealth of the indigenous people as the second intent of Article XII (the way I perceive it).

We know that neither non indigenous people nor corporations, institutions can “own” land in the CNMI. Over the past few years, NMD’s have needed cash, sometimes more than what they had on hand, leading to taking out debts both through banks and personally, with land as their collateral. Now, when Northern Marianas Descent (debtor) defaults on these loan payment terms, the recourse of creditors have been limited to auctioning these lands off within certain period of time, limited in market time exposure. Who buys these tracts of land? The rich, the few, the powerful. Not the average Jose.

To expand on this, the situation need not even involve an intermediary financial or credit entity consisting of individuals. It could (and I imagine, has) occurred directly, where the cash strapped Northern Marianas Descent would decide to cash out on his land. In looking for a buyer, a limited number of again, the rich, the few, and the powerful would await to buy. When they collude to buy the land at depressed prices, I often wonder whether any of the twin purposes of Article XII are being upheld.

But that’s just my two cents…

PS: Ed, I’m studying quite hard here (calculating deductions for personal hobby expenses at 2 AM on a Friday night, when everyone’s off to the dance floor).

You say Aricle XII Is a blessing because it keeps land values down at unrealistically low prices. These unrealistically low prices make it possible for “locals” to buy land.

You are spot on in regards to the affect Article XII has on the value of land. These land restrictions do just that. I see how many land owners have been taken advantage of by other NMDs due to this fact. Perhaps they came on hard times, perhaps they had what they believed was too much land, perhaps they just wanted off this rock and decided to sell their property. What has occurred has been that these land owners were forced (because of a restrictive market) to sell well below their value.

Now there are a few wealthier families in the CNMI that have accumulated tons of land under this provision. Many have sold their land and now have none.

You stated that Article XII keeps lands low enough for locals to buy and that this is a good thing and you will not change your stance on the issue. You mention that you have a Kia Sorento. What if you were told by your government that you could never resell that vehicle or any vehicle on Saipan except to NMDs. What do you think the resale value of that car would be? What if the government argued that they were doing that so that the value of cars would drop? They wanted to keep the value low so that “locals” could afford them.

I would venture to guess that at the moment in Saipan alone there are less than 10,000 NMDs over the age of 18. Remember there are only 12,500 cnmi voters (not all of which are NMDs). That is a sever limitation on the market of available land buyers.

And if memory serves me correctly, your future grandchildren could be at risk of not being able to inherit or purchase land in a place the you personally call home. This is more tragic to me than land rates being dictated by a free market and open to all buyers.

Article XII does just that. It tells land owners what they can do and can’t do in regards to their property.

You stated that your sister was unable to afford the land in Hawaii and that was wrong. But the truth is that someone must be able to afford it and is probably willing to pay 1.5mill for it. The value that person set for his property was the amount at which he would be willing to part with it. Maybe the rate is so high because they don’t want to part with it but that is the value that will allow him to make that decision. I believe he will find a buyer at that price or close to it.

Can your sister “buy” land in the CNMI? Can she be upset at the prices in Hawaii and come to Saipan (the place her dad and mom call home) and buy land?Can her children? Can her future grand kids?

It is important to remember also that by removing Arcticle XII it does not force a land owner to sell their land. If they are passionate about keeping a hold of it then they can damn well do so. If they want to lease it… go for it. There is no obligation to sell. Perhaps with a realistic value on their land they may be more tempted to sell and that is fine. If I offered you 1.5mill for your sorento I don’t think you would consider anything other than “where do I sign” and there is nothing wrong with that.

The ability to sell your land at higher rates does nto make squatters. Land owners will sell if they need the money no matter what. They are selling today. That will never change. What is happening now is that the law is taking money out of their pockets and the law is jeopardizing their ability to pass on their property to their children and grandchildren.

PP

Hope all is well with you in the States. Don’t study too hard!

Is this what we want for Saipan? Outrageous prices for homes? Should indigenous people of the Marianas become squatters on their own land?

The people will decide the matter in the year 2011.

The people would decide the matter in the year 2011.

1.) That opportunity cost runs both ways.

It has come to my attention that the indigenous people are worried about what would happen once Article XII is lifted. One scenario has been that the local people will immediately squander all of their proceeds and go broke. Poverty has been a key concern for the opponents against universal and equal rights in land ownership at CNMI. And truly, if rampant poverty among the indigenous were to become a reality, it would be a sore scene, undermining the very intentions of Article XII and to a greater extent, the Covenant between the United States and NMI.

However, let us take a step back and ask the opposite question. What are the indigenous people forgoing because they cannot sell their land?

First is the opportunity to earn an average S&P 500 return, and at the least, the risk free market rate of 4.5% in treasury bonds. If the indigenous person who sold the land were to immediately invest all of the proceeds in the stock market, she would have earned roughly 10.95% annual return from the stock market (figure based on average return from Jan. 1 of 1950 to Dec. 31 of 2006). The double digit return sounds like a poor choice if the CNMI real estate market outperformed the S&P 500 over the last decade. But, did it?

Did the CNMI real estate market grow by 10.95% per year? You tell me.

All we know is that opportunity costs run both ways.

2.) That diversification rocks.

Since real estate in CNMI is illiquid, not easily transferable to another buyer, indigenous people can and do tend to suffer from lack of diversification in their asset portfolio. Simply put, the current plight is forcing locals to over-invest in land, whereas if land were bought and sold freely, it would have been easier to hold different mixtures of assets.

To illustrate this point, say that the current land owner holds $10 million dollars in land. As the real estate market in CNMI has been taking a dive in recent years, their net wealth position has also dunked to somewhere around $5 million, assuming conservative 50% percent downturn in last 10 years. This huge swing could have been normalized and calibrated had the law allowed the investor to sell off half of her land and diversified by investing elsewhere. Her portfolio would have had $5 million dollars of land and $5 million dollars in stocks. Now, when the land prices plummet in similar manner to the previous scenario, the shock is reduced to 2.5 million dollars (50 percent of 5 million net position in R/E). So, at the least, she would have had a net wealth position of 7.5 million dollars, ceteris paribus. If his stocks performed better (and as we know, it did), she could have even improved her position.

In essence, diversification rocks.

3.) That collusive market behavior will worsen.

Someone in the discussion thread pointed out that few of the people own most of the land in CNMI, in spite of homestead. I believe that the situation is happening because of the characteristics of CNMI R/E market, which is a closed market of few buyers and sellers. One of the key characteristics of R/E market in CNMI is that the clearing market price is different from what it would have been in a free market due to collusion. What is happening is that few people have colluded to buy low and sell high. The market isn’t monopolistic, monopoly, monopsonistic, etc. The market is operating like a cartel.

What’s happening? The rich indigenous people have fished for poor indigenous people who are in dire need of money. Since land is very illiquid, the person in the liquidity trap with nothing but land (a concept mentioned above leading to higher opportunity cost), tend to accept lower than fair market value of the land. Over time, the number of land holders decline as some land holders perform well and others do not, and the ones who perform well purchase the land of those who did not perform well. In the end, when fewer people own land, they can collude to tease out the land held by others by depressing market price and such. This process is being expedited from the fact that the local population is decreasing through intermarriage, shrinking the market even faster.

I can only see the cartel like symptoms of the market becoming more apparent down the road.

(This article has been posted on pbae.blogspot.com as well.)