Honduras: Modern Property Registry System

Let’s imagine that you want to buy and register a warehouse in the industrial area of the city of Comayagua, in the north-west of Tegucigalpa, Honduras. Suppose that you have identified the owner.

First, you have to travel to Comayagua and visit the registry’s office. You have to check if the house is registered under the name of the person who claims to be the owner. It is also recommendable to check for any encumbrances (lien or restriction on use).

Second, you might also visit the office of the cadaster located at the Municipality to check the map of the property and cross-check its size and boundaries with the information obtained at the registry.

This is a costly process. But luckily, this is no longer necessary. Due diligence can now be done on-line from any computer in the world. The city of Comayagua was a pioneer in integrating the register and cadastral information on a single digital support ten years ago. The same reform is currently being introduced in Tegucigalpa.

In 1998, the property registry system was obsolete in Honduras. The 24 national registries were in a dire situation in terms of staff and technology. Registration was done manually in books. The system in place, known as “folio personal”, recorded the name of the owner and a brief description of the property, but did not make the link between the owner and the geographic location of the property.

This system, which did not take the object (the property) but the subject (the owner) as the basis for registration had created juridical instability in the real estate market. The same property could be registered twice or more times by different owners, leading to painful juridical procedures. Citizens distrusted the registry because of its inefficiency. Registering an immovable property took between 1 and 2 years. In 2002, only 37% of properties in the capital city of Tegucigalpa had been registered. The system soon collapsed.

In June 29 2004, the Congress adopted the new property law, which had two interlinked objectives: create the institutional and legal framework for a more efficient system of property rights to activate capital markets, and regularize the situation of properties under dispute. In a recent conversation, an international expert considered the law “the most innovative property law in Latin America”.

The new law introduced a new registration system, known as “folio real”, which made property registration easier, cheaper and safer. The starting point of the reorganization of the system was the geographic location of the property and its cadastral record. The aim was to achieve the connection between the registry records and the cadastral information in one central electronic database. The World Bank supported this reform through a three-phase $139 million project, the PATH Project (“Programa de Administracion de Tierras de Honduras”).

Four years after the launch, the reform has not only eased the due diligence procedure, but has also reduced the time to register a property to about 15 days. The transactions costs of registering a property have therefore been substantially reduced.

The new property registration system has also increased the confidence of the population in registering their properties because of the higher standards of efficiency and security. Citizens are more willing to register property now. Statistics are still preliminary, but the registry in Tegucigalpa received 65% more applications (all types included) for registration between July and December 2007 compared to the same period in 2006.

This reform is still on-going. The Doing Business team will keep a close eye on its progress…