How is it that India has some of them most expensive real estate in the world?
Intuitively it might appear only logical that land is a scarce resource in country of 1.2 billion people. Yet, in terms of density of population, India, at 380 people/sq.km, is nowhere near the top. Singapore leads this list over 7300/sq.km, and among larger countries, we have Bangladesh at 10324/sq.km.
Among major cities, the price of land in Mumbai, for instance, is around Rs. 250 Cr/ Acre (~USD 42m). This puts it in the league of with some of the most densely populated cities in the world like New York and Tokyo. Similarly, rentals in Delhi's Khan market at Rs. 1225/sq ft/month is among the most expensive retails spaces in the world.
If you thought this was a purely urban phenomenon, consider farmland prices in Punjab. At Rs. 1.5 Crores/Acre (~ USD 251,190), it is 230 times more than the cost of farmland in the wheat bowl of USA - Kansas. In terms of agricultural productivity Kansas beats Punjab hands down. The economy of scales that have been achieved through huge farm holdings (average - 707 Acres) is in sharp contrast Punjab (10 Acres!).
So one thing is clear -- the price of land in India is not based on productivity. Even the most expensive cash crops produced in Punjab would not account for the cost of the farmland on which they are grown. Why, then, have the price of land shot-up over the last ten years?
This was the topic of discussion at a seminar organised at IIC last week. The discussion centered around a book written recently by Sanjoy Chakraborty. He went through the history of 'giving' and 'taking' of land by government through the exercise of 'eminent domain'; compared the productivity based price of land in different parts of the world and criticised the new Land Acquisition (LARR) Bill, as something that would only muddy the waters even further.
However, the mystery of sky-rocketing real-estate prices, remains an unsolved investigation-in-progress. In the absence of reliable data, the speculation was that a combination of factors is responsible for this:
* Numerous, Archaic, Conflicting Laws: The Land Acquisition Act, 1894, is often at loggerheads with 16 Acts with provisions for acquisition of land in specific sectors like railways, roads and SEZs.
* Discretionary Powers: The confusion in laws gives ample space for politicians and bureaucrats to use 'discretionary powers' -- a valuable tool for rent-seeking and election financing. It seems 80% of criminality in India is centred on land.
* Influx of NRI funds: Real estate has become an important destination for investing remittances from non-resident Indians. The flats may remain empty and the beyond the reach of the locals, but, hey, who cares?
* Money laundering: The existing tax structure ensures that unrecorded cash transactions play an important role in this business. So it has become the meeting point for money of all colors and hues - black or white, through petro-dollars or blood-diamonds.
In the ultimate reckoning we ourselves are to blame for this state of affairs. Perhaps at the centre of this tangled web, sit apathetic citizens and their petty political leaders who are unable to envision a country beyond the next elections.
After all, as Maistre said, "In a democracy, people get the government they deserve."
* Average Land-Holding: In India, the average size of land-holding is 3 Acres. The smallest holdings are in Kerala (1 Acre), and the largest in Punjab (10 Acres). This is one of the lowest in the world: France (100 Acres); USA (450 Acres); Brazil (600 Acres)
* When did we lose the fundamental right to property? --- The Constitution originally provided for the right to property under Articles 19 and 31. --- The Forty-Forth Amendment of 1978 deleted the right to property from the list of fundamental rights --- http://en.wikipedia.org/wiki/Fundamental_Rights_in_India
* What are stylised facts?? ---- Simplified presentation of emperical finding --- http://en.wikipedia.org/wiki/Stylized_fact-
* Why is Magarpatta being cited as the ideal story for a Town Planning Scheme ??
* Dalal, Sucheta (2007): THE AMAZING STORY OF MAGARPATTA -- http://www.rediff.com/money/2007/jan/11bspec.htm -- Interview with Satish Magar
* Magarpatta - slides -- http://specials.rediff.com/money/2006/mar/22sld1.htm
REFERENCES & LINKS
Chakraborty, Sanjay (2013): THE PRICE OF LAND, OUP-India, March 2013 --- http://ukcatalogue.oup.com/product/9780198089544.do
Kansas - average farm size -- http://www.agclassroom.org/kids/stats/kansas.pdf
Eminent Domain -- http://en.wikipedia.org/wiki/Eminent_domain