Methodology

Land and Space Use Methodology

What does Land and Space Use measure?

Doing Business North America records the full sequence of procedures necessary for a business to purchase a property from another business and to transfer the property title to the buyer’s name so that the buyer can use the property for: (i) expanding its business, (ii) collateral in taking new loans, or (iii) selling the property to another business.

The process of transferring property starts with pre-registration procedures, including: (i) obtaining the necessary documents, such as a copy of the seller’s title if necessary; and (ii) conducting due diligence if required. The transaction is considered complete when it is opposable to third parties and when the buyer can use the property, use it as collateral for a bank loan, or resell it. Every procedure required by law or necessary in practice is included, whether it is the responsibility of the seller or the buyer or must be completed by a third party on their behalf.

Doing Business North America also measures the cost to complete each of these procedures. In addition to the procedures to transfer title on immovable property, there is also a measure of the quality of the land administration system in each economy. The Quality of Land Administration Index is comprised of two sub-indexes: a Reliability of Infrastructure index and a Transparency of Information index.

Finally, information on the number of approvals needed in both the zoning and re-zoning process are collected. The survey questions used here are a subset of the questions used in the Wharton Residential Land Use Regulatory Index. In this case, the data collected was that which pertains to commercial property instead of residential property.

Assumptions about the Parties

To make the data comparable across economies, several assumptions about the parties to the transaction, the property, and the procedures are used.

The parties:

• Are limited liability companies.
• If there is more than one type of limited liability company in the economy, the limited liability form most common among domestic firms is chosen.
• If the country does not have a limited liability company option, the company structure most similar to that of an LLC is chosen.
• Are located in the urban area of the economy’s largest business city.
• Are 100% domestically and privately owned.
• Perform no special purposes other than general commercial activities.

Assumptions about the Property

The property:

• Has a value of four times income per capita, which equals the sale price.
• Is fully owned by the seller.
• Has no mortgages attached and has been under the same ownership for the past 10 years.
• Is registered in the land registry and is free of title disputes.
• Is located in an urban commercial zone, and no rezoning is required.
• Has no trees, natural water sources, natural reserves, or historical monuments of any kind.
• Will not be used for special purposes, and no special permits, such as for residential use, industrial plants, waste storage, or certain types of agricultural activities, are required.
• Has no occupants, and no other party holds a legal interest in it.
• Is 10,000 square feet in size.

Indicators

Number of Procedures to Legally Transfer Title on Immovable Property

The procedures to legally transfer title on immovable property are measured by the number of documents required to complete all pre- and post-transfer procedures. This can include a myriad of different forms of documentation, including items such as: (i) preliminary change of ownership forms, (ii) the deed, (iii) property disclosure forms, (iv) state and city excise tax forms, (v) transmittal forms, stamp tax forms, etc., among other forms. The objective of this indicator is to measure how much necessary administrative documentation is required during the process of transferring title on immovable property.

Cost Required to Process the Deed (as a Percent of Income per Capita)

The cost required to process the deed measures the financial burden required to process the transfer of title from the buyer to the seller. It is recorded as a percent of the economies’ income per capita. The deed is assumed to be the primary document required during the transfer of title, and is used as the representative document for all measurements related to time and cost.

Quality of Land Administration Index (Scale: 0 - 8)

The Quality of Land Administration Index is the summation of the Reliability of Infrastructure and Transparency of Information indexes. The index values range from 0 to 8, with higher values indicating a better quality of land administration system.

Reliability of Infrastructure Index (Scale: 0 – 2)

The Reliability of Infrastructure Index has two components:

• How land titles are kept at the registry. A score of 1 is assigned if the majority of land titles are fully digital; a score of 0.5 is assigned if the majority are scanned; a score of 0 is assigned if the majority are kept in paper format.
• How immovable property is identified. A score of 1 is assigned if there is a unique number to identify properties for the majority of land plots; a score of 0 is assigned if there are multiple identifiers.

The index ranges from 0 to 2, with higher values indicating a higher quality of infrastructure for ensuring the reliability of information on property titles and boundaries.

Transparency of Information Index (Scale: 0 – 6)

The Transparency of Information Index has six components:

• Whether information on land ownership is made publicly available. A score of 1 is assigned if information on land ownership is accessible by anyone; a score of 0 is assigned if access is restricted.
• Whether the list of documents required for completing the registration of property transactions is made publicly available. A score of 1 is assigned if the list of documents is accessible online or on a public board; a score of 0 is assigned if it is not made available to the public or if it can be obtained only in person.
• Whether the fee schedule for completing the registration of property transactions is made publicly available. A score of 1 is assigned if the fee schedule is accessible online or on a public board free of charge; a score of 0 is assigned if it is not made available to the public or if it can be obtained only in person.
• Whether the agency in charge of immovable property registration commits to a specific time frame for delivering a legally binding document that proves property ownership. A score of 1 is assigned if the service standard is accessible online or on a public board; a score of 0 is assigned if it is not made available to the public or if it can be obtained only in person.
• Whether there is a specific and independent mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property registration. A score of 1 is assigned if there is a specific and independent mechanism for filing a complaint; a score of 0 is assigned if there is only a general mechanism or no mechanism.
• Whether the deed required to legally transfer title on immovable property can be processed online. A score of 1 is assigned if the deed is able to be processed online (such as through eRecording); a score of 0 is assigned if the deed must be processed in person.

The index ranges from 0 to 6, with higher values indicating greater transparency in the land administration system.

Parking Minimum Size (Square Feet per Required Parking Spot)

The parking minimum size indicator measures the minimum number of parking spots required relative to the square footage of the business property. 

Number of Approvals Needed (for Rezoning)

This indicator measures the procedural requirements and entities that must grant approval before the rezoning application process is considered complete. It measures approvals required from the following entities:

1. Local Planning Commission
2. Local Zoning Board
3. Local Council, Managers and Commissioners
4. County Board of Commissioners
5. County Zoning Board
6. Environmental Review Board

Number of Approvals Needed (for Zoning)

The number of approvals needed for zoning measures the procedural requirements and entities that must grant approval before the zoning application process is considered complete. It measures approvals required from the following entities:

7. Local Planning Commission
8. Local Zoning Board
9. Local Council, Managers and Commissioners
10. County Board of Commissioners
11. County Zoning Board
12. Environmental Review Board

How the ‘Land and Space Use’ Category is Ranked and Scored

The ‘Land and Space Use’ category was ranked and scored using the following variables:

For each indicator, there is a top performer and a bottom performer. Economies with the best performance for a given indicator are awarded 10 “points,” or a score of 10. Cities at the level of bottom performance, or cities at or below than two standard deviations from the mean, are awarded a score of 0. All the cities in between are scored based on their distance to the frontier. For each city, the number of awarded points across all indicators is aggregated, then divided by the number of indicators for which we had data. This is done because not all locations have complete data across all indicators, and doing so allows for all locations to be included in comparison.

For more information on how indicators, indexes, and groups are scored, how the ranking and scoring system for a category works, or how the overall Ease of Doing Business rank and score were derived, please read the first section of this methodology.

Sources

Data for this category was obtained from county/local deed recorder offices, city zoning ordinances, city codes, city council documents, and zoning board documents.

To request more specific sources, contact: economicliberty@asu.edu