From Matangi Tonga Magazine, Vol. 16, no. 2, September 2001.

Tonga’s landless grow in number while an increasing number of town allotments and uncultivated farmlands are left vacant by migrants.

Tonga’s land tenure system, which will be 100 years old next year, has been described as “unique”. The fundamental reason for its uniqueness is the fact that 99 years ago Tonga broke away from its feudal past and shared its most treasured wealth, land, among its population.

But a century later, due to population growth, a change in life style, and the introduction of a global economy at the beginning of the 21st Century, the Tongan government is calling for a review of all Acts relating to land.

Tongas new Minister of Lands, Hon. Fielakepa, who said that Cabinet began this process early this year, has identified a number of pressing land problems for Tonga. The four main issues that he is concerned with are:

• The only government land that is left to be sub-divided and distributed to the people are the swamp areas and the remote islands of Tofua, Late and Fonualei. Government at the same time has put a moratorium on the sub-division of swamp area of Hofoa and onward to the west.
• Today the only source of town allotments are tax allotments that land owners have surrendered to the Estate owners.
• Tax allotments are  sold illegally.
• Nothing is being done about land that has been left vacant and uncultivated by people who are now residing overseas. A move to confiscate the land belonging to Tongans who have emigrated was vetoed by the King a few years ago because there was a strong sentiment that Tongans overseas contributed a lot to the development of the country, and they give generously when village groups go fund raising overseas.

Hon. Fielakepa said that they were carefully trying to deal with some of these problems within a parameter that had been established by the law. The law states that only Tongan-born can own land in Tonga. However, if a land owner surrenders his tax allotment to be sub-divided for distribution among his relatives it will be supported by the Ministry because it will help to ease the land shortage. (See Land shortage increases while half of Tonga's arable land lies abandoned [2]).

Old system

When Tonga becomes a member of the World Trade Organisation before the end of the year, it will become more urgent for Tongans to find ways of narrowing their trade deficit with the outside world.

At the moment the trade deficit is six to one in favour of overseas exporters, as Tongans continue to rely on money sent from relatives overseas and on foreign aid for bridging the gap between what they produce and what they consume.

In order to boost their incomes or to become producers Tongans, like everyone else in the world, need capital.

Overseas, the obvious way to secure capital fund is to mortgage land, but the problem now is that the century-old land tenure system in Tonga has left much of the land in a situation where it cannot be valued.

At the same time a dramatic change has taken place in the business life of Tongans, starting in the 1970s with the introduction of commercial banking, when for the very first time Tongans were permitted use their land as mortgage to obtain loans from banks. But because land cannot be bought and sold in Tonga there is little incentive for mortgagees to repay loans because they know they will get the land back eventually—whether or not they repay the loan.

Problematic loans

Afu‘alo Matoto, the Managing Director of the Tonga Development Bank and a former Secretary of Finance, said that the mortgaging of land had been carried out by government for years before the introduction of commercial banking. “Government had a house lending policy which was made available to public servants who used their land as security for their house loans.” Afu said that with the introduction of banking and the approval given by the

Privy Council for the banks to accept land as mortgage for loans made it possible for people to raise loans.

The bank that accepts the most land as mortgage for loans is the Tonga Development Bank. Afu‘alo said that the Privy Council approved this in 1977, and because of the TDB policy to offer loans to growers and fishermen the TDB today has more mortgages than the other banks.

By July this year Afu said that the TDB had a total of 330 mortgages, and 40 per cent of those mortgages were for squash-growers loans, “and 25 per cent to 30 per cent of our problematic loans are squash loans. Squash loans are a headache.”

Afu said that the problem with squash loans was because of a push to encourage people to grow squash, “so a lot of people were attracted into growing squash, both professional and amateur growers, and the lending policy of the bank was also very easy at the time”.

Failure’s paradise

“The notion of mortgaging land is based on a belief that the land-owner does not want to lose his land, and that he will do everything so that the bank will not take away his land, but in Tonga’s case it is different. When borrowers have problems with the repayment of their loans, they leave for overseas and do not return until the duration of the mortgage period expires, when the ownership of the land returns to the owner.”

Afu said that the value of land as a security asset for loans was only a small part of collateral that was demanded by the bank, but it was essential as a means of making sure that the borrower fulfilled his obligation and repaid his loan. “The last thing that the bank wants is to become an estate agent, all we want is to get our money back,” he said.

“The sub-leasing of mortgaged land is the last resort that the Bank has to take, and even then it is very difficult to get someone who would like to sub-lease a property, even if there are 25 or 30 years left on the mortgage.”  Afu said the sub-leasing of land had a limited appeal to people who could easily get access to farmland elsewhere under informal arrangements.

“While, the sub-leasing of town allotments faces the problem that the borrower is still occupying the property.”

Afu said that to date they had managed to sub-lease only 20 properties, and the Development Bank was still advertising 26 town and tax allotments to sub-lease. He said that the leasing of tax allotments was easier because a person may want to use the land to get into commercial farming. “The sub leasing of town allotments remains problematic because usually the owners are still living in their homes and it is very difficult for anyone to evict the owner and move in.”

Afu said that by publishing in the local newspaper the name of the borrowers who defaulted on their loan repayments was a way of trying to make them feel bad and to pay up their loans, “because by sub-leasing the land, we are already losing.”

Land mortgages

The Tongan government policy on mortgaging is that a registered tax allotment or town allotment can be used as mortgage only if the loan money is to be spent on the property, such as a farming or a house loan. Only a leased property can be used as a mortgage for other loans, such as business loans.

The other three commercial banks in Tonga, the Bank of Tonga, MBf and ANZ are also accepting land as mortgage for loans, but the difference is that they do not offer as many agricultural loans or squash loans as the Tonga Development Bank.

‘Opei Samate, from the Loan Division of the Bank of Tonga, said that they accepted registered town allotments as mortgage only for house loans or for loans that would utilise the land or improve the property. He said that they rarely accepted tax allotments as security for house loans, and that some of their squash loans were expansions of existing loans by established wage-earners.

The General Manager of the Bank of Tonga, Brian Harris, said that the most preferred security for loans was a movable property, “a timber dwelling is worth more to us as a security for loans than a concrete building, and commercial land is also worth more than a residential property.”

Brian said that over the years they had become very careful with the screening of loan applications, and they had actually increased their loan portfolio from $45.9 million pa‘anga in 1999 to $50.7 million pa‘anga at the end of 2000. He said that the bank’s in-house legal counsel and a Loans Management Unit helped to solve problem loans. “If we have 2000 loans there are always going to be one or two who are defaulting in their loan repayments, so it is a matter of trying to reduce that figure.  During the past few months we have had only12 borrowers who defaulted on their loan repayments and left for overseas.

“The one thing we know for sure is that people value their assets, and they do not want to be evicted from their homes, and we do not like to evict people from their homes either. We have a social conscience, and we try to be sensible, and the sub-leasing of land is the last resort.”

Brain admitted that he did not fully understand how the Tongan Land Tenure system worked, “but from a purely selfish commercial point of view, commercial activities in Tonga will be further accelerated if land is to be made freehold. The present procedure is too cumbersome and tedious, and it takes too long to process a mortgage. It takes months to get the deed,” he said.

The other two commercial banks, MBf and the ANZ said that they accepted mortgages only for house loans, and even then they did not have many mortgages.

Low valuation

So while land remains an opportunity for Tongans to raise capital funds, at the same time its value as an asset is somehow being lowered because in real terms its value has not been changed in 100 years. The leasing rate is still at 10 seniti per acre for registered tax allotments and $100 per acre for leasehold.

The irony of the situation is that while the demand for land is at an all-time high, because of an increase in population, and the number of foreigners who have became naturalised Tongans, there remains an increasing number of tax allotments, which are left uncultivated, and town allotments which are left vacant by people who have migrated overseas.