Freehold tenure: it’s no panacea for the north

Roo at UndaraThe contemporary discourse around land tenure in Queensland – and more widely in Northern Australia – is about facilitating economic development (or sometimes ‘growth’). Of little interest in most metropolitan areas, land tenure is of great interest to pastoralists and Indigenous Australians, both of which groups hold tenures ‘less than freehold’. It is also of great interest to government, both state and federal, seeking to promote economic development.

One of the recurrent themes in economic development in the north is the need for ‘secure tradeable’ interests in land. This concept is implicit in the recent Queensland reforms allowing holders of Indigenous tenures to ‘freehold’ their land. The cost of this is extinguishment of native title, albeit in consultation with traditional owners. The implied benefit is the ability to use land as collateral for investment.

This post challenges the received wisdom of freehold as the gold standard of land tenure. I suggest that we should be thinking more creatively about tenure and economic development in the north, in particular respecting Aboriginal and Torres Strait Islander interests in land.

Secure and tradeable interests

Freehold is secure because its term never ends, and tradeable because there are no limits on how it can be dealt with – it can be sold, leased, or mortgaged. This makes freehold land ostensibly attractive for banks to use as security for a loan. In taking a mortgage over the land, a bank has a back up plan in case of loan default. It can retake possession, and sell the land on the open market to realise the debt.

In reality however, banks lend on all kinds of security. They lend on diverse leasehold interests (pastoral leases, industrial shed leases, perpetual town leases etc); and on company title (shares in a unit block that entitle the owner to lease a unit for a term). Rather than the type of tenure, for banks the relevant question is: can we realise this asset if the borrower defaults?

This question has morphed into a quest for freehold because of restrictions on some non-freehold tenures. These restrictions can limit what the bank can do in case of default. For example, under s100 of the Aboriginal Land Act 1991, a trustee of Aboriginal land must not sell or mortgage the land.

This is not a limitation inherent in Indigenous tenures. It is a creation of statute. Previous legislation, the Aborigines and Torres Strait Islanders Landholding Act 1985 (s18), did allow the sale or mortgage of the land – to a ‘qualified person’ under the Act. Similarly, the present requirement to extinguish native title when Indigenous freehold is changed to ‘regular freehold’, is a policy position. It is not a natural legal consequence.

The market for land

The banker’s question ‘can I realise the asset’ is not tied to tenure, but it is tied to market. And unsaleable land is more likely to be a barrier to borrowing money. This then becomes the question: is there a market for land in North Queensland?

Some say that beachfront land in the Cape would be attractive to FIFO miners looking for a fishing shack. (I would venture though that this is not a long term sustainable market in land.) Apart from this, the type of market that might be envisaged throughout the north would depend on the industry supported by the land – none of which necessarily requires freehold.

Instead, what an investor (including a bank) requires, is return on investment. The length of time required to see this return will depending on the type of industry. However many industries would see this return in 30-40 years. This is a common time frame for pastoral interests, and can be achieved through leasehold.

Relationship banking

A hidden element in understanding the availability of credit has nothing to do with the value of the land (tenure) itself. Instead, it has to do with the bank’s perception of risk. In other words, can the customer pay the loan. Banks have risk profiles and are accountable to prudential authorities for their exposure to risk. Banks’ concern with risk becomes apparent in the loan application process where the borrower’s financial history and income are relevant to the decision to lend.

Historically, banks have enjoyed relationships with their customers, particularly commercial borrowers. This has allowed the bank to take calculated risks. They are familiar enough with the customer’s business and skills to justify lending. In the recent past, these risk calculations have often worked to the detriment of women, particularly married women. Many women, despite their credit and employment standing, have been unable to obtain finance without their husband’s guarantee.

While this practice may be less prevalent now, it indicates that there is a cultural context to lending. Those who are ‘new’ to the lending market have not yet established their relationship with the bank. The bank has no foundation on which to take a calculated risk. Finance may not necessarily flow to where the best return is, where the bank presumes that there is a ‘risk premium’ – as in the example of married women.

For Aboriginal and Torres Strait Islander Australians living in remote areas, there is little opportunity to develop a relationship with banks. Needless to say, having a freehold title is not going to bridge this gap. Indigenous people need the opportunity to engage with banks, and banks need to develop a culture that incorporates the needs of non-traditional borrowers in remote communities.

The market will fix it!

In the Northern Development White Paper and in the recent Queensland Indigenous tenure amendments, there is an obvious commitment to market-based solutions to questions of growth and economic development. Such an approach would largely impose the cost of tenure changes on the user (including holders of Indigenous tenures). To do so however, denies the history of development in North Queensland.

As with all land in Australia, there has never been any payment to traditional owners for their land. The basis of Australia’s entire economic development was taken for free. It has never been accounted for. The value of this land to the present economy is almost unimaginable.

To push the northern frontier, State government granted limited-term, low-cost tenure (leasehold or licences) to people in exchange for infrastructure development. Thus leasehold interests usually contain conditions requiring eg land clearing, or fence construction. They might also require the land to promote a particular industry eg to run a certain number of cattle. These conditions were privatisation of infrastructure and industry development, albeit heavily subsidised by Indigenous Queenslanders (through land and free labour), and government (through low cost tenure).

Historically also, government provided finance through state development banking – often at concessional rates of interest. Further, state sponsored infrastructure development through roads, rail and ports, assisted in opening up markets to support private development interests.

Queensland also has a known history of corruption in government approvals concerning land. In the past, this served those who held interests in land – except for Aboriginal and Torres Strait Islander Queenslanders who suffered ongoing dispossession to the advantage of white landholders.

In light of history, including quite recent history, it is unrealistic to expect this remote region suddenly to step into a globalised economy through free market alone. Even ‘mainstream’ industry has struggled over the past 150 years, and the present drought conditions illustrate the challenges involved in sustaining viable industry in the north.

Thinking about solutions

The White Paper hopefully provides a driver for creative thinking around sustainable development in northern Australia. We need new ideas for commercially viable enterprise where we have seen repeated failure in the past. Here are some preliminary thoughts, though I’d be interested to hear more.

  • The non-extinguishment principle for native title must be built into any tenure arrangements.
  • It is not only Aboriginal and Torres Strait Islander people who need capacity building to deal with business (as mentioned in the White Paper). Business needs capacity building to understand the needs of communities. This cannot be done through short bursts of engagement. Rather it requires well-resourced, ongoing exposure within communities to identify resources, develop plans, test within the community, gain community acceptance and to implement.
  • Corporations with capital might consider how they enact their reconciliation action plans to promote the aspirations of communities. They might think about the goals of corporate social responsibility; and ethical investment.
  • Government might consider effective tax incentives for native title holders to develop effective plans and undertake well-planned ventures.
  • Planning laws should be simplified, and community driven. They need to be tailored to community needs.

A framework for economic development in Northern Australia must be oriented towards the needs and aspirations of Indigenous Australians. After all, approximately 76 per cent of land in the north is under some form of Aboriginal interest. To achieve this may take time, and it may be complex. Freehold tenure is not even close to offering a solution, and it ignores the complexities inherent in the northern context. Using freehold as a proxy for the operation of the global market without a thoughtful rationale will only lead to the further injustices of dispossession.

I am grateful to the collected wisdom of many colleagues who have been willing to share their own insights into Indigenous tenures, native title and banking.

One thought on “Freehold tenure: it’s no panacea for the north

  1. Very good Kate and so salient at a time when the new PM is talking about the need for innovation. Banks will indeed need to innovate because as you say the problem is not a legal one rather one of business “risk’ aversion.


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