Dear all The Financial Express published an article about Land speculation in To know more click this link Md. Shakil Bin Kashem and Salim Rashid WE have long been in search of decentralised forms of governance. Many argue that it is the absence of adequate financing that prevents the Upazilas from being independent. This may be true for many upazilas, so let us turn the question around and look at the feasibility of making the Gulshan-Banani area into an independent governing unit. What funds can we obtain and how might the financing compare with current methods? As speculation in land is the most profitable activity in Bangladesh today, let us estimate the total value of land in Gulshan-Banani and then ask about the roles a land value tax or a land value gains tax can play. This article is only meant to be provocative and to provide some orders of magnitude. More practical questions, such as conformity with current laws etc., are being left for future consideration. We find that a moderate estimate places the total land value at some Taka 500 billion (50,000 crore) or US$7.0 billion If taxed at 1.0%, this tax would be hard to evade and provide a secure fund for civic infrastructure and improvements. And if fully utilised, such taxes can lower the profit rate in land speculation, thereby turning the attention of entrepreneurs towards real capital, to industry, to production, and away from speculation of dubious social value. Of course, land is private property and of course everyone has the right to the most advantageous use of his or her property; but recent events should have alerted us to the fact that the unrestrained use of private profit rebounds to the disadvantage of all. Property rights are rights granted and enforced by society, we are not born with such rights stamped on our forehead. Society thus has a right to regulate the use of the societal rights that society grants, in order that society benefits. The aim is not to displace the market, rather, it is to enable the market. When Adam Smith saw the spectacular economic growth of the American colonies, he pointed out that one of the reasons for such growth lay in the laws that limited the amount of land that anyone could claim. These thoughts prompted us to assess the land value of Gulshan and Banani. It was reliably found that in this area the plots abutting the main roads, with commercial zoning, cost about Taka 2.0 million (2.0 crore) per katha (one katha = 66.89 sq. meter). As it is simply impossible to obtain the actual land value in our present land record system, we had to develop a procedure to reasonably conjecture the value of the other plots in this area. Keeping a proportion to the land value of the plots adjoining the main roads, we assumed that plots with moderate distance from the main roads would cost around Taka 15 million (1.5 crore) per katha and plots with considerable distance (more than 200 meter) from the main roads would cost around Taka 1m million (1.0 crore) per katha. Utilising Geographical Information System (GIS) tools, we classified the plots, calculated land value of each of the plots and then summed the value of all the residential and commercial plots of Gulshan and Banani area. From this estimation, we found that the total land value of this area is about Taka 590 billion (59,000 crore) (about US$8.6 billion) Considering possible valuation errors (of land value) we may take the total value to be about Taka 500 billion (50,000 crore) (about $7.3) This is practically equal to the total revenue income (which is about Taka 570 billion (57,000 crore) in fiscal year (FY) 2007-2008 of all Bangladesh! The increase of land value is a common phenomenon in any urban area. Multifarious issues lie behind the land value of a city (like regional and global significance, spatial and environmental characteristics etc.). Dhaka city is no exception. After independence, the land value of Dhaka has increased manifold, due to its increased regional importance. Lack of adequate developable land, poor infrastructural facilities, inefficient land taxation structures etc., have contributed towards the increment of land value within the city. Between 1983 and 2005 the land value of Dhanmondi Residential area increased by about 1200 per cent (Islam et. al., 2007). As a result, land speculation (and land hoarding) has become one of the most profitable ventures in this city. But the question remains, is it desirable for the efficient functioning of the city or the economic growth of the country? The increase of land value can have many negative impacts. It substantially increases any infrastructural development cost within the city. It increases the cost and rent for residential apartments. As a consequence, it also acts as an impediment towards ensuring affordable housing for the poor. It extracts away significant amount of liquidity out of the market which otherwise could be utilised for different productive sectors. The present tax structure of the city does not have an effective constraint on land speculation. In some cases, it encourages holding of land rather than any development on it. You have to pay 12% of the annual rent of a land (with building) to the City Corporation as holding tax which is not applicable to any vacant land. So you can easily enjoy a highly profitable venture by holding a vacant land without paying any tax other than land development tax (which is very negligible compared to the land value). Now consider again the self-financing of local government, which is not effective now because local governments in our country are highly dependent on the central government for their functioning. But there can be alternative means which can make these bodies self-financing. Consider the Gulshan-Banani once again. If we take only 1.0% of the land value of this area it amounts to about Taka 50 billion (500 crore). This is more than one-third of the total budget of Dhaka City Corporation (which is about Taka 14 billion or 1400 crore for the current FY). And the area of Gulshan-Banani is not more than 5.0% of the area of this city. So it seems that a land value tax or a land value gains tax can have be an effective tool for the self-financing of this city. We also have to think about the future from a macro-economic perspective. Double digit economic growth is now within the grasp of Bangladesh. To attain this goal, we need to stress new wealth creation. But speculation in land largely serves only to re-circulate existing land. Investment in land has become a highly profitable venture which has scarcely any positive implications for economic growth (rather, it may impact negatively, as stated earlier). We have to devise ways to make our industry more attractive and profitable. This includes the diffusion of more efficient and profitable industrial methods, including agro-processing. By reducing the incentive to speculate in land and by making land speculation pay for the one social item that is essential to maintain the asset value of land, i.e. infrastructure, we can help ensure efficient use of our limited land resources. (Reference: Ishrat, I., Mitra, S. K., Sholiag, M. A. N and Rahman, M. A. (2007) Land Price in Dhaka City: Distribution, Characteristics and Trend of Change, published in Urbanisation in Bangladesh: Pattern, Issues and Challenges, Jahan, S. and Maniruzzaman, K. M. (ed.), published by Bangladesh Institute of Planners.) [Md. Shakil Bin Kashem is Lecturer, Department of Urban and Regional Planning, BUET and can be reached at e-mail: shakil_kashem@urp.buet.ac.bd and Salim Rashid is with University of Illinois and Institute of Microfinance and can be reached at e-mail: srashid@uiuc.edu] |
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