The Great Saipan Land Rush…not!

Many letters have been written both in favor and against the repeal of Article 12 of the CNMI Constitution that limits land ownership to those of Marianas decent. So I am putting in my opinion. My opinion is based on my educational and professional expertise and experience. I hold a bachelor’s degree in Real Estate and Land Use from California State University. I lived in California from 1966 to 2002 and experienced the California land rush that continues to this day. As a supervisory loan officer of the U.S. Small Business Administration for 12 years, I have underwritten literally thousands of real estate and commercial loans across the Western and Midwest U.S. and trust territories. I know real estate. First I debunk a few myths. Then I will address the possible options as presented by Rep. Camacho on his web site. I will address real estate speculation, infrastructure shortfalls, property taxes, probates, the effect on the indigenous population and other related issues. The bottom line of all this is that Article 12 as written is good for the indigenous population and truthfully, for the rest of us living in the CNMI.

Myth No. 1: Land can be bought anywhere in the U.S. No way! In addition to National and state parks, preserves, etc., there are millions of square miles of land that cannot be sold. The lands belong to the indigenous population, Indian reservations. The land belongs to them and cannot be sold even between Indians. The Indians use the land as they wish. These lands are sovereign Indian nations within the U.S. reservation. For those of you who have never been on a reservation, be warned; there are signs that state you are on reservation land and subject to their laws. They can discriminate against anyone not Indian. Maybe the CNMI should research becoming an Indian reservation or seek a separate sovereign nation status.

Myth No. 2: Investors will not invest in the CNMI because they cannot own the land. That is a bunch of bull. If you have ever been to Mexico you will find the coastlines covered with resorts and businesses. Mexican law restricts the ownership, fee simple, of land within 25 miles of the coast to Mexican citizens. All the resorts and land on the Mexican coast are either owned by Mexican or the resorts are on leased land. Investors go where they can make money, period.

Representative Camacho on his website makes an honest effort that delineates various possible scenarios to address the land issue. The problem with these scenarios, groups A-E, is that they are arbitrary and subject to legal interpretation. For example, if I owned land in the CNMI worth $5 million and was excluded from selling my property, you can bet I would be in court disputing the law as arbitrary and unconstitutional. Attorneys would love this. Any changes to Article 12 must be fair, not arbitrary, nor discriminatory. Additionally do we want elected officials changing real estate ownership law at will as they have the propensity to do with other laws? The repeal of Article 12 is an all-or-nothing deal. There will be no going back.

So, what happens when Article 12 is repealed? First to show up for the land rush will be the real estate speculators. Some are already here. Locals buying small plots here and there. Speculators will buy plots here and there to hold until the land price doubles, triples or otherwise increases in value. Then they sell and move on or if the market is still booming they keep buying and selling, all the while forcing the price of real estate skyward. They seldom improve any property. Arriving concurrently will be the people wanting to build houses, apartments, condos, etc. These are the people who have money to spend for roads to their properties, hire contractors to build structures and so forth. Of course CUC will not be able to provide water or electricity to some properties. There is already a utilities shortage here. And a massive shortfall of funds for capital improvements. So where does the money come from? Property taxes, just like everywhere else. Property taxes are constitutional. Property taxes are not an if, but a when. The CNMI government must sooner or later, whether or not Article 12 is repealed, impose property taxes.

The people coming to CNMI to buy homes, land and to build will not be poor people. They are not moving here for a great paying jobs. They are here to suck up cheap, tropical island land that also is under U.S. government jurisdiction and protection. They will not be here just to build a primary residence, but second and third winter homes, large condo or timeshare properties, etc. There will buyers to buy, fix up and sell properties. Just like TV’s “Flip This House.” They will have big bucks. We are not talking about the $60K annual income that some elected representative here think is high income. I shake my head every time I think about that. Where is their reality? We are talking six and seven figure incomes. People with hundreds of thousands of dollars to do with as they please and play with. They pay cash. Of course that money is earned elsewhere and not subject to CNMI income tax. So why shouldn’t they pay for all the infrastructure capital improvements necessary to accommodate them? That is fair. But to impose property taxes or other taxes or fees upon a specific group of landowners is discriminatory and unconstitutional. And if necessary they have the money to pursue that issue in the courts. So it will be property taxes and other taxes or fees for all landowners. Of course there can and will be exceptions, but everything such as the tax rate, assessors, exceptions, etc. must be in place before the repeal of Article 12. By the way, do these idiotic 55-year private land leases have a provision as to who pays any possible future property tax? I am willing to wager that after this letter most future 55-year leases will now include such a provision.

Historically property taxes have forced poor people from their coastal properties. Here is a possible example. Say that I am retired and own one acre of ocean front land and a house having two bedrooms and a bath. My initial appraised property value is $10K for the land and $40K for the structure. Total market value is $50K. Property tax at a 1 percent rate on market value of the property means I pay $500 a year in property tax. Now the property next to mine, one acre of just the land, sells for $50K. Now the market value of my land is $50K. So now my land and home are appraised at $90K. I must pay $900 in tax. This continues as the value of surrounding properties increase. What if the neighbor’s land sells for $500K? Worldwide, ocean front land usually sells in excess of $500K. I cannot pay the taxes ($5,000 a year) so I sell out and move…where? All the land prices in the CNMI have inflated and even that $500K I get from the sale of my land will not get me property like I had to sell. It may get me a decent house. This problem extends to all properties. There are safeguards that can be implemented so that this does not happen but only if such safeguards are in place concurrent to the onset of property taxes.

Then there is family land. My son’s grandpa died years ago and the property was never probated. My son, as half-Chamorro, is a potential heir to a large section of land on Saipan. And so is his mother, her sisters, her brothers, his cousins, nieces, etc. If the value of that land ever reaches a level where probate would result in a positive financial settlement for my son, see you in court. There are many such situations in the CNMI. As the value of land escalates, family members will be going to probate court and fighting to get their inheritance.

What about section 8 housing? If you could sell your rental for $100K, would you? Rental properties would be selling left and right. Great for the owner (maybe) but for the poor souls that got kicked out, where will they live? Apartments will be sold. Rents will increase. Some upscale apartments will be converted to condos or timeshares. Repeal of Article 12 will result in a lack of affordable housing for the low wage working class even if the minimum wage increases to $10-15 an hour. Unlike low wage workers in most countries who can move to the outskirts of a city to find cheap living quarters, low wage workers here must leave the island if they can, or get a raise. We will have homeless indigenous families and homeless nonresident workers if Article 12 is repealed.

Repeal of Article 12 will have many problems that must be resolved before it is repealed. Given the historical procrastination and inability to deal with any real problems by our elected representatives, the problems will be debated for years and never resolved. The repeal of Article 12 will result in wealthy people/investors taking control of the CNMI, just like the garment industry did. Big money talks loudly and elected officials everywhere, not just in the CNMI, tend to listen to the speaker. Years ago the late great comedian Will Rogers was asked what he thought is the best investment. He replied, “Buy real estate, they ain’t making any more of that.” They still ain’t making anymore of that. Leave Article 12 alone.