Stock Analysis

Land banks- more pros than cons?

A land bank is an entity created by the government that helps it to manage or dispose vacant properties, vacant lands and tax-foreclosed properties so that these vacant or abandoned properties can be developed or further put to a more productive use. As they are a legal, public and financial entity, the funds it gets are mostly received from the government. Land banks also encourage re-development of older or abandoned communities which do not have much available lands thereby helping in long term community development and supporting their future financial vision.

Vacant properties have several disadvantages. First most, land revenue is one of the major sources of revenue of the state government. Vacant lands do not produce the maximum targeted property tax which lessens the ability of the government in fulfilling its operations, schemes and programs.

Vacant lands also attract crimes and create health hazards which become very problematic as resources are utilized in finding solutions for those. Illegal activities in these areas drain the government of their resources as said earlier and makes the neighbours feel unsafe.

The more businesses and private individuals occupy property in a neighbourhood, the more services will be needed which will help boost economic development of that area. These land banks follow a tax foreclosure process. Under this, they gain a special authority where they can dissolve property tax or free the property of any tax liens. A lien is placed by the government when the property owner fails to pay the tax.

In such a case, the owner cannot sell the property until the lien is satisfied or paid off. In other words, land banks help to convert problematic properties into revenue generating ones by maintaining or selling it for redevelopment. When selling the properties to other individuals or businesses, the land banks often choose those investors or development whose future visions for the land align with the area’s current or future needs. They do not operate just on profit. Instead, a lot of times, they choose the one investor among a lot of them, whose vision will benefit the community despite receiving comparatively lesser money than expected.

Source – ehsdailyadvisor.blr.com

Land banks are a direct response in converting liabilities (vacant lands) into assets. How do these banks work? Land banks are essentially required to acquire problem lands and then transfer their ownership to responsible investors. Some special powers given to them for this purpose are:

-Obtaining land at a very low cost through tax foreclosure process
-Holding land tax free
-Clearing title or liens
-Leasing properties for temporary use
-Negotiating sales not on the basis of highest bids but on the basis of goals aligning with the community’s needs

Sometimes, another question that comes to the mind is whether these land banks are hindering the private markets. The answer to this is no. The land banks mostly focus on problem properties that have altogether been rejected by the private dealers. Most of the abandoned properties require a huge financial drain on part of the private investors which might take a lot of time to recover from the market. So, these lands are a lot of times not included in the list of private market dealers.

How does one know when to make a land bank? There are several factors which trigger this. Some of them are the following:

-Properties with next to no market value
-Properties with taxes in excess of fair market value
-Properties with title problems

Source – Umich.edu

Most Indian states either have land banks or are in the process of creating them. Conflicts arise when lands from communities are taken away for infrastructural purposes. Such lands owned by these communities provide income to them. Over 200 million Indians depend on forests for basic living needs, while 118.9 million Indians practice farming on 160 million hectares of land. The new land acquisition law gives land banks a better land.

If any land acquired under this law is kept unutilized for more than five years, the state government can put in its land bank or give it back to the original owners from whom it was acquired. The first draft of the Land Acquisition, Rehabilitation and Resettlement Act(LARRA), had no intention of giving it back to the original owners.

This faced a lot of opposition from activist groups as the clause of giving land back to the original owner acts as legal backing for them. However, if that government acquires the land for public use, it does not need to consult those who have lost their lands. The law does not prevent the government from handing it over to the private individuals after they’ve acquired it for public purpose.

Source – Land conflict watch

Recently a lot of conflicts have arisen due to giving away of lands to land banks. Some of the conflicts are ones in Nuagaon, Jharkhand and Chhattisgarh. The recent conflict in Nuagaon started when POSCO signed an agreement with the Odisha government to set up a steel plant in Nuagaon. This disheartened a lot of villages who used to earn their livelihood from that land. POSCO shelved the project in 2015 and recently returned the land to the government in March this year.

Just when the farmers thought that they would get their land back, the government put it to use for the land banks. According to the Forest Conservation Act of 1980, the government needs to get the approval of the central environmental ministry before using any forest land for non-forest purposes. The petition signed by the residents also cited the Forest Rights Act of 2006 where the government cannot change the use of forest land without recognizing the rights of the people depending on it.

Land banks are a relatively new concept in our country. Many of us are not aware about what this term really means. We usually associate it with a bank which gives out loans for the purpose of purchasing a land or equipment related to agriculture. It is therefore more important to first understand what this concept means and then understand why our economy needs this.

Written by- Devarshi Adwani

Edited by- Sohini Roy

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