This evening, I was sitting in a coffee shop and writing about the sociology of information, how information is mired in relationships and how trust, suspicion and social relations develop in the course of circulation and exchange of information. As I was beginning to disentangle the complex web of legitimacy and regulations surrounding information, a friend called to inform that some activists and citizens had been arrested for protesting against the tree felling and road widening at Sankey Road in the northern part of Bangalore. In the last few days, the conflict regarding road widening and tree felling at Sankey Road got strong coverage in the media because citizens began gathering around the trees and the roads to prevent authorities from felling the trees. Despite this, the authorities went about felling the trees for widening the roads. The activists and protestors were clearly becoming a nuisance for the government officials and institutions who have not been able to execute the works. Hence, today, at some point, some of our activist friends were arrested on the false charges that they had assaulted public officials in their conduct of ‘government’ duty. The charges were filed under section 343 or 353 CrPC which also implied that the arrest was non-bailable. Over the course of the evening, news went about on FaceBook and Twitter about these arrests, and people from in and around Sankey Road were called to silently protest at the Aiyyappa Temple where the trees were being felled for enabling the road widening. The arrested activists and citizens were released from jail and all the charges against them were ‘dropped’ at about 6 PM. The court also granted a stay order on the tree felling around the same time, with further hearings and orders to arrive on Monday.
Just this afternoon, as I was about to head out to the coffee shop to begin my intellectual pursuits with the sociology of information, I happened to read an interesting piece of research about American cities and the infrastructure visions, efforts and monetary resources that were being invested to rejuvenate the economy of these cities.The article clearly explained that infrastructure was being planned for American cities because the cities were facing a slowdown after the recession. The Obama government felt that infrastructure planning and implementation were “necessary to restore confidence in the financial system and keep the recession “out of the history books.””, according to this article. Thus, infrastructure was being pumped in as a drug to keep alive an economic and financial system for cities which clearly seems to have collapsed. What is even more interesting is that in some American cities where infrastructure has been revamped, there have been protests from citizens against the increase in the costs of services following the revamping of the infrastructure. Elected representatives have had to face the wrath of people’s ire with the increased costs. At the same time, revenues accruing to municipalities from property taxes have been declining because home ownership is falling and property and real estate do not command the same kind of attraction as they did prior to the recession. Clearly then, the calls for investment in infrastructure and planning for infrastructure along with the paradigm that cities must be managed as businesses and there must be a shift towards “politics of performance and away from the politics of patronage.” are refusing to see a much more fundamental problem i.e., the model of urban economy based on real estate speculation and economy is not working, and as much as governments try to revive the economy based on real estate, the plans are slipping away from their fists as sand slips away when you try to hold it too hard.
This blog post is not about the arbitrariness and authoritativeness that the municipality, development authorities, police and other government officials are displaying with regards to the road widening issue. Without a slightest doubt, the authoritarian and arbitrary behaviour of these government authorities must be publicly condemned and opposed. But, we also need to focus our energies into understanding why road widening is being promoted and executed in Bangalore with the frenzy and arbitrariness that we are seeing currently. When you ask a lay person why the Karnataka state and the city governments in Bangalore are pushing for road widening, the obvious answer is to ease the flow of traffic on the roads and to accommodate the ever increasing number of vehicles on the roads. Obviously, this rationale makes perfect sense given the incessant complaining and rant of vehicle owners and commuters about the traffic woes in the city, compounded all by the fact that Bangalore city has the highest concentration of two-wheelers among Asian cities. But, when you examine the economy of the city more carefully, you begin to understand that road widening is not simply about easing traffic and improving commute. Road widening is also, and perhaps fundamentally, about increasing the value of property and real estate which has received a huge hit since late 2007. Let me explain my argument in some detail.
Since the late 1990s until about 2006, growth in most Indian cities has been taking place through speculations and investment in real estate. As service economies took root in Indian cities from mid-1990s, migration into cities increased and large pay packets were being doled out by companies coupled with easy loans from banks for purchasing housing, real estate development was taking place at a frenzied pace. People were buying houses and built up properties, as well as 60×40 sites in cities like Bangalore, not just for personal use but also as investment which would see appreciation in the future. During this time, we saw the growth of not only first-tier cities, but also satellite and second-tier cities such as Pune, Hyderabad and Bangalore, some of which later entered the ranks of metropolises soon thereafter. This was also the time when we saw changes in the real estate sector – the earlier era of property developments by small and medium developers, individuals as well as what Solomon Benjamin refers to as “incremental urbanism” in his insightful thesis about real estate development in the Vishwasnager cluster in New Delhi, was rapidly being replaced by large developers and realtor companies such as DLF, Mantri, Purvankara, Prestige, Sobha, and the recent entrant India Bulls. One of the ‘problems’ that these realtors faced in Indian cities was that there were several small and fragmented pieces of lands inside the city areas (and later on the peripheries of the cities where growth began to take place). Land consolidation needed to take place. But land consolidation is not an easy affair because individuals who own small parcels of land either do not want to part with them so easily, or they command very high prices, or there are various claimants on each of the small land parcels who have to be given money or housing or both in lieu of giving up their claims. Realtors not only have to deal with claims and claimants when consolidating lands. Once the land is consolidated, titles have to be acquired, the use of the land has to be changed and a number of permits and regulations have to be obtained and cleared before any building activity can begin. Further, realtors do not sit on piles of cash which they can hand out at whim. Their own monies are invested and rotating in other projects which they are developing. Therefore, realtors have to depend on banks and financial institutions to provide them with finance to support their running costs during the start and completion of a project. Banks have to be careful when lending to realtors because banks are lending their customers’ monies. This meant that realtors, practically all of them, would have had to bribe bankers into easing the regulatory barriers that banks had laid to protect their customers’ monies. In November-December 2010, the media was breaking news about how bankers had been bribed enormously by builders into easing the flow of finances for their projects – this story did not see much analyses after the first bursts because a few days after, newspapers were filled with advertisements about upcoming property projects. The sum and substance of all this is that bribes, high costs of land consolidation, increasing costs of building material owing to inflation and 200% profit of the builders was pushing up the costs of built up properties.
Yet, individuals were buying properties because by around 2003 onwards, it became both a societal as well as a family pressure factor to buy property given the high salaries that a section of the population was earning. Governments offered tax incentives for buying properties – you would be taxed less on your housing loans. Loans were also coming by easily because banks were keen to capitalize on people’s aspirations to purchase housing. What people were not realizing then was that home loans were as good as highway robberies – by the end of your loan period, you were paying almost two-times the amount at which you had originally purchased your property. In the meantime, the costs of land acquisition continued to go up. In cities such as Mumbai where builders were given the incentive of transferable development rights (TDR), the lure of big development projects increased much more and builders used both the means of large monetary sums as well as violence to clear the way for rehabilitation and redevelopment projects.
The spokes in this happy and illusory story – the people are happy and the economy is happy – began to take place in about early to late 2007 where in cities such as Bangalore, there was excessive supply of housing stock and not much demand. Around 2007, as I toured parts of Bangalore city, especially the peripheral areas of Bellandur, where I found that there were no takers for built and under-construction projects. Most projects were vacant, to the tune of 65% vacancy. But builders continued to build because the property market works on images and imaginations i.e., if builders were to stop building, a crises would set in among people based on the belief that builders are going bankrupt. Builders, on their part, cannot stop building because their monies are stuck in other projects and they have already acquired lands at high prices which they must build on, lest these lands get ‘encroached’ or the property becomes a ‘dead’ investment. In the meanwhile, a second spoke in this chugging wheel was put in by the financial and housing crises in the United States. The crises hit India in about 2009 which is when people began losing jobs, and as they lost jobs, they also lost the capacity to pay up their home loans. Defaulters began to increase. Tenants began demanding lowered rents because their own incomes were either falling or the sources of their incomes had become uncertain. People began losing ‘confidence’ in property as buying and selling activity not only began to drop, but became extremely arbitrary. Those people who had purchased their properties at very high prices were unwilling to sell at lower rates. So they clung to their properties. Those who had bought at high prices but were unable to keep up with paying their loans began to sell in desperation.
Governments were now faced with the responsibility of saving this flawed economic and financial system based on real estate speculation. They had to save this economic system in order to continue the stream of revenues from property taxes, stamp duties and property registrations. Additionally, they had to save the cities they were administering because the city appeared to hit a dead end with property transactions lowered. Add to that, in current times, the prices of properties have risen to such an extent that the prices appear to have hit the roof. It seems extremely unlikely that merely on the basis of speculation, prices will rise any further. As you read this article, you will wonder what kind of statistical evidence I have for the remarks I am making. But it must be noted that it is one thing to read markets via statistics; it is another thing to read markets through conversations (David Weinberger in “Everything is Miscellaneous”). If you are a person like me who talks to brokers, government employees, property owners and a whole host of people who either own properties and are speculating on them, or who have a stake in one way or another in other people’s property ownership, then the market becomes clearer to you. In the past two years, I have been observing properties in parts of Bangalore and talking to investors, property owners and brokers about the prices of properties. What has become clear is that despite the high costs of property, the returns on the investments and the properties are not increasing. Rather, they are diminishing. This is because tenants are unwilling to pay arbitrary and exorbitant rentals which was the case at one time in Bangalore, between 2003 and 2007. Incomes are not rising on par with inflation. And the costs of petrol, diesel and essential commodities is only increasing. This sets in a paranoia among people about their present and their futures, leading them to conserve on their liquid cash reserves and not invest much in futures such as properties. In the meantime, brokers are complaining that there are barely any purchases of flats and other kinds of properties.
At the same time, given the situation with angel investors and venture capitalists (VCs), finances are very uncertain for start-ups and existing companies. When the finances are flowing, some VCs are asking for corners to be cut. These corners are cut by reducing the rents that companies are paying for the premises they are renting. Add to that, in about 2007 and 2008, builders in Bangalore were developing commercial properties on the speculation that commercial properties fetch much better returns. The crash of the property markets in 2008 and 2009 led to a crash in commercial rental prices. Currently, commercial rental markets are highly arbitrary because while some firms who are doing well can afford to pay high prices, there are several other firms and start-ups which would like to conserve their resources by paying lesser rentals. What is happening now is that the property market is not just stagnant; it has become highly uncertain and arbitrary.
An interesting thing to note in the case of property is that the value of a property does not simply derive from its own. A property becomes ‘prime’, ‘desired’ and ‘hot’ because of its location and the facilities, conveniences and public infrastructure around it. Thus, a quick search through property websites will make it clear that properties situated on the main roads in Bangalore command much higher prices than say properties which are not on the main roads. Similarly, properties that are located in the vicinity of gardens and open spaces command more prices and value than properties which do not have these amenities. It is in this game of value and valuation that the government comes im. It is left with the onus of ‘adding’ ‘value’ to properties. Therefore, the current thrust on infrastructure in Indian cities.
Road widening in Bangalore has to be read, also, in the context of such an unstable and arbitrary property market. Governments are widening roads in order to add values to existing properties and to fuel sales and purchase transactions – not just to ease traffic on roads even when this rationale is flawless and justified. In this process, they may be pressured or supported not only by real estate lobbies, but also by citizen groups who are speculating on their dormant and dead properties. As mentioned above, the government also undertakes road widening because it must increase its tax base from property taxes and cesses. And, above all, the government has to flog the dead horse of this kind of flawed real estate growth which is actually a snake that is eating its own tail.
As I affirmed above, we need to oppose arbitrary road widening and cutting of trees, especially when these actions are carried out against the wishes of the people. But, more fundamentally, it is time for each one of us to sit back and take ‘stock’ of an economic system that we have all become mired and embedded in – a financial system that is no longer imaginative because the imaginations of the people are replaced by fears and uncertainties about their futures …