Ever increasing land prices in India, explained!
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| That is a good one we found about brokers. Image: www.econosseur.com |
Two questions stare at you in the face whenever such stories are being narrated. At the onset, let us tell you that while we write this post, trying to present a true explanation of those two questions, we can also assure you that there is no known cure for this.
Question 1: How did that someone buy land at such a throw away price?
Answer: There is nothing called a throw away price. There are times, when in retrospect, prices look ridiculously low and even unbelievable. When some of us were in school back in the 1980s, 20 paise was the one way bus fare for a 10 km bus ride to get to the classroom. 20 paise! Definitely not throw away money when we were living those days. Five bucks was a lot of money then.
Similarly, when that someone bought the land he traded for a lot of money, he would have struggled, sacrificed and had lumps forming in his throat when he was writing out that cheque for the land transaction. Today, while you pay Rs. 10 at least for a small bus ride (50 times more), the value of the land has increased in the same ratio too. So don't go into a cardiac arrest triggered by regret and despair. You could not afford it then as it was a lot of money. No sweat.
Question 2: Why has land become un-affordable now?
Answer: While you still don't (that could change - Rahul) need a personal loan to pay the bus or cab fare to reach office everyday, buying land does not figure on your radar anymore. It never did. I mean we don't have land transaction jokes on the internet or the BBM Groups yet, so this is not what gets discussed in the mainstream. Plus, buying land requires money. A lot of money. Even big developers all over India are finding land prices becoming the biggest obstacle to the growth of affordable housing. Why?
Decades ago, most of the land around the city centres was owned by farmers. These guys, living in places which we call suburbs now grew food, let their cattle graze the fields and generally went about life in a simple way. Somewhere else, in the same era, a group of entrepreneurs realized that with increase in industrialization, economic activities and services, real estate demand would soar up. To build real estate to cater to this upcoming demand, they bought some land from a few farmers and started constructing homes, then offices and then retail spaces. Everything was going good and the farmers were pretty happy with the extra liquidity.
A few other smart folks in the cities took a trip down to the village one fine morning and met all the farmers. There was enormous demand coming up, these gentlemen told the farmers and fixed low prices with them showing them a large transaction volume. In the meanwhile, builders in the city bought expensive cars with low ground clearances with the money they had made and stopped going to the farmers! This is where the brokers made fortunes. They bought land from farmers at x and sold it to the builders in their cars at 5x, 10x and even 20x! Land prices started increasing ever since and even today, as a broker speaks with you, the price he quotes for the land is mostly way higher than what the land owner is actually going to get.
What made this little greed induced error in the economy irreversible is that after a few initial deals, the farmers came to know the truth about what was happening. This could have been due to the immense marketing efforts of pink coloured business papers or even an unhappy broker going around the villages, singing the canary concert to land owners. The farmers realized their immense loss, regretted and some of them even killed themselves, owing to the 'throw away price' phenomenon explained above. The farmers and their Mahindra Scorpio driving sons decided that they have had enough. They hiked up their land price. Brokers wanted their share to remain the same in every transaction as they had to make money, move to the city and buy cars with low ground clearances too!
This started a trend. Some of the blokes who did not make enough money conning farmers became analysts and they started having their share of laughs, playing the game from a level a broker could never reach. This cycle continues to this day and shall forever.
Inference: Land prices shall continue to rise. You may see 'throw away price' land deals posted on real estate groups on LinkedIn every now and then. But go see for yourself and you will realize that
Two decades from now, someone will write a similar post on some website blog and start with "Back in 2013, when land was cheaper than a G-String....."
Cheers!
About the author
Rahul Mishra is a real estate professional who started his life as a salesman, selling homes in the city of Kolkata since 2001. He worked pan India in real estate organisations like MMG Realty, Bengal Shrachi, The Phoenix Mills and The Space Group before helping co found Pillars with a single objective - To make real estate easy!Connect with Rahul Mishra on Linkedin.
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Basically. Everyone (including the end users) became greedy disgusting human beings, who thought that they would all make money. Until the average man could no longer afford to live in a house. Banks started to worry as income to loan ratios became too stretched, liquidity dried up, the house prices crashed. The very same as any other asset bubble since economics was invented.
ReplyDeleteIndia is a long way of European standards of living (our houses dont list running water as a features). But Indian real estate is 4X more expensive, like for like.
O and by the way, the crap that developers built. Nobody wanted, as it was poorly designed and built by exploited people. Using terrible quality materials, poor insulation and horrendous running costs on land that should have never been approved for building. Tsunami areas, flood plains and rubbish dumps.