International Property Markets Scorecard. Guatemala Market Conditions Desktop Survey July 2014

Transcription

1 International Property Markets Scorecard Guatemala Market Conditions Desktop Survey July 2014

2 Contents Scorecard Methodology Property Rights Legal Protection Registries... 7 In-Country Assessment Information Access to Credit Banks Other Sources Credit Bureau In-Country Assessment Information Effective Governance Democratic Representation Lack of Corruption In-Country Assessment Information Rational Dispute Resolution Rule of Law Commercial Dispute Resolution In-Country Assessment Financial Transparency Market Stability Independent Asset Valuers Data Standards In-Country Assessment Appropriate Regulation Fair Tax Regime Professional Services Capital Markets In-Country Assessment Conclusions and Recommendations I nternational Property Markets Scorecard Guatemala 2014

3 Scorecard Background & Information The Scorecard reflects the status of the six Core Elements necessary for transparent and efficient property market development. Each Core Element includes three Lead Indicators that are further divided into Sub-Indicators. Colors signify the strength of institutions that support market development very strong, strong and weak. No color indicates that institutions are very weak. Gray indicates more information is needed for an objective determination. Acknowledgement The International Property Markets Scorecard Project is the latest development in the continued cooperative work between the Center for International Private Enterprise (CIPE) and the International Real Property Foundation (IRPF). The Scorecard derives from the work of an academic panel led by Richard Green, PhD., Director of the University of California s Lusk Center for Real Estate and the University of Denver, Burns School of Real Estate and Construction Management s Global Real Estate Project under the direction of Dr. Mark Lee Levine. Brian J. Fang contributed greatly to the desktop research results. For Education Purposes Only While great care has been taken to provide accurate and current information, neither the Center for International Private Enterprise, the International Real Property Foundation nor its editors, staff or contractors assume responsibility for the accuracy of the data contained herein. Further, the general principles and conclusions presented in the text are subject to significant market fluctuations over time as well as local, state, and federal laws and regulations, court cases, and any revisions of the same. This publication is distributed for education purposes with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. Copyright 2014 by the Center for International Private Enterprise and the International Real Property Foundation This work can be licensed under the Creative Commons Attribution Noncommercial Share Alike 3.0 United States License. To view a copy of this license, visit or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. 3 I nternational Property Markets Scorecard Guatemala 2014

4 Scorecard Methodology The International Property Markets Scorecard Methodology is a systems analysis tool to measure the strength of institutional support for transparent, rational and effective property markets. It provides stakeholders with a visual representation of the status of the core elements necessary for sustainable property markets that help to distribute power and economic opportunity. Quantitative and qualitative measures are taken from established international economic development organizations and paired with on-the-ground assessments of market participants. The purpose of the Scorecard is to bring about an awareness of the interconnections between the microeconomic factors necessary for development and provide advocates, policymakers, and development groups with clear, actionable goals for continuous improvement. Property markets are inherently local and can vary widely from one city to another, even from one block to the next. The Scorecard is meant to measure how policy decisions and levels of implementation affect property markets. It is not meant to provide specific guidance, measures or predictions of individual property performance and is only completely valid in the cities where field assessments have occurred. 4 I nternational Property Markets Scorecard Guatemala 2014

5 1. Property Rights Goal Property rights that are legally protected, secure, recorded in a single, accurate, widely accessible electronic registry and that lead to high levels of formal ownership for all citizens 5 I nternational Property Markets Scorecard Guatemala 2014

6 1.1 Legal Protection (Weak) Core Question: Does an effective and sufficient legal framework exist to protect property rights for all citizens? Legal Framework (Very Weak) Guatemala does not have a clear integrated agrarian policy or land law. In 1973, Guatemala made a Civil Code, which provides only general principles on possession, use, transfer, and ownership rights over real property Are property rights clearly defined and protected by law? Ranked 135 out of 148; Score 3.83 out of 7; Trend The judiciary is troubled by corruption, and intimidation of judges, prosecutors, and witnesses. The law is very unstable. This score is from the Index of Economic Freedom, The Heritage Foundation Security of Tenure (Strong) Can citizens challenge the legality of government takings? Ranked 73 out of 148; Score 3.46 out of 7; Trend Source: Global Competitiveness Report World Economic Forum Index of Economic Freedom, The Heritage Foundation, Bundle of Rights (Weak) Survey Question SQ1 What is the bundle of rights (group of rights such as occupancy, use and the right to sell or lease) associated with both residential and commercial property ownership? The bundle of rights associated with residential and commercial property ownership are weak because the government places serious restrictions on ownership and the Civil Code does not explain in detail what rights one has. 6 I nternational Property Markets Scorecard Guatemala 2014

7 "Guatemala has the most inequitable and concentrated distribution of land ownership in Central America. Historical and pervasive inequality in land distribution was a fundamental contributor to the country's 36 year civil war and continues to be a primary cause of rural poverty. As of 2007, 2.6 million people -or 40% of the urban population lived in slums. In Guatemala City, slum and non-slum households share neighborhoods on the urban periphery, the dilapidated city center, and in "slum islands" that are located amidst more affluent, fully serviced areas. Also, Guatemala has not yet adopted procedures for registration of communal land. Source: Property Rights and Resource Governance Registries (Strong) Core Question: Does a reliable property registry exist including cadastral, title and mortgage lien information? Guatemala has begun to establish their Registration for Cadastral, and has specified land use and zoning designations in Guatemala City, along with GPS and beginning phases of GIS Cadastral Information (Strong) Survey Questions SQ 2 Is cadastral information (information about the dimensions and location of land parcels) accessible to the public? Yes SQ 3 Is zoning/permitted use information included and are regulations respected and enforced? Yes, although each municipality manages its own territory, and there are often incompatibilities in land use and service between neighboring areas. The only city that has adequate planning and zoning is the Guatemala City Municipality, but it has no jurisdiction beyond its territory. The rest of the municipalities in Guatemala are governed by urban regulations on the idea of six instruments that dates back four decades. 7 I nternational Property Markets Scorecard Guatemala 2014

8 SQ 4 Are Geographic Information Systems (GIS) including Global Positioning Satellite (GPS) information used to create and update the registry? Yes, but GIS is barely used with evidence of only one company providing GIS data for Guatemala. This company has only surveyed Guatemala City. Source: Registration of Information Cadastral (RIC) Zoning Report - GIS Title Registry (Very Strong) Ranked 23 out of 189; Trend. Procedures, time and costs are extremely low but many properties lack official ownership certificates and in some cases, issues of double title exist. The first party to have registered the property typically prevails as owner. Since there is poor information available at the Real Property Registry, it is difficult to determine who held the first title What is the number of procedures required to register the transfer of a property from one owner to another? What is the duration of time in calendar days that it would take to complete the transfer? What is the total cost of the transfer including all fees, taxes, etc. expressed as a percentage of the value of the property? 0.8% Source Doing Business 2014 Registering Property, World Bank 8 I nternational Property Markets Scorecard Guatemala 2014

9 1.2.3 Mortgage Registry (Weak) The mortgage market is still relatively new in Guatemala. Mainly all information is still on paper and not available electronically. Guatemala is trying to improve on their information systems so that data can eventually be stored online. Survey Questions SQ 5 The mandatory use of notaries or similar officials slows down and adds cost to the process. Does a notary need to be involved in the registration process? Yes SQ 6 Is information in the registry available electronically? Yes, available from the local property administration, but mainly written and not electronically SQ 7 Title insurance is indemnity insurance against financial loss from defects in title and from the invalidity or unenforceability of mortgage liens. Is title insurance available to lenders? Research has indicated only international title insurance products such as Stewart Title. Locally, it is difficult for a lender to get title insurance for their property Source Information on International Title Insurance Products cle.org/thumbs/datastorage/skoob/articles/bkac0903_tab07- Gosdin_thumb.pdf 1.3 Formal Ownership (Weak) Core Question: Do citizens understand and trust property rights institutions and avoid the informal sector? Guatemala recently emerged from a 36 year civil war in 1996 that resulted in many land distortions. As a result land conflicts are a major issue. Also, ineffective management of land sales by the government exclude low income and indigenous people from access because prices are too high. 9 I nternational Property Markets Scorecard Guatemala 2014

10 Survey Questions Land (Weak) SQ 8 What is the status of land ownership? "Guatemala has a history of poverty, distorted land distribution patterns and severe income inequality. There was a civil war for 36 years and the Peace Accords attempted to address land issues, including access for poor, legal reform, and land administration. However, political will for reform has been limited, and Guatemala continues to have the most inequitable and concentrated distribution of land ownership in Central America. Land conflicts are a major issue in Guatemala and people have noted that the country's economic development and competitiveness will be stunted until land conflicts are addressed. Also, indigenous and peasant populations face systemic exclusion from access to land Source: Home Ownership (Strong) SQ 9 What is the percentage of formal home ownership? 59.2% in urban areas at the end of 2004 (only available information) Source: U.N. Habitat Urban Indicators Website Informal Sector (Very Weak) What is the percentage of services firms that report competing with unregistered or informal firms? 69.8% Source: Enterprise Surveys Website: In-Country Assessment Information Field Question (FQ) 1 Even if legal provisions exist, what is the actual status of property rights and ownership for small businesses? 10 I nternational Property Markets Scorecard Guatemala 2014

11 FQ 2 Are standard leases used for commercial space? If not, what is a typical arrangement for rental? FQ 3 What are the processes for government expropriation of property especially notice and due process for owners? Are those laws followed or do expropriations happen by collusion between officials and connected elites? FQ 4 Are businesses owners compensated fairly when their property is taken for public use? FQ 5 What protections do businesses have who lease space from arbitrary eviction by owners? FQ 6 What is the actual experience of transferring a property, accessing the registry and dealing with registry officials? FQ 7 How large is the presence of informal markets for goods, i.e. itinerate vendors? 11 I nternational Property Markets Scorecard Guatemala 2014

12 2. Access to Credit Goal An efficient, transparent financial sector that provides a broad range of citizens with access to multiple forms of competitive credit so that they can start businesses, build wealth, and purchase property 12 I nternational Property Markets Scorecard Guatemala 2014

13 2.1 Banks (Strong) Core Question: Are traditional banking services robust and extensive enough to serve the needs of the population to help them build wealth and purchase property Guatemala s banking system is very strong and their micro lending is also strong. Access (Strong) How easy is it to obtain a bank loan? Ranked 51 out of 148; Score 3.07 out of 7; Trend ( ranked 53) Soundness (Very Strong) How sound are the country s banks? Ranked 17 th out of 148; Score 6.08 out of 7; Trend ( ranked 23) Source: The Global Competitiveness Report , World Economic Forum Microlending (Strong) Currently there are 24 Microfinance institutions in Guatemala, the majority of which are rated 4 diamonds. Although micro lending is strong, recently there is alarm over rising default rates on microloans having a total of 1,708 outstanding loans at the end of the first quarter of "According to Rocael Garcia, manager of the Microfinance firm FInca, in this issue there are two variables: the willingness and the ability to pay. People in rural areas who have microcredit loans with us have more will to pay than capacity and middle class people who request loans have less willingness and more ability to pay,' he says. " Microfinance allows citizens without traditional creditworthiness to build a credit history. How many microfinance institutions are operating in the country? 24 Top 5 Guatemala Microfinance institutions: Genesis Empresarial Compartamos- GTM FONDESOL FINCA GTM FUNDEA 13 I nternational Property Markets Scorecard Guatemala 2014

14 What is the number of active borrowers per institution? Genesis Empresarial 1,451,931 Compartamos- GTM 71,399 FONDESOL 71,380 FINCA GTM 40,995 FUNDEA 30,213 Source: Microfinance Information Exchange oloans 2.2 Other Sources (Weak) Core Question: Are entrepreneurs free to raise capital outside the banking system including venture capital and/or by issuing stock in a well-regulated stock exchange? Financial Freedom (Weak) Stock exchange in Guatemala is basically non-existent. Not until 2011 did four companies prelaunch preferred shares in the amount of 39.5 million GTQ (Guatemalan currency). Venture capital and Private Equity funds are starting to develop in hopes creating more jobs in the country and the wider Central American region How much control does the government exert over financial services? Score: 50 out of 100 indicating considerable government control Source: Index of Economic Freedom 2014, Heritage Foundation Venture Capital (Strong) How easy is it for entrepreneurs to find venture capital? Ranked 60 out of 148; Score 2.76 out of 7; Trend The biggest investment into Guatemala was in 2012, when the IFC Capitalization fund invested $100 million in Guatemala-based Banco G&T Continental. This investment will help expand banks services to small and medium (SMEs) in Central America, increasing 14 I nternational Property Markets Scorecard Guatemala 2014

15 opportunities for business and growth. However it remains difficult for small entrepreneurs to raise capital. Equity Investors (Very Weak) How easy is it to raise money by issuing shares on the stock market? Ranked 122 nd out of 148; Score 2.42 out of 7. Trend Public offering is possible only if it is previously registered according to the Law of Value Markets and Merchandise, and they are not subject to administration authorization. Source: The Global Competitiveness Report , World Economic Forum Credit Bureau (Strong) Core Question: Is comprehensive credit information available through public and private credit bureaus? Coverage is complete within the public and private credit bureau. The public credit bureau does not have to distribute credit information from retailers and utility companies, but the private credit bureaus do. More than 2 years of historical credit information is distributed between the public and private credit bureau, which is good. Overall Ranking 13 th out of 189; Trend (Previous year ranked 11) Coverage (Very Strong) What is the depth of information available in credit bureaus? Score: 6 out of 6 indicating the depth of information available in credit bureaus is very high. Public (Strong) What is the extent of public credit registry coverage? 19.1 % 15 I nternational Property Markets Scorecard Guatemala 2014

16 Private (Weak) What is the extent of private credit registry coverage? 8.6% Source: Doing Business 2014 Getting Credit, World Bank credit In-Country Assessment Information FQ 8 How available are mortgage loans for purchasing commercial property (office, retail, industrial and logistics), who is the typical user and what are the prevailing trends? FQ 9 What are the interest rates, term and loan-to-value ratios? FQ10 FQ11 FQ12 FQ13 In addition to microloans, to what extent are microenterprises (5 or fewer employees) active in the country? Approximately what percentage are formally registered firms? What services other than loans such as insurance, funds transfers, and business development training are available from microfinance organizations for formal businesses? What professional financial services are available outside state owned banks including insurance, credit cards and investment management? What has been the appreciation (or depreciation) rate for commercial property over the last several years? FQ14 How available is seed money or angel investors for the start up of small businesses? FQ15 FQ16 Do small businesses have access to credit information about potential customers? Can businesses gain access to information about them contained in credit bureaus and correct inaccuracies? 16 I nternational Property Markets Scorecard Guatemala 2014

17 3. Effective Governance Goal A popularly elected government free of corruption and functioning efficiently and transparently enough to guarantee economic freedom to individuals and support equitable property markets 17 I nternational Property Markets Scorecard Guatemala 2014

18 3.1 Democratic Representation (Weak) Core Question: Does the country have free and open elections for the leadership and can citizens engage in free enterprise? Voice & Accountability (Weak) The state still directs most economic activity while public information on legislative processes and documents are often delayed or not provided at all. The United States is the biggest investor forgiving 20% of Guatemala debt for protection of rain forests. Overall Ranking 87 th out of Are citizens able to elect their government and do they enjoy freedom of expression, association and a free media? Percentile Rank: 35.55; Trend Source: Governance Matters 2012, World Bank Are citizens free to form political and civic organizations free of state interference and surveillance? Score: 7.35 out of 10 Source: The Economist Intelligence Unit Democracy Index Public Information (Weak) Overall Score: 65 out of 100 (2010) Are there regulations governing conflicts of interest in the executive and legislative branches of government? Executive Score: 49 out of 100; Legislative Score: 49 out of 100. The head of state and government and the members of the national legislature are required to file a regular asset disclosure form. Also, regulations governing gifts and hospitality offered to members of Executive branch and national legislature. There are restrictions for national legislators entering the private sector after leaving government. 18 I nternational Property Markets Scorecard Guatemala 2014

19 Can citizens access legislative processes and documents? The law provides guarantee to all persons interested, without any discrimination, the right to request and access the information held by public authorities and persons subject to this act. The problem is that the right to information request is not effective because responses regarding sensitive topics such as presidential programs are usually provided late or not given at all. The government can also appeal for an additional 10 days making the process longer. A peer review said sometimes institutions don t want to disclose information requested so they simply don t give an answer or they deny the information, naming it reserved. This situation has happened several times, especially with the Prosecutor s officer and the Ministry of Interior. Source: Global Integrity Report global- integrity- report- 2010/guatemala/ Market Intervention (Strong) Overall Freedom Ranking 83 out of To what extent does the government intervene in the private sector including state owned industries? Score: 93.6 out of 100 with a higher score indicating less intervention. "Public expenditures are around 15 percent of the domestic economy. In 2006, the U.S. forgave 20 percent of Guatemala's debt in exchange for protection of rain forests. Public debt now rests around 25% of GDP" To what extent does the government control prices? Score 76.7 out of 100 with a higher score indicating less control. "The State maintains few price controls but subsidizes numerous key economic activities and products" Source: Index of Economic Freedom 2014 Heritage Foundation 19 I nternational Property Markets Scorecard Guatemala 2014

20 3.2 Lack of Corruption (Strong) Core Question: Is the public sector transparent and free of corruption? Transparency (Weak) Although the indicator is strong, transparency is very weak. Requests for information can be ignored if pertaining to government or it can be delayed for 10 additional days. Guatemala has all the NIS pillars in place, but total cooperation is needed. The reason why the indicator is strong is because only 6.2% of firms have said they have expected to have extralegal payments What is the perceived level of corruption in the country? Ranked 29 out of 178; Trend. The level of corruption in the country is fairly high, with corruption, gang violence and drug smuggling at an all-time high. Source: Corruption Perception Index 2013, Transparency International Integrity Mechanisms (Strong) A National Integrity System is a framework where the principle institutions that contribute to integrity, transparency and accountability in a society can address corruption in a systematic way. Does a National Integrity System exist? Guatemala has all the NIS pillars in place, but cooperation is needed. "An example would be "Civil Society" where cooperation between civil servants, public officials, and CSOs, which does not consistently occur, depends on the situation and political will of authorities. Also, for the business sector, social corporate responsibility is still new in this country. As a result, detailed information on the behavior of the private sector with respect to corruption is not available" (NIS) Source: National Integrity System Assessment, Transparency International Transparency International s 20 I nternational Property Markets Scorecard Guatemala 2014

21 Extralegal Payments (Very Strong) How often do companies report that officials and/or companies expect additional payments to expedite services or gain business? 6.2% of firms say they are expected to make unofficial payments Source: bribery depth percentage, Enterprise Survey Efficient Administration (Weak) Core Question: Are quality services and qualified civil servants available to the public through the efficient use of public money? Size of Government Guatemala s government effectiveness is decreasing every year on top of their poor civil services. The size of government relative to GDP is strong only because of a debt forgiveness by the United States. Guatemala must improve on the quality of services as well as their civil servants. Only by training and educating them will this ever improve What is the size of government relative to GDP? 25% The only reason why this indicator is strong is because the United States forgave 20% of Guatemalan debt for protection of rain forests. If the United States did not do so, the percentage would be 45% making the indicator to be Very Weak. Source: Index of Economic Freedom, Heritage Foundation; government Civil Service (Weak) What is the quality of the civil service? Score: 66 out of 100 Source: Global Integrity Report global- integrity- report- 2010/guatemala/ 21 I nternational Property Markets Scorecard Guatemala 2014

22 Government Effectiveness (Weak) What is the overall effectiveness of the government? Percentile Ranking: 25.84; Trend Source: Governance Matters 2012, World Bank In-Country Assessment Information FQ17 What is the actual experience of small businesses in dealing with the government, particularly the number and complexity of required procedures and the prevalence of extra payments to facilitate services such as licenses or permits? 22 I nternational Property Markets Scorecard Guatemala 2014

23 4. Rational Dispute Resolution Goal An efficient institutional framework that balances the rights of the public, owners, lenders and borrowers in the event of a dispute or loan default 23 I nternational Property Markets Scorecard Guatemala 2014

24 4.1 Rule of Law (Very Weak) Core Question: Do all market participants abide by the rule of law and have confidence in the courts and the ability of police to control crime? Impartiality (Very Weak) The level of confidence for the police, courts, and contract enforcement is very weak due to corruption in the country. Even when records are supposed to be accessible, sometimes citizens have zero access and are ignored. It is the second to worst country in the world in terms of what it costs investors in the event of crime and violence What is the confidence level of the strength and impartiality of the police, courts and contract enforcement? Percentile Ranking: 14.69; Trend Source: Governance Matters 2012, World Bank Independent Judiciary (Very Weak) Can members of the judiciary be held accountable for their actions? Score: 53 out of 100 Judges are appointed fairly, but citizens have zero access to the asset disclosure records of members of the national-level judiciary. Also, the regulations governing conflicts of interest for the national level judiciary are very weak. Source: Global Integrity Report 2010 Guatemala Costs of Crime (Very Weak) What are the business costs of crime and violence? Ranked 147 out of 148; Score 1.97 out of 7; Trend Source: The Global Competitiveness Report , World Economic Forum 24 I nternational Property Markets Scorecard Guatemala 2014

25 4.2 Enforcement of Contracts (Weak) Core Question: Are systems in place for timely and efficient enforcement of contracts? Courts are slow and in some cases corrupt because of unqualified lawyers and judges. Major reform of the judicial system is required, and more courts, better judges, transparency, and automation of the data must be demanded for the future of the judicial system Judicial Enforcement (Strong) Ranked 97 out of 188; Trend = What is the number of procedures involved in resolving a commercial dispute? What is the time between the filing of a lawsuit and resolution in judicial enforcements? 1402 days What is the cost of judicial enforcements as a percentage of debt value? 26.5% Source: Doing Business Summary Proceedings (Very Weak) SQ 10 Summary proceedings are alternative dispute resolution processes where creditors can apply for a direct court order in property disputes. What is the time between notice of intent to foreclose and loan collection in summary proceedings if available to lenders? Not Available SQ 11 What is the cost of summary proceeding if available to lenders as a percentage of property value? Not Available 25 I nternational Property Markets Scorecard Guatemala 2014

26 4.2.3 Power-of-Sale (Weak) SQ 12 Power-of-sale agreements give creditors the power to sell properties after notice to the borrower without court intervention. What is the time between notice of intent to sell and loan collection for power-of-sale agreements if available to lenders? Not Available SQ 13 What is the cost of power-of-sale agreements if available to lenders as a percentage of property value? Unknown Source: USAID Commercial Dispute Resolution (Strong) Core Question: Can commercial disputes be resolved efficiently and fairly without exorbitant expense and delay? Although the indicator is strong, the lack of a firm foundation for the rule of law causes commercial dispute resolution to be weak. Corruption weakens the judicial system which drives businesses to Alternative Dispute Resolution (ADR). Courts in rural areas are very corrupt and judges lack knowledge of certain subject matter. Survey Questions Commercial Courts (Weak) SQ 14 Do specialized commercial courts exist for the handling of property disputes and foreclosures? "The ordinary courts dealing with civil matters have the primary responsibility for implementing the bankruptcy legislation for non-financial entities and individuals. As is the case with the other Central American countries that are the focus of this assessment, there are no bankruptcy courts in Guatemala, as there are also no specialized commercial courts. Civil judges of the first instance have subject matter jurisdiction over bankruptcy cases. Personal jurisdiction is determined by the location where the debtor has a principal place of business or, if such location cannot be 26 I nternational Property Markets Scorecard Guatemala 2014

27 established, the place where the debtor normally resides. The courts of appeal are also the courts of civil jurisdiction." (USAID) Source: USAID Guatemala Alternative Dispute Resolution (Strong) SQ 15 Are alternative dispute resolution mechanisms in place including commercial arbitration, private mediation and community based processes? Guatemala s 20 language groups and indigenous majority emerged from revolution and civil war violence with no trust in public institutions. ADR, as part of a major effort at judicial modernization, created a new way to resolve civil, criminal, land tenure, family and community disputes non-violently and without recourse to expensive, outdated, delay-ridden litigation. Guatemala began offering court-annexed mediation centers, in the languages of the local people, respectful of their customary laws and norms, but also connected to the formal justice system. Efforts exist to initiate mediation centers throughout the country at new Centros de Administracion de Justicia, especially in remote, under-served parts of the country. Mobile courts (refitted buses) with a justice of the peace in one room and a mediator in the other, travel from neighborhood to neighborhood according to a posted schedule. Source: United Nations of Office of Drug and Crime: alternative_dispute_resolution_and_restorative_justice.pdf Commercial Treaties (Strong) SQ 16 What bilateral, regional and international commercial treaties exist concerning business between countries? The United States is Guatemala s largest trading partner and the two countries are parties to the CAFTA-DR. U.S. Exports to Guatemala include oil, agricultural products, articles for relief and machinery. On the other hand, the imports from Guatemala include agricultural products as well as gold and silver. Guatemala has bilateral investment agreements with Argentina, Belgium, Cuba, Chile, Finland, France, Germany, Israel, Italy, South Korea, Spain, Sweden, Switzerland, Taiwan, the Czech Republic and The Netherlands. In addition to CAFTA-DR, Guatemala has signed bilateral or regional free trade agreements with Chile, the European Union, Peru, Mexico, Colombia, Taiwan and Panama, and is currently negotiating a free trade agreement with Canada and the European Free Trade Agreement (EFTA) countries. 27 I nternational Property Markets Scorecard Guatemala 2014

28 Source: US Department of State U.S Relations with Guatemala In-Country Assessment FQ18 To what extent do small businesses trust public institutions to support contract enforcement? Source: 28 I nternational Property Markets Scorecard Guatemala 2014

29 5. Financial Transparency Goal A well developed and transparent financial system that includes strong supporting institutions and highly trained and ethical professionals that contribute to effective financial intermediation and deep and broad access to capital and financial services 29 I nternational Property Markets Scorecard Guatemala 2014

30 5.1 Market Stability (Strong) Core Question: Are market risks sufficiently transparent and diversified so that efficient capital allocation can occur? Financial reporting has been fairly solid as the result of programs by organizations such as the International Association of Consultants, Valuators, and Analysts (IACVA), which educated professionals on international standards. The only concern is the time it takes to complete bankruptcy proceedings. Financial Reporting (Strong) What is the strength of the country s auditing and reporting standards? Ranked 66 out of 148; Score 4.04 out of 7. Trend Financial Services (Strong) Does the financial sector provide a wide variety of financial services to businesses? Ranked 32 out of 148; Score 5.28 out of 7. Trend Source: The Global Competitiveness Report , World Economic Forum Insolvency Process (Weak) Ranked 109 out of 188. Trend What is the average time to complete bankruptcy proceedings? 3 years What is the cost of bankruptcy proceedings as a percentage of the estate? 15% What is the recovery rate of bankruptcy proceedings? 27.7 cents on the dollar Source: Doing Business 2014 Closing a Business Guatemala 30 I nternational Property Markets Scorecard Guatemala 2014

31 5.2 Independent Asset Valuers (Strong) Core Question: Do trained, independent and ethical asset valuers exist for all types of assets? Guatemala has begun to adopt international standards by joining the IACVA. This organization keeps its members at high standards following the IVSC standards. Training and ethical standards are greatly improving which shows Guatemala is headed in the right direction. Survey Questions Standards (Weak) SQ 17 How easy is it to find a valuer who implements International Valuation Standards? Guatemala is part of the International Association of Consultants, Valuators and Analysts (IACVA), which is a not-for-profit organization founded in 2000 to provide worldwide support to professionals who perform valuations or are engaged in fraud deterrence. This organization is the first and only international association to provide such support. Guatemala is an associate member so there is no uniform national standard, but standards do exist and are starting to be implemented on a more consistent basis. Source: Training (Strong) SQ 18 What is the level of training of valuers? "In the Valuation field, IACVA promotes the uniform application of valuation theory, approaches, methods and models throughout the world (best practices). Also, each IACVA member is responsible to follow international guidelines such as IVSC standards. Source: Ethics (Strong) SQ 19 Are opinions offered by valuers free of influence from parties to the transaction? A developing, independent valuation profession exists and an IACVA compliant code of conduct exists and is sporadically enforced. Guatemala is a country that needs time to get the codes of 31 I nternational Property Markets Scorecard Guatemala 2014

32 conduct to be enforced properly. IACVA is continuously implementing its mission and education process to the Guatemalan people, so in time enforcement of codes of conduct will strengthen. Source: Data Standards (Weak) Core Question: Is accurate property information available electronically in formats that are consistent with international standards? No clear standardized multiple listing services exist online and electronic data exchange is minimal. Also, the lack of a building code is a big risk for future investments into Guatemala Survey Questions Sales & Operating Data (Weak) SQ 20 A multiple listing service is an electronic exchange system where brokers and agents can widely share contracted real estate listings of properties that are for sale. Do multiple listing type services exist? There is one dedicated online Guatemala website, however listings are not standardized. Source: haredhit=search SQ 21 Do resources exist for obtaining building income and expense estimates? Information not available via desk research Interchange Formats (Weak) SQ 22 Do electronic data interchange formats conform to international standards (ebxml electronic business using extensive markup language)? Electronic data interchange formats exist however they are in infant stages of development. The use of ebxml is there, but hardly used for real estate. "Information about properties is stored partially in written records and partially in electronic records. Transactions on properties whose data are in written records are put on hold indefinitely, which discourages private investments in real property" 32 I nternational Property Markets Scorecard Guatemala 2014

33 Source: USAID: Technical Standards (Weak) SQ 23 Do building codes and office building measurement standards (ANSI/BOMA Z65.1) conform to international standards? Guatemala lacks a building code that combines all regulations in the country. Luis Fernando Olayo, A researcher at the Center for Urban and Rural Studies (CEUR) said that "only 5 % of the 334 municipalities have building codes with technical criteria." Also the "building code and mandates are being revised that all public infrastructure investments must comply with the code's anti-seismic specifications." Source: In-Country Assessment Valuation Profession FQ19 FQ20 FQ21 How many independent valuers exist in the market? Can small businesses obtain fair valuations for property they want to buy or sell? What are the valuation standards and do they conform to international and regional standards? What valuation methods and techniques are used in the market? Data Availability FQ22 How available is information for commercial properties that are for sale or that have been sold? Source: 33 I nternational Property Markets Scorecard Guatemala 2014

34 6. Appropriate Regulation Goal A comprehensive regulatory regime that is transparent, efficient, simple in its implementation and that leads to accurate reporting of property values and prudent protection from market risks 34 I nternational Property Markets Scorecard Guatemala 2014

35 6.1 Fair Tax Regime (Strong) Core Question: Do market participants feel the overall tax rate is fair and participate in formal transactions? Not only is capital gains and value added tax for foreign investment fairly low, the transfer tax is incredibly low, and the overall tax ranking for Guatemala has increased by 44 positions indicating improvement in the overall tax system. Transfer Tax (Strong) What is the total property transfer tax including all duties and payments? 0.8% Overall Tax (Strong) What is the overall tax rate on entrepreneurs (as a percentage of profits)? 40.9% Ranked 85 out of 188; Trend Source: Doing Business 2014 Paying Taxes & Registering Property, World Bank taxes Divestment (Strong) Survey Question SQ 24 What is the tax on profits for foreign investors when divesting property? Title IV of Decree establishes that capital gains are 10%. Value added tax for real estate it is 12%. Companies who so wish, for the manufacturing of products to be exported, may be classified under the Law for the Promotion and Development of Export and Drawback Activities, which grants a 1 to 2-year waiver of VAT and import taxes on raw materials, a 10-year income tax exemption, and other tax benefits. Source: Guatemala 2013 Tax Guide Deloitte 5d310VgnVCM f70aSTFL. 35 I nternational Property Markets Scorecard Guatemala 2014

36 6.2 Professional Services (Very Weak) Core Question: Are the professional services necessary for efficient and transparent property markets available and appropriately regulated and supervised? Asset Valuers (Very Weak) Survey Questions The real estate valuation is being provided by IACVA who are trying to implement IVSC international standards. Also, there is no requirement for real estate brokers or mortgage professionals to be certified or licensed. SQ 25 Are property valuers licensed and/or certified by the government? No SQ 26 How effective are mechanisms in place to discipline valuers who engage in misconduct? Unknown Brokers & Agents (Very Weak) Survey Questions SQ 27 Are real estate brokers and agents licensed and/or certified by the government? No SQ 28 How effective are mechanisms in place to discipline brokers or agents who engage in misconduct? Unknown Mortgage Professionals (Weak) Survey Questions SQ 29 Are mortgage professionals licensed and/or certified by the government? No, but foreign enterprises may provide licensed, professional services in Guatemala through a contract or other relationships with the Guatemalan company. 36 I nternational Property Markets Scorecard Guatemala 2014

37 Source: US Department of State - SQ 30 How effective are mechanisms in place to discipline mortgage professionals who engage in misconduct? Unknown 6.3 Capital Markets (Weak) Core Question: Are capital markets well-regulated and diversified enough to provide financial resources to private-sector entrepreneurs and innovators? Capital Flows (Weak) The flow of capital in and out of the country is tightly regulated and transparency has recently faltered, which makes it difficult for foreign investors to invest in Guatemala How restricted is the flow of capital into and out of the country? Ranked 103 out of 148; Score 4.23 out of 7; Trend Source: The Global Competitiveness Report , World Economic Forum Security Exchanges (Weak) Is the regulation of securities exchanges transparent, effective and free of influence from government and industry? Ranked 85 out of 148; Score 3.89 out of 7; Trend Source: The Global Competitiveness Report , World Economic Forum Securitization (Weak) What is the depth of asset-backed securities, mortgage-backed securities, high-yield bonds and highly leveraged loans? Securitization laws are barely in place and some contracts have been issued, but not many. The first future flow securitization was Banco Industrial who achieved the issuance of $200 Million USD Diversified Payment Rights Securitization. The securitization was the first transaction of its kind to be completed out of Guatemala. 37 I nternational Property Markets Scorecard Guatemala 2014

38 Source: Wachovia Securities, Banco Industrial In-Country Assessment Taxation FQ23 What is the level of taxation for small businesses? Are any of those taxes an excessive burden on small businesses? Are any tax discounts provided for small businesses? Professional Services FQ24 What is the experience of small businesses in dealing with professional property market service providers such as real estate agents, brokers and valuers? Source: 38 I nternational Property Markets Scorecard Guatemala 2014

39 Conclusions and Recommendations Interrelated Issues Guatemala is Central America s largest country in terms of population and economy, and plays an important role in the Central American trade and integration. Guatemala has one of the most skewed income distributions and despite a wealth of natural resources, an estimated 51 percent of its people live in poverty and over half of children less than five years old suffer from chronic malnutrition. The poor is mostly consisted of rural indigenous people, mostly women, of Mayan descent who have suffered from repression and exclusion from participating in the Guatemalan society. Guatemala s 36-year civil war was the longest, most violent in Central America claiming more lives than conflicts in El Salvador, Nicaragua, Chile, and Argentina combined resulting in more than 200,000 casualties and violations of human rights. December 1996 marked the official ending to the conflict when the Peace Accords was signed. 11 civil societies were developed from this conflict and is a key force of reform in Guatemala. Although there are civil societies driving reform, democracy is still fragile and governmental institutions remain weak because of lack of funding, inefficiency, and corruption. Moreover, criminal activity and violence have reached historical levels which raises concern for political stability. Nacrotrafficking groups, gangs and other organized crime represent one of the most serious threats to stability since the Civil war. Crime and violence is now a serious economic and social problem with high economic and social costs. Along with criminal activity and corruption, the substantial inequality establishes a risk factor for future stability and constrains to Guatemala s future growth. The land distribution is highly unequal with the largest 2.5% of farms occupying close to two thirds of agricultural land, while 90% of farms occupy only one-sixth of the agricultural land. One of the key causes of poverty among indigenous Guatemalans is the insecure tenure. 43% of the population is indigenous and multiple unresolved land disputes discourage investment and reduce the potential contribution of agriculture to improvements in rural living standards as well as overall economic growth. An astonishing 50% of Guatemala s population is younger than 19 and 51% live in poverty line, which means inadequate education and lack of job opportunities lure youths into organized crime groups. A key issue for Guatemala remains the relatively low level of tax revenues (around 11 percent of GDP) and high levels of corruption. Government institutions do not have the resources to address the challenges posed by crime and violence, high levels of malnutrition and health issues, or to increase the economic development needed to reduce Guatemala s high levels of poverty. Income inequality is related by lack of access to health and education services which is a major cause of Guatemala s poor health statistics and lack of rural development. Their infant mortality rate is the highest in Central America and third highest in the world. Chronic malnutrition is one of Guatemala s public health concerns since it is higher than any country in America as well as most countries in Africa. Chronic malnutrition is concentrated in rural communities among the indigenous populations. The health, education, and consequences of chronic malnutrition is severe and cost Guatemala an estimated of 3.13 billion in reduced 39 I nternational Property Markets Scorecard Guatemala 2014