Why are land prices so high in India?

In this issue:
» Corruption rules the roost in India
» Zoellick predicts the decline of the dollar
» Swiss banks propose 'wealth' tax
» Goldman, Credit Suisse eyeing Indian shores
» ...and more!

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00:00

If you are associated with one of India's leading housing finance institutions for more than three decades now and have been its Chairman for virtually half that tenure, you surely know a thing or two about the state of the Indian real estate market. Hence when we came across an interview of Mr. Deepak Parekh, Chairman of HDFC, in a leading business daily, we read it with much interest.

In this interview, Mr. Parekh has reiterated his view of having a regulator for the real estate industry, something akin to regulators for the petroleum and civil aviation industries. And the reason why Mr. Parekh believes real estate must have a regulator is to control greed that got companies and investors in this sector into big trouble in 2008.

Mr. Parekh has also blamed faulty land policy and politicians for having created artificial land scarcity in the country, which has led to unjustifiably high land prices . As he says, "A lot of politics is also involved. The lengthy approval process is another key reason why land prices remain so high. Multiplicity of approvals creates scarcity of supply, keeping prices elevated. Quick approvals will increase supply manifold, leading to lower prices. Land transactions have been made complicated to ensure that supply remains constrained and prices remain high."

01:08

Chart of the day

A lot has been said about the strong growth that India's GDP has logged in the past and the fact that the country is much better placed than its developed peers even during the current global downturn. But there are certain issues that are sure to act as impediments to India's growth in the long term. The first is the poor state of infrastructure in the country. The second issue, which also to a large extent is responsible for the first, is rampant corruption. Infact, when compared to the developed nations of US and Japan and the BRIC nations China and Brazil, India is perceived to be the least transparent as today's chart of the day shows. All of us in our lives have witnessed examples of corruption and red tapism in the country and this has over the years has been deeply ingrained in our psyche. If only, some strong measures were taken to curb this menace, just imagine the world of good it would do the nation's health in the long term.

Data Source: Tranparency International

01:53

Expert after expert has been writing obituaries on the decline of the US dollar. Robert Zoellick, the World Bank president is latest to join the chorus. And he has argued rather vehemently on the dollar's place in the global scheme of things. Zoellick is of the opinion that the US dollar would lose its favored position as the Euro and the Chinese Renminbi gain in influence. "The greenback's fortunes will depend heavily on U.S. choices. Will the United States resolve its debt problems without a resort to inflation? Can America establish long-term discipline over spending and its budget deficit?" is how Mr. Zoellick chose to put it across.

With the US Government hell bent on turning on its printing presses at full throttle, its balance sheet has started resembling that of a banana republic and such countries are quite likely to default on their interest payments, thus making the holders of the US dollar extremely nervous. Little wonder Zoellick feels that investors in the US dollar might switch to stronger currencies like the Euro and the Chinese Renminbi, thus increasing their influence and vastly reducing that of the US dollar.

02:36

India's persistence in tracking black money in Swiss banks may finally bear some fruit. After being forced to give details of money stashed away by Indians and other overseas clients with them, Swiss banks have offered to tax this wealth on behalf of the respective foreign governments and transfer the proceeds to them. Ever since the US received 4,450 bank statements of its citizens having Swiss accounts, India too turned on the pressure on the Swiss authorities to divulge information but to no avail at the time. Infact, India is set to begin talks in December for a new tax treaty with Switzerland in order to get details about the defaulters. This proposal could serve to thaw the ice between the two countries given that the prospects to recover black money before this looked bleak at best. Whether this will end up seeing the light of day, however, remains to be seen.

Do you think Indian government is serious about getting back the black money stashed away in Swiss accounts? Tell us.

03:09

Competition in the Indian banking sector is only set to intensify with some of the biggest names globally eyeing a share of the pie. Institutions like Goldman Sachs and Swiss banking major Credit Suisse have sought banking licenses from the RBI. Given the under penetration of financial products in the Indian economy and high savings and investment rate, the global majors are finding this market irresistible. This is because the financial markets in their parent countries are almost saturated and offer little scope for growth. While the RBI has been very hesitant in allowing foreign banks entry into the Indian banking sector, there is currently a long list of multinational banks that have applied to RBI for licenses. Recent additions to the list include Australian banks like ANZ and National Australia Bank, which want a larger role in the country. Whether or not the RBI allows access to these entities, the domestic banks surely need to take cues from these developments and make efforts to consolidate, so as to gain size and scalability.

03:47

When they come, they come in droves. Yes, we are talking about the foreign institutional investors (FIIs). As per a leading business daily, net FII investment in Indian markets has reached US$ 11.2 bn in 2009 so far. That more or less compensates for the US$ 11.9 bn they pulled out during entire 2008. Given that September 2009 alone has witnessed an influx of over US$ 2.25 bn, the arrival of FII money explains the rally in stock prices to a great extent. But given their short term focus and tendency to also exit in hordes, we believe investors should take the news with a pinch of salt.

04:11

Delhi's streets are bustling with activity. Work to refurbish the city's transportation systems and other infrastructure is in full swing in anticipation of the prestigious Commonwealth Games that will begin in the region exactly one year from now. But this race against time now has a new spanner in its wheel. As per reports, the Delhi Government's tax revenue collection has seen a fall of over Rs 4 bn in the first four months of the current fiscal. And this might just turn out to be its undoing, as the stretched finances of the government are expected to have an adverse impact on all these projects that are already in desperate need of being completed on time. Handling this adversity with grace seems to be critical if India is to avoid the mortification of having incomplete projects at a time when guests from world over start pouring in for the games.

04:48

The Indian markets opened the day's proceedings on a positive note and traded well above the dotted line throughout the larger part of the day. At the time of writing, the Sensex was trading higher by 148 points (1%). Gains were seen in software and energy stocks. At the time of writing, the Asian markets were trading firm. Europe began the day on a mixed note.

04:57

Today's investing mantra

"We want to be right on something that will work right now, not something that might work in the future." - Warren Buffett