Land speculation causes depression?
Published on: Monday, December 01, 2014
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Land speculation causes depression?
KOTA KINABALU: Author Michael Bentley is not your regular type of estate agents as he gave a presentation on investing in Australian property market recently at a leading hotel here, just as the business atmosphere here in the city slows down."I wish I had known about the book entitled, 'The Power of the Land' by Fred Harrison 10 years ago," he told his packed audience, before going on to posit that the real estate property cycle generally stretches over a seven-year period, then an intermittent lull of correction or stagnation period of around three years, before another seven years of upswing.

Extrapolating this phenomenon to the few Australian cities, Bentley was convinced from his presentation that the theory as Fred Harrison was credible with some variation for different locations.

A property valuer here who declined to be named as he was scolded by customers in the past for unwilling to value property beyond a reasonable sum for bank loans, said that the Sabah real estate scene is in for a plateau stage and depending on the volatile world and business scenarios, prices could dip for certain classes of property.

Sabah's capital city and other developing urban centres, tourism spots and plantation agriculture fertile lands have been in the price records for land sales and acquisitions, but retail shops currently report of a slowdown in business.

An experienced lawyer who requested anonymity, representative of the profession's business outlook, also reported a drop in property conveyancing business and banking loans documentation, but looked forward to earn from more debt recovery litigation cases.

Bentley shares a view that land speculation is the major cause of depressions anywhere in the world.

Land speculation periodically chokes off economic expansion, causing stagnation.

The failure of the build-then-sell concept for housing in Malaysia from 2015 was prematurely aborted was probably due to rising costs especially land costs, amounts that banks frowned upon.

Land speculation gives rise to meteoric rise of property values, urban sprawl, and mis-allocation of financial resources into buying expensive land banks.

Hails from Australia, Bentley penned a book 'The Non-Resident's Complete Guide to Investing in Australian Real Estate' and the 15 copies were sold out in less than five minutes at the Promenade Hotel here.

According to Bentley, 'The Power of the Land' by Harrison is as relevant today as it was when it was published in 1983: we are faced with another global depression, which as it deepens, intensifies the pressure on governments and puts policy-makers in a dilemma.

Every prescription has its negative: monetarism – unemployment; Keynesianism – inflation; and the planned economy – authoritarianism.

This dilemma, the author argues, stems from a distortion in our understanding of how the industrial economy works, a distortion he traces back to Adam Smith.

The new wave of land deals is not the new investment in agriculture that millions had been waiting for.

The poorest people are being hardest hit as competition for land intensifies.

An NGO Oxfam's research has revealed that residents regularly lose out to local elites and domestic or foreign investors because they lack the power to claim their rights effectively and to defend and advance their interests.

Smith provided the captains of industry with a theoretical framework and moral justification for the new mode of production which sprang from the Industrial Revolution.

He believed he was setting out the rules for a free market system but, inconsistently, he granted landowners an exemption enabling them to exert a monopoly influence on the market which remains to this day.

The Marxist critique blames the capitalist for the ills of the system, yet Marx himself acknowledged that the power of the owners of capital rested on the power inherent in land.

Both Marx and Smith recognized the special role of landowners who, in the words of J.S.Mill, "grow richer in their sleep without working, risking or economizing", but neither pursued the macro-economic implications and, if anything, covered them up.

The author looks at the implications: the conflict between labour and capital is a false one that obstructs a rational strategy for rescuing the Western economy; the origins of the collapse of the 1980s are to be found in land speculation.

The major industrial nations entered the 1990s in the midst of land booms offering riches for a few but unemployment for many: banks in Texas were bankrupted by massive speculation in real estate and even embassies had to abandon their offices because they could not afford the rents in Tokyo.

In Britain, the spoils from housing – the direct result of the way the land market operates – have enriched owner-occupiers but crippled the flow of workers into regions where entrepreneurs wanted to invest and lead the economy back to full employment.

Thus, it is the author's thesis that the land market functions to distort the relations between labour and capital and how land speculation periodically chokes off economic expansion, causing stagnation.

The remedy proposed by the author is a fiscal one which would remove the disruptive factor of land speculation and transfer the burden of taxes from labour and capital to economic rent, a publicly created revenue.

This would create employment and higher growth rates, while avoiding the inflation-risk policy of deficit financing; increased consumption and investment would be generated by the private sector, not government.

Companies and governments must take urgent steps to improve land rights outcomes for people living in poverty.

Power relations between investors and local communities must also change if investment is to contribute to rather than undermine the food security and livelihoods of local communities.

Some economists have shown empirically, that land reforms in rural areas, may not lead to economic growth, and hence have argued that such reforms are not worth pursuing.

Their empirical evidence may indeed show why this would happen, for a number of reasons, although there is also a large body of evidence which contradicts such findings and shows the exact opposite. Such is the state of economics.

However, if economists simply see land reforms as a growth-enhancing intervention, they miss much of the social and political consequences of holding on to large tracts of land in societies where there are far more small and landless farmers.

Inequality, especially on account of landholdings — as opposed to say, opportunity — does give rise to social inequities which have far greater repercussions than just growth.

Arguments against land reforms in Pakistan and elsewhere have become legitimised, mainly by economists, but also by other categories of social scientists (and of course the land owners themselves), on the basis of different types of empirical evidence.

While land reforms, which mainly imply the redistribution of land from large landlords to small or landless farmers or distributing state-owned land to landless farmers, may not increase overall growth, in some cases, large, corporatised, highly capitalised, landholdings have been shown to do so in Sabah like plantation entities.

According to this argument, rather than break land down in size, it is better to consolidate and mechanise.

One could, of course, wait another half century when the process of inheritance would have fractured the size of holdings even further and urbanisation would have made much rural land redundant.

There are also empirical studies which show that land reforms actually increase a country's economic growth, especially if agrarian reforms accompany land reforms.

Studies have shown that land reforms had a significant and positive impact on income growth and accumulation of human and physical capital.

Land reforms have also been seen to have a positive impact on equity.

The power of land extends far beyond the horizons of the landed estate, and the externalities of large-size holdings are many, that these companies in the oil palm plantations are also property developers.

The demand for land and agrarian reforms is just as pertinent today as it was three or four decades ago. They ought to be always high on the agenda of every political party as an option worth implementing, particularly by those who promise a break from the past.

Oxfam wants the rights of the communities affected by land deals to be respected and their grievances addressed, and those who are profiting from the land deals must help to ensure this happens.

Those financing and sourcing from land acquisition projects, and companies further down the value chain, must use their influence to ensure that this happens.

The balance of power must be shifted in favor of local rights-holders and communities. Governments should adopt strong, internationally-applicable standards on good governance relating to land tenure and management of natural resources.

Host governments should respect and protect all existing land use rights, and ensure that the principle of free, prior, and informed consent is followed and that women have equal rights to access and control over land.

Investors should respect all existing land use rights. They should make sure that the principle of free, prior, and informed consent is followed in all agreements, as well as seeking alternatives to the transfer of land rights from small-scale food producers.

Financiers and buyers should accept full supply-chain responsibility. They should require all agricultural operations that they finance or use as suppliers to follow the principles set out above, and remedy existing problems.

Oxfam calls on home country governments should require companies investing overseas to fully disclose their activities, and ensure that standards and safeguards are implemented to protect small-scale food producers and local populations, including through development finance organizations.

Land ownership is not simply a matter of economic power; control and ownership of land allows a disproportionate control of other assets and capital, whether economic, social or political.

In the city here, landowners influenced how the cityscape is shaped according to their projects, pending the new Draft Local Plan to be gazetted.

caption: This car park site behind the KKCCCI Building of 30,000 sq ft of land recently transacted for RM20 million.



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