Land price is a major factor governing my decision to buy land. My concerns are thus:
1. There is no economic rationale for price of any agricultural land to be valued beyond a threshold. How does one arrive at this threshold? Let us say that one family of 4 can manage not more than one acre of land. If a person can earn a gross revenue of 1 lac from an acre and net revenue of 80 thousand, the net revenue should cover his cost of living (including a reasonable saving) and the cost of capital (interest cost on investment in land). If his cost of living is pegged at 60,000 pa, he cannot service more than 20000 of interest pa. The land price for an agricultural land then cannot exceed 2 lac per acre. One may re-calculate this threshold by modifying the assumptions of how much land can a family manage and how much gross revenue can one make from the amount of land he can manage.
There may be other methods of arriving at the threshold. But, this has to be a factor in price determination.
2. Senseless rise in land prices are pushing people away from agriculture and even further from natural farming. At the market prices, in most areas, a farmer cannot even cover the interest cost through farming revenues. Given the market prices, it makes sense for almost every farmer to either sell his land or use it for non-agricultural purposes. This will result in everyone monetizing all the land and there being no food to eat. Quite a scary scenario.
3. Non-farmers buying land at market determined prices is only pushing up prices astronomically. If I buy land at such prices, just because I can afford to, I’m directly causing a rise in future deals, thus aiding the systemic catastrophe directly.
These are macro concerns. Agreement at macro level is quite easy to get. More so from people who’re not involved and even more from people like me for whom agreeing to the rationale saves money.
At the level of individual decision making, the thinking process is quite different. Plastic bags choke drains, thus aiding the possibility of floods in cities. But plastic bags offer a convenience and I think that just by my refusing to use a bag will not avoid floods if others continue to use. Similarly, if I’m a seller of agricultural land, I will agree with the rationale above, but think that my singular contribution to the systemic catastrophe is insignificant. But if I am a buyer, I will vehemently support the theory with a complete conviction that I’m fighting the cause of saving humanity from a disaster.
There is a phrase in hindi / urdu, “Sau chuhe khake billi chali haj ko.”I’ve sold real estate at market prices and am sitting in possession of real estate, which is valued very high at market prices and at market determined prices, it is sure to rise astronomically as well. I’ve contributed to the catastrophe as a seller and am opposing contribution to it as a buyer.
Rise in all kinds of real estate (agricultural, residential and commercial) without any relation to its productive utility is one of the biggest causes of an eminent systemic economic catastrophe. This is leading to a social, cultural and environmental destruction. It is resulting in dilution of values amongst younger population. Quite conveniently we blame the education system, western countries and philosophies, but refuse to look within. All this damage is directly impacting me and I need to stop contributing to the systemic mess, whether I’m buying real estate or selling it.
Therefore, I must reverse the unfair gains I’ve made on real estate and also refrain from making unfair gains in times to come. This is what I can possibly do to reverse the unfair gains. I give myself the liberty to earn 10% return on investment in my real estate. This percentage can be debated. It can also be debated that if I’m staying in the house, I should not earn capital gains. After calculating, it works out that half of my networth needs to be reversed. This is a real test.
How do I reverse it is another question. Not easier than accepting the fact that half the networth is unfair. One option is that I buy land at high market price, since I’ve gained due to high market prices. But this will still aid the systemic catastrophe. The other is that I buy agricultural land from someone at fair price and sell my house at fair price. I can think of more options. What I must consider is that if I need to create a systemic impact, I should create a fair system and not an isolated fair deal. It is far too important to address the core issue of fear we’re facing today. Fear manifested as greed, exploitation, degenerating values, widening gap within the society. People like me, who have been on the benefiting side of the unfair exchange are the only ones who ought to act.
There is a dire need for creating a fair exchange mechanism and a fair price determination system. I'd like to invite comments on this subject.