Hofstra professor finds a far-away real estate market in crisis

The United State has its mortgage crisis, but real estate finance professor Robert Campbell has just come back from a place where the subprime collapse could never happen but where there's another type of real estate crisis.

It's the Republic of Malawi.

In this country of about 12 million in southeastern Africa, Campbell found out that the government owns all the land and leases it to people, sometimes for a nominal or no fee.
"It's a very informal, legal system, in which a family has the right to farm land in perpetuity, from generation to generation," said Campbell, who teaches at Hofstra University and vacationed in Malawi. The government of course can take away leases if a family doesn't pay, but Campbell says that doesn't really happen.

With all land considered government property, that means mortgages aren't really given out in Malawi - after all, mortgages are secured by land and properties. So money to build homes are scraped together from family and friends, he said, and while long-term leases in the United States are sometimes considered collateral by lenders in the United States, Malawi's government does not want leases used that way.

"The government, while it's willing for land to change hands from one citizen to another, is not willing for the land to be inherited by some big bank that loaned a guy money," the professor said. "If the guy doesn't pay, the bank cannot take over the lease. The people, even though they occupy land and may have occupied it for generations, cannot offer to the bank suitable security. So as a result, all they could do is borrow an amount that they can actually pay back from their income - and that over a short period of time. So there's no way to invest capital into the real estate market in Malawi."

But like a lot of other African countries, Malawi has been facing an AIDS crisis that has killed off many parents, making orphans of their children. "It is estimated that between 1990 and 2003, the number of children under 18 who were living without one or both parents in Malawi grew from about 800,000 to 1.2 million," said a 2004 health and demographic report conducted by Malawi’s government.

It's a double tragedy because of the way Malawai's real estate system works.

"These children are put into orphanages," Campbell said, "and they lose their land rights. They lose the land that's been in their families for generations. It reverts to the government, and the government gives it to somebody else who's not dead who comes in and farms it. Sometimes that will be another family member.

"This is an agricultural subsistence economy. Your ability to live a comfortable and happy life depends on access to that land so you can farm it. The kids are losing the land because their parents were sick, and there's no legal system to protect them, to protect their interests."