In the United States, real estate plays a very significant role in economic activity. Every day, hundreds or thousands of transactions occur in which individuals and organizations buy and sell land and buildings. Before the advent of the Internet, real estate listings constituted one of the major driving forces in newspaper advertising and a major source of revenue for newspapers. Federal, state and local governments in turn earn tax revenues from income derived by newspapers from advertising.
Let us drill down further. When someone decides to sell a piece of real estate, that person thereby launches a series of transactions that will result in a stream of income flows to many other players. We have mentioned the newspapers who may have carried an advertisement for the property. Next, the real estate agent that "lists" the property for sale. That agent earns a fee for doing so. Again, Federal, state and local governments get tax revenue from the agent's fee.
The person who wants to buy the property (the buyer) engages the services of a realtor to make an offer on the property. A search has to be conducted of the public records to make sure that the property actually belongs to the seller and that any liens on the property are known to all parties. The title company will receive a fee, on which Federal, state and local governments will again earn tax revenue.
The property will have to be insured against fire and other risks. The insurance company will earn a fee, on which Federal, state and local governments will earn tax revenue.
When the transaction is finally consummated ("closed"), more fees will be paid to a variety of people involved in the transaction—couriers who will ferry the documents from place to place, archivists who record the transaction and store the records relating to the transaction so that anyone with an interest can access them. Federal, state and local governments get another opportunity to exact their pound of flesh.
It is unlikely that the property would have been purchased for cash. A mortgage broker most likely would have arranged for the buyer to borrow money to buy the property. The broker and mortgage bank thus earn revenue from the transaction, and that revenue once again is subject to tax by the Federal, state and local governments.
When the property is purchased there is an opportunity for other players to benefit from the transaction—-gardeners, plumbers, carpenters, masoners—any number of artisans and professional tradesmen who will service the property.
The point I am making is that a robust real estate market can have a huge multiplier effect on an economy. Real estate transactions in Liberia are mainly limited to construction and leasing. We do not have an active re-sale market. Hence, we are missing out on many of the benefits that are associated with active re-sale housing markets.
A large part of the reason for that is antiquated provisions in our Constitution that limits the sale of real property. When I left the United States, I did not put the houses I had bought on my head and bring them to Liberia. What I did was to add value to the US economy. If foreigners are allowed to own real property—-land and buildings—-they will not put these assets on their head when they leave the country and take them to Beirut, Calcutta, London or New York.
And for those who fear that allowing foreigners to own land will result in their buying up all of the land, I repeat the statistic I stated in last week's column. We, all of us combined, are currently only inhabiting 4% of Liberia's land mass. The buying spree by foreigners would have to be on a gigantic scale before we ran out of land.
Moreover, for any foreigner to buy land, he would have to have a willing Liberian seller wanting to sell his/her land. And there is the philosophical question. If I wish to sell a parcel of land that I own, should the government, any government, have the right to dictate to me whom I should sell it to?
The writer is a businessman. He can be reached at ([email protected]).