NSW land registry is everything that’s wrong with privatisation

By Leith van Onselen

The Age’s Editorial has penned a stringing rebuke of the NSW State Government’s privatisation of the Land Registry:

The government stands ready to sell to the highest bidder a highly profitable public asset that performs a vital, efficient and reliable service. The rationale it has provided to date is that the private sector is better placed to invest in technology and deliver faster processing times, new services and a better experience for business customers.

But what about the risks? Land and Property Information records who owns what and how land is divided up. It issues the certificate of title for each piece of real estate sold in the state, underpinning $130 billion worth of transactions every year. Everyone in the state who buys, sells or owns real estate relies on its integrity. It works so well that other countries including Vietnam, Thailand and Russia have modelled their systems on it. It is a reliable monopoly that contributes $190 million a year to the state’s coffers, of which nearly 70 per cent – $130 million – is profit.

To privatise an asset of such importance and calibre, you need not just a watertight case but an unimpeachable, transparent process. There is a perception that there has been some unnecessary haste to the transaction. The government has refused to release the scoping study, finalised in 2015, including the business case and cost-benefit analysis. It could announce as soon as this week which of the four bidders has won the right to operate the LPI for the next 35 years. When that happens the public will be none the wiser as to the actual value of the asset that has been sold on their behalf, nor whether the money raised – earmarked for an upgrade of ANZ Stadium and rebuilding Parramatta Stadium – justified the sale. There seems little doubt that a smoothly functioning land titles registry is of more benefit to more people than a couple of football grounds…

A prudent and fully transparent process would see the government, led by Premier Gladys Berejiklian, allow more time for the concerns above to be addressed.

To do otherwise is to risk a permanent and ongoing stain on its record for responsible management of the state’s finances.

Last month, Australia’s best investigative journalist, Michael West, also penned a stinging rebuke of the sale on his site, warning that it totally defies logic and opens up a whole can of risks:

Almost inexplicably, the NSW government continues to pursue its plan to privatise the state’s land titles registry.

We say “almost” because this deal is explicable only in that it will raise a projected $1 billion to $2 billion. It is a one-off transaction to finance the upgrade of two football stadiums.

It utterly defies logic.

Privatising a government monopoly, an essential service with zero competition, defies logic full-stop. In this case: besides the loss of jobs, besides the loss of a reliable $130 million a year dropping into state coffers, besides the loss of security over critical information – perhaps to an offshore private equity group – and besides the spectre of rising litigation costs, there is the matter of tax.

It is reasonable that voters demand of their elected officials to know where their assets may end up and who might own them. Will the profits of the NSW Land & Property Information Office (LPI) end up in a tax haven in an entity controlled by a financier of weapons? The notorious Carlyle Group is one touted bidder…

The secrecy shrouding the auction of the LPI means the actual corporate entities lurking behind each bidding syndicate remain a mystery…

Margaret Hole, a former president of the NSW Law Society, has previously raised several important issues with this sale, namely:

  • The land registry is a natural monopoly and critical infrastructure upon which the security of business and commerce are based.
  • There has been no independent assessment of the sale, and whether the expected sale price is suitable compensation for forgoing the annual revenue.
  • The successful operator is likely to require home buyers to pay title insurance, as occurs in the US, and thereby gouge users. Title insurance on the purchase of a $1.4m property is currently about $990. Last year 213,000 land transfers were lodged in NSW, which means that conservatively $210 million in insurance premiums can be raised by the operators holding the concession, or tens-of-billions of dollars over the 35-year term of the lease.
  • NSW home buyers will bear the cost of this impost.
  • Similar privatisation proposals have been rejected in a number of other jurisdictions around the world.

The Public Service Association has also slammed the sale, noting:

  • The State Government currently guarantees that the registered owners recorded in the NSW land titles system are the true owners of their land.
  • The State Guarantee is backed by Torrens Assurance Fund and provides compensation for any loss suffered as a result of fraud or error in registration.
  • If the service is privatised, the guarantee is lost and disputes over ownership of land or fraud are in the hands of a private company.
  • Currently, the State Government Torrens Assurance Fund circumvents the need for land owners to self-insure and contributes to containing costs of land transactions within NSW. At the moment, this is a once-only payment that covers your interests in a property for the life of your ownership.
  • If the State Government no longer guarantees titles, consumers may need to take out title insurance, in addition to their home and contents insurance, every year.
  • This could mean a hike in price for all of us, or a fall in standards because of cost-cutting measures.

In late 2014, the Productivity Commission’s (PC) released a report on the provision of public infrastructure, which explicitly warned that the Coalition’s financial incentives to the states to sell-off public assets (“asset recycling”) “could act to encourage privatisation in circumstances that are not fully justified and encourage the selection of new projects that do not have demonstrable net benefits”.

Since that time, we have witnessed the states flog-off essential infrastructure and other public assets without giving due regard to longer-term consequences, and without ensuring that adequate regulatory frameworks are put in place first.

This procession of dubious asset sales has gotten so bad that ACCC head and longtime supporter of privatisation, Rod Sims, recently called for a moratorium on further privatisations because of the damage that they are doing to consumers and the economy:

“I’ve been a very strong advocate of privatisation for probably 30 years. I believe it enhances economic efficiency [but] I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales, and I think it’s severely damaging our economy…

“It is increasing prices – let’s call it out… I want them to stop and think about the fact that when they’re privatising these things without effective regulation you are going to have increases in prices, and just think about the effects of that on the economy.

Stop and think. And don’t be surprised that your electorates think that privatisations increase prices. Of course they shouldn’t [increase prices] but the history tells you differently”.

The first rule of any asset privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition. But as Rod Sims has noted, most recent privatisations have broken this golden rule, placing achieving a heavy sale price (or fees) above the interests of users.

Australians deserve better than brain dead privatisations like the NSW Land Registry, which utterly defies both economics and common sense.

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Comments

  1. mild colonialMEMBER

    A stringing rebuke. Do you get hung out to dry? Or strung from the nearest tree?

    • None of the above. The politicians who promoted it, looking at you Mike and Gladys, be given lucrative jobs by the buyers after they quit politics…

  2. surfbeach2536

    Privatise the police and the courts, lots of money to be made there with a good operator in control. About all that is left after that is defence.

    MB often talk of the boomers ripping off this generation but at least the young boomers had the get up and go to protest on the streets. Vietnam, The Franklin…

  3. Chinese buyer ? Vertical integration with a bit of strategic sauce to jazz it up.

    • Ronin8317MEMBER

      The Chinese government would love to get their hand on it : then they will know EXACTLY who in China has been buying real estate in Australia.

      • I was thinking more along the lines that they could easily bypass the ‘regulation’ that requires pre-owned housing to be sold to Australians and PR’s etc. They nay develop a secondary market as they wish and perhaps place hurdles for locals, you know FTA fine print !

      • @tonydd
        What the Chinese government wants is exactly the opposite of what the Chinese investors want.

  4. Quality Focus

    Macro bear, Macro bore, Macro losers! Hows your 2017 recession coming along? Imminent housing crash!! Oh no wait, its a slow melt, oh no, we’re wrong again, its all fine, prices to the moon, we just called it 2 years too late and were the only ones not to see the blatantly obvious!!

    • You work for the big Panda … right! Covert aggression will bubble to the surface as things go pear shaped and we attempt to salvage something from the wreckage our ‘leaders’ have landed us in.

  5. Ronin8317MEMBER

    The real windfall will be the companies offering title insurance when the banks force every mortgage holders to buy it, and the title insurance will be sold by a subsidiary of the bank.

    • Stephen Morris

      At present the government is insisting that it will continue to insure titles. However, once the dust has settled on the privatisation, the title insurers will begin their lobbying to have this removed as “an unnecessary public expense”.

      I understand that some of the members states of the former Soviet Union had a Torrens system which worked perfectly well. When the Soviet Union collapsed, the US title insurers moved in and lobbied (bribed??) to have it abolished in favour of the needlessly expensive system of private title insurance.

      Expect to see the same thing in Australia.

      • Since the state banned developer donations the Libs have struggled to get enough donations to support their campaigns.
        Enter the insurance industry.
        They lobbied successfully to reduce their liability in workers’ comp cases. Now injured employees are only supported for a limited time, then shuffled off to the federal sickness benefit. They even dissuaded injured employees from suing the insurance companies by preventing the winning employee from collecting costs. Now work injuries lead to poverty. Magic Mike said: ‘Too bad, so sad.’

        Step 2: Land Titles insurance. A brand new goldmine.

        Funny how the insurance industry is making donations to the Libs. Who’d have guessed it?

  6. How about just selling a license to operate and capping increases to the rate of inflation? It’s the only way I can figure to encourage a private operator to be more efficient. However as it is a monopoly the quality of services may deteriorate below the centrelink bar.

  7. I think MB needs to do an analysis of countries who have their shit together, ranking them from one to ten, so we can all get our affairs in order and bugger off to one of them with all haste.

    • Norway.

      1) the biggest sovereign wealth fund on the planet
      2) 28% of AUS is foreign born, only 12% of Norway is
      3) Norway has 4 rates of GST – depending on the item
      4) I doubt that degrees in Norway have been dumbed down
      5) In Norway there is little correlation between a father having a high income and his son having a high income – indicating more meritocracy than corrupt AUS

  8. All will be revealed in good time. Cut the government some slack – you may find a lot of these objections / concerns have been addressed. Let’s wait and see.

  9. Isn’t this more of the covert strategy to privatize tax collection? I don’t mind paying tax, but I do when I have to also pay a profit margin to the new collector…