Is there going to be another bubble economy financed by outside investors? If so, how would Article 12 support the return of land prices to the levels that existed during the 1990s?
Those prices should be described as an anomalous “event” of the Japanese investment period, rather than an economic indicator or a justification for arguing to preserve Article 12. A financial windfall for several of our people during the 1990s is not an indication that the same profitable outcome would happen again under similar conditions.
As an example, property that once was valued at 1 million dollars may now only be worth only $100,000. Should a landowner, desperate to sell, instead continue to wait and suffer and hope that someday the value of that property will again rise to a million dollars? It’s a false hope, unless there is an open market for fee simple purchases of that land.
There are many lessons to be learned from the leased transactions that took place in the 1990s. One only need to look at the list of cases filed in the Commonwealth Court and the many abandoned properties, to understand the adverse impact that Article 12 had on transactions during the investment bubble. If these properties had been bought fee simple, investors would have had a vested interest. They would have stayed in the CNMI or found alternative ways to retain and maintain their investment, continuing to circulate money in our economy and contribute to our tax base. .
We strongly dispute the argument that the CNMI, in abolishing Article 12 will suffer the same fate as Guam, with many people being either homeless, landless, or both. The people who sold their land to non-Guamanians did so out of financial necessity or as a freely made choice — but at a profit on an open market. Just like the NMD, they sold their land to move to the states or for medical, educational, and other reasons, but they had the advantage receiving offers from a larger and more competitive pool of buyers. Some made better choices than others. Wisdom and common sense simply cannot be legislated. If some people are homeless or landless now, it is because they decided to receive the financial benefit of the free market value of their property.
Article 12 allows for only NMD to buy and sell land amongst themselves. The NMD seller will still lose his or her land regardless of who purchased it. The difference is that an NMD buyer has incredible leverage to buy the land at a lower price because of the limited pool of NMD qualified buyers. This still leaves the NMD seller landless and but with less money for his or her land than if it could have been offered on an open and much more competitive market.
Article 12 allows for a 55-year lease term to non-NMD. This 55- year lease term will not only displace succeeding generations but will also deprive them during their life time from benefitting from land that was supposed to be handed down through each generation. So, neither preserving nor extending the current lease term of 55 years will protect successive generations from being landless or homeless. There will still be a generational gap of landless “owners” during the long-term lease period. The bottom line is that one does not need Article 12 to decide whether to lease land or sell it outright.
We agree that Article 12 is not totally responsible for our economic downturn. However, it is the primary contributing factor to our declining land values. Investors of the 1990s are not coming back. They have learned from the outcome of many lawsuits that entering into a lease agreement that can be overridden by the courts is simply too large a financial risk to take. The precedents set by lawsuits filed invoking Article 12 clearly are not favorable to an outside investor. Investors have been painfully educated in this matter. Potential investors will do their research of court decisions and are unlikely to make the same mistakes.
What has happened since the 1990’s, as we all know, is that property values have plummeted and the number of foreclosures is soaring. The theory of supply and demand implies that with less land, prices should rise. This is obviously not the situation in the CNMI. Why? Even with only a small “supply” of land available to buy and sell in the CNMI, the “demand” is even smaller; restricted by Article 12 to only those who are NMD.
We therefore ask the proponents of Article 12:
• What are the positive effects for maintaining Article 12?
• What are the negative effects for removing Article 12?
One cannot justifiably say Article 12 is good just because it was good in the late 1980s and early 1990s. Foreclosures are hurting homeowners.
Federal Housing Programs available elsewhere in the U.S., such as the Veteran Housing Program and others are not being made available for our local people because of Article 12.
In the meantime, people are becoming desperate and many have had to sell their land inheritance at rock bottom prices. To see how this tragedy has unfolded one only needs to go to the Recorder’s Office and compare land prices over time. Our people are not becoming prosperous from selling their land after the bubble burst.
Proponents of Article 12 have so far failed to clearly illustrate any benefit to preserving Article 12. The price of property after the bubble economy has drastically declined. Is this good for property owners? It may benefit a privileged few who have the money to take advantage of another family’s desperate situation. But the bulk of NMD land owners are not seeing any benefit at all under Article 12. In fact, we are facing the impending adulthood of a generation of our own people who do not meet the criteria necessary to qualify as NMD, and so will not be eligible to own land. How will Article 12 benefit them?
Those who have no other alternative but to sell land to pay for a financial obligation or emergency are held hostage; forced to either sell quickly at a loss or suffer the consequences of not paying their debts.
Those whose properties are being foreclosed are disadvantaged in that they are not able to recover any of their investment due to the artificially depressed market prices Article 12 creates. We need to end this.
The golden days touted by proponents of Article 12 are gone, long gone. Abolishment of Article 12 would increase investor confidence and give property owners a better chance to see a gain on their investment. Property owners that can no longer afford to pay their mortgage or debts because of the economy and/or governmental austerity programs could more likely sell their property for more than what they owe. This capital gain would help them finance the start of a new and better life. It is now time to abolish Article 12.
Article 12 was created to protect the real property rights of NMD until they became educated enough about the subject to manage on their own. It has done its job, we have been educated enough. It is time to rid ourselves of the fear that our heirs who do not meet the NMD blood requirement for land ownership will be deprived of their just inheritance.
DAVID M. SABLAN
Papago, Saipan
