The problem with land banking

Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined,” American industrialist and philanthropist Andrew Carnegie observed in his time. He went on to advise: “The wise young man or wage earner of today invests his money in real estate.”

The 1930s American actor, humorist and social commentator Will Rogers put it more succinctly: “Don’t wait to buy land, buy land and wait.”

Land is wealth, and control or ownership of land is power, especially in Philippine society. The country’s traditional old rich — many of them familiar big names in Philippine business — originally derived their wealth from control over vast tracts of land obtained under Spanish colonial rule. Today’s nontraditional rich, including our top billionaires on the Forbes list, similarly derive part — and for some, most — of their wealth from land and real estate development. And it is in this business where Rogers’ “buy land and wait” maxim is conventional wisdom, and common practice.

The practice of land banking, or acquiring and accumulating lands for future development, is an integral part of the real estate and property development business, be it for residential areas, resorts, commercial spaces or industrial estates. Property development firms allocate tens of billions of pesos for land banking, acquiring hundreds of hectares of properties, most of them agricultural lands, with some being prime irrigated and highly productive areas. The top firms in the business boast of land banks running into thousands of hectares each, with one claiming to hold the largest, at well over 10,000 hectares.

According to one company, it usually takes 10 to 15 years from acquisition of a property to its development—which suggests that, for some properties, it could take even more. Chances are, those lands remain idle and unproductive through most of that waiting period.

Herein lies the problem with land banking. In a recent discussion with local officials and community stakeholders in a Laguna town with high poverty incidence, a research team I’m leading got a sense of how bad their problem was with land banking. “Even if they wanted to, our local farmers and farm workers don’t have enough lands to farm, because much of our productive lands are already owned by (name of top billionaire),” they told us.

It was open knowledge among the townspeople that hundreds of hectares of their agricultural lands had already been acquired and land-banked by the large property development firm owned by that well-known billionaire. As such, the land was untouchable and idle. To us observers, it seemed a great waste, and a great opportunity lost for otherwise providing incomes to hundreds of poor farmers and their families.

On another occasion, a banker in the know explained the conundrum to me. These developers, he said, have a strong incentive to deliberately keep idle those farmlands they acquire for land banking purposes. This is because when the time comes for them to apply for conversion of these lands to nonfarm uses, they precisely need to prove that the land is unproductive, hence their conversion would have no significant opportunity cost. “I have seen them willfully destroy existing irrigation facilities on the land,” he said, “because having them will run counter to what they later want to prove.”

It appears, then, that our stringent land conversion rules, together with agrarian reform, have turned counterproductive by having the unintended effect of hastening the idling, for prolonged periods, of otherwise productive lands from whatever economic use. The result is large foregone incomes for the local populations, and in many cases, needless elevated poverty.

I’ve never believed it realistic nor practical to impose absolute bans on land conversion. What we could do better is to come up with pragmatic rules that could permit a win-win outcome for all concerned. Surely there are creative minds out there who can find such a way through our problem with land banking, to the greatest and widest benefit and satisfaction of the people.

cielito.habito@gmail.com