Explain the issue of land speculation and its impacts on land supply and housing prices. present cases from around the world after explaining the theory.
Issues relating to land speculation on land supply
Speculation generally means an investment with an exceptionally high risk. The desire to make profit through resale of land is one of the financial activities involved in purchase of real estate with the hope that as the price raises the possibility of returns will increase. Speculation is basically called as real estate activity as land is one asset that gets appreciated in value (Swyler, 2015).
This happens due to lot of factors like supply and demand forces, the inflation’s behaviour, the rates charged by the bank, the nearby development of infrastructure like malls, schools, cafeterias, airports and a lot more. Land speculation critically involves purchase of real estate that may decrease the value. Early history of United States often reflects a wide scope of land speculation. The lands were available in bulk and speculators purchased parcels with an intention of suppressing them from market. This activity could either spike the prices or create detrimental effect. In this paper proper study is carried on the impacts on housing prices and land supply.
The issues of land speculation are equally different from prevailing speculation techniques.
- The central exchanges are used for speculating in commodity and stocks. The possible negative effects can be avoided if a person owns or manufactures the physical commodities through various schemes. For example the sudden shift in the price, hedging, coated markets which are given by other speculators and enables them to protect themselves.
- The swing in the prices can be ridden through long term investors. These long term investors take advantage of buying periodically which means buying more when the prices are low. Land on the contrary is divergent due to the location at which it is situated at and sold as a separate property. Indirectly real-estate investment trust REIT can provide security of land on behalf of shares in stock exchange (Du & Peiser, 2014).
- The capitalisation of goods and how its value generally depends upon the external infrastructure and surroundings. Water sewage, streets, public parks, schools, all elevates the demand of land and its value. The anticipation of the next infrastructure which the government is going to lay is profitable for the speculators. They can reap the rents subsequently (Centre, 2015). Moreover the owner implies certain legislations as well as adjusts certain expenses for themselves. This way they seek rents from the public in the form of rent on land and economic rent using active rent policies.
- One of the important features of land is its relevance in the economy. Commodities like stocks, metals, precious metals have only minor effects on the potential markets. This is where speculation enters and converts the effects cumulatively. The speculators wait for the price to get fixed and explore the chances, perhaps giving a push to external factors and drivers of the market for swifter change.
- Land as an asset is a key factor of production in the economy. The investment made by the construction business equals to about more than a quarter and apart from that furniture, modular kitchen along with electrical appliances and office equipment are just complimentary to new buildings of hotels, offices. The impact on economy can be substantial if the construction takes a slow pace and the new services provided by the infrastructure industry is questionable.
- Other perspective of land market is the cost of the borrowings and its relations and alliances with banks and responsiveness to the interest rates decided by the banks. There are certain options available like derivatives which are categorised into the future contracts; the asset is controlled by the speculators so many times in terms of the equity or margin. Under this situation the speculator neither borrows the funds nor pays the interest.
- The next issue is the supply is fixed or in other words the three dimensional space which is accessible within the market or under the government norms and jurisdiction the quantity is generally fixed. The spaces are generally contracted due to buildings in accumulating the space already given earlier. Further the water content fails to create. On the other hand the commodity like grain can procure large supply and the unsheathing of raw materials can elevate the prices against the costs. The land is very reactive to the prices and changes in the demand (Archer, 2013).
Housing which is a basic necessity is hindered by the speculation activities. These activities generally point the scale in favour of supply and demand of house and the land becomes futile. The escalation in the cost of the land makes supply heavy as the buyers are conscious in buying such properties. The land speculation occurs when the land is acquired by the investors with zero intention of investment (Butler, 2016). The investors tend to wait for the right period and the right cost of property once they are satisfied with the cost they sale it again. This methodology of holding the property and selling it again makes the area vacant for the normal people and the entire city had to stretch out.
- The Hong Kong city was prone to speculation since early 1980’s and the activities let the developers manipulate the buyers by giving attraction and incentives. The demands rose and the city suffered from high vacant rates. Therefore, the government introduces some policies to regulate the process of speculation. Reducing profits was an attempt yet the prices slayed (Zhang, 2017).
- The bubble price to housing ration in Beijing was of the highest value in 2007 and about 13.9% housing prices were due to speculation. The lack of funds and investment was also a root cause of speculation (Du, Thill, Feng & Zhu, 2017).
- A range of crypto currencies last year led to a led to several speculative activities amass in Australia. Approvals of the building rose to more than 42% in financial year 16-17. This resulted in fallout from jobs of employees in construction business at a potentially increasing rate. An over inflated market of property collapsed the economy of Australia (Gurran & Bramley, 2017).
- The land prices in rural areas has been gradually increased to 250% during 1987-1991, as a result of this activity forest area in Thailand has been occupied illegally by over 12 million people. The poor quality land was sold at heavy prices near highway and roads to villagers leading to speculation. Many villagers became landless and few of them want to clear their areas rather than giving the land as rent (Thaler & Anandi, 2017).
- African countries have recently attracted high speculative prices in the cases of Tanzania, Kenya and Ethiopia. Due to weak government regulations and land operations in market the financial stability of the country was potentially threatened. It created a sore impact in the urban areas as well (Mopogole & Kongela, 2016).
Land market is associated with cases of speculation and there are certain factors which give rise to these activities such as the elevation in prices of house, cryptic information, and excessive acquisition of properties, fluctuating supply and demand, and non-existence of laws and deficiency with regard to the implementation of laws regarding vacant land development. Therefore, it can be concluded from the above report that the rise in the speculative activities will only lead to destruction of the economy and all the financial parameters will roll out. The recovery could be drastic and the company may also register itself in debt paying situations. Also huge funds are required and an in-depth research to involve into speculation. If the knowledge is minimal in that case real estate can create havoc.
Archer, R. W. (2013). Land speculation and scattered development; failures in the urban-fringe land market. Urban Studies, 10(3), 367-372.
Butler. J.J (2016). Successful Stock Speculation. (1 ed.). California: Create Space Independent Publishing Platform.
Centre. M.H. (2015). Land Speculation, Town Site Development, and Newspapers. [online]. Retrieved from: https://treatiesmatter.org/relationships/business/land-speculation-development-advertising
Du, J., & Peiser, R. B. (2014). Land supply, pricing and local governments' land hoarding in China. Regional Science and Urban Economics, 48, 180-189.
Du. J. Thill, J. C., Feng, C. & Zhu, G. (2017). Land wealth generation and distribution in the process of land expropriation and development in Beijing, China. Urban Geography, 38(8), 1231-1251.
Gurran, N. & Bramley, G. (2017). Housing, Property Politics and Planning in Australia. In Urban Planning and the Housing Market , 10, 259-290. Palgrave Macmillan, London.
Mopogole. M. & Kongela. S. (2016). In 23rd Annual European Real Estate Society Conference. ERES: Conference. Vol. 23 Dealing with Speculative Prices in Sub-Saharan African Land Markets: (pp. 1-5). Retrieved from https://dx.doi.org/10.15396/eres2016_225
Swyler. E. (2015). The Book of Speculation: A Novel. New York: St. Martin's Press. pp.26-35
Thaler, G. M., & Anandi, C. A. M. (2017). Shifting cultivation, contentious land change and forest governance: the politics of swidden in East Kalimantan. The Journal of Peasant Studies, 44(5), 1066-1087.
Zhang. R. J. (2017). A Tale of Two Cities: Comparative Study of Public Housing Policies of Hong Kong and Singapore.
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