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Real Property Law
A major reform in the area of real property is currently being implemented in Honduras through the Property Law, (Ley de Propiedad, or LdP), which entered into force on June 29, 2004. The primary purpose of this law is to rationalize the country’s chaotic property system by recognizing settlers’ rights, resolving title disputes, and modernizing the Property Registry.
The LdP includes the creation of a new entity in charge of property matters, Instituto de Propiedad, which will have authority over, inter alia, real property registration and a national cadastre map. The new property system is expected to be fully in place in January 2005. The LdP created a transition period during which information from current registries would be transferred into the new system. During the period of the assessment, registries’ employees reported that the procedures during the transition period were unclear and that they thus used the old property and registry system by default.
The real property system has a profound effect on credit markets because mortgages are the primary form of guarantee accepted by creditors. Because land tenure is usually unclear mortgages and thus credit are difficult to obtain. A survey conducted by a World Bank project in 2004 showed that only one in nine property titles is free of discrepancies. In cases in which credit is provided, the ambiguity of ownership creates added risks for creditors, which in turn charge high interest rates, further decreasing access to credit. Securitization of land or land titles does not occur.
An added problem, as recounted elsewhere in this report, is that the judicial system in Honduras is unreliable. Execution of real estate guarantees is slow and difficult, thus discouraging investments in real estate.
Overall, the current state of the Honduran real property system discourages foreign investment and the growth of local business. Current reform initiatives, if successful, could play a large part in enhancing the business climate and allowing for economic growth.
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