In New Delhi, Lots Go for 8 Figures, But to Whom?
The Economist, Yes, Pushes a Tax on Land
Astronomical land values can benefit all society. We excerpt two 2013 articles from (1) The New York Times, Mar 2, on New Delhi by J. Yardley, and (2) The Economist, Mar 9, on taxing land by the editors.
by Jim Yardley and by the Editors of The Economist
Think New York Is Costly? In New Delhi, Seedy Goes for 8 Figures
When a hovel went up for public auction, the winning bid was almost $29 million. And many neighbors consider that a bargain. One block away, a gracious if not quite Rockefeller-ready residence once leased by the Mexican ambassador is now reportedly on the market for more than $100 million. Other nearby houses are going for $40 million to $70 million.
For that much you can buy a home in New York and Miami and Lisbon and London and keep a lot of change.
Real estate prices in the heart of New Delhi, especially for the bungalows built nearly a century ago during the British Raj, are among the highest in the world.
Though India’s economy has cooled, the demand for property in elite areas remains so strong that even finding a house for sale is tricky: formal listings do not exist; prices usually circulate by word of mouth. Transactions often require some “black” money, or stacks of cash paid under the table to avoid taxes.
The buyers are often Indian industrialists looking for a trophy property, a real estate Rolex. Or, real estate agents and sellers say, they can be politicians or their proxies, who often pay with trunks of cash.
For their money, buyers get a lovely piece of land and a piece of history, if not much in the way of amenities. Many houses require a major overhaul. Services, if far better in these elite areas, are still inadequate: drinking the tap water is not advised, and power failures remain an irritant.
To a large degree, India is experiencing the sort of real estate boom common to big, emerging economies. When Japan’s economy was soaring in the 1980s, prices in Tokyo were so frothy that the 845-acre compound of the Imperial Palace was valued at more than all the real estate in California. More recently, China has seen a boom, with real estate values rising in some cities by 500 percent.
But the spike in New Delhi is also being fueled by ego, status, and some unique distortions in India’s economy. Few properties come available in the leafiest, most prestigious section of the capital, known as Lutyens’ Delhi, because the area is mostly dedicated to government housing. Powerful government ministers live in British-era bungalows with stately lawns of several acres, while lesser officials are eligible for different categories of government housing in an oasis largely separated from the rest of the chaotic capital, where many people live crowded into slums or shanties.
Not surprisingly, as Indian industrialists have amassed great fortunes in recent years, the temptation to buy into a zone where status is so nakedly demarcated and only a few hundred private properties exist has proved irresistible. Property values in the Lutyens’ bungalow zone, as well as in nearby neighborhoods, have appreciated steadily for many years but skyrocketed in the past decade.
G. K. Gupta lives in the front half of a house in Lutyens, while his nephew Shivraj Gupta lives with his family in the back half. The uncle is in favor of selling, but the nephew says he is challenging it in court. And though both would be wildly rich when the sale is completed, the elder Mr. Gupta said that kind of money only goes so far in New Delhi. “I’ll have to invest it in property,” he said. “And property is very expensive in New Delhi.”
To read more
JJS: Too many assume the value of land should go to the seller. It shouldn’t. Instead, it should go to the entire community. What the seller should keep, tax-free, is the value of the building, of their investments, and of their efforts (labor). Land value is a social value since the presence of society generates it and land itself is the heritage of us all. Encouragingly, even the business press pushes the public recovery of ground rent.
A little faster, George?
Over the past 170 years this newspaper has tracked the British economy through some devastating shocks. The global slump of 1857 wiped out banks and chilled demand for exports. The 1930s Depression hit the country hard. Two world wars destroyed homes and infrastructure. Yet five years after each of these events the economy was growing. Not so this time.
Meagre wages and stubborn inflation are eroding spending power. Debt has risen from £600 billion in 2008 to £1.1 trillion now. Government borrowing costs are still low, but Britain was downgraded.
The tax system could also be changed to promote growth. One reason why companies sit on development land is because they do not pay taxes until the offices and warehouses are built. It would be much better to tax the land value: that would make hoarding expensive and force owners to sell to someone who can use the site. Once in use, the site value and the tax would rise — creating a virtuous circle, as the revenues pay for better infrastructure, making land more valuable.
To read more
JJS: While the business press is often an apologist for selfishness, sometimes they do get it right. Maybe because geonomics is not left nor right but scientific and thus neutral. But like a lot of science, it is quite hard for people to see, since left and right sums up their political universe.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
India Has Land Crime, Ireland Has Reform Thinkers
Why Make Something Plentiful Scarce?
India's Billionaires and the Wealth of the Nation
Email this article Sign up for free Progress Report updates via email
What are your views? Share your opinions with The Progress Report:
Page One Page Two Archive Discussion Room Letters What's Geoism?