Redrawing a state in India shoots up land prices

In this belt of villages near the fertile Krishna River delta, much is as it has been for generations: The cotton soil is as black, the mango trees as heavy with fruit, the tobacco fields as fragrant and deeply green as ever.

But there have been curious changes in recent months. An old temple has received an expensive renovation, complete with a new banquet hall, courtesy of community donors. Some plots once tilled by small farmers lie untended, nothing more than overgrown grazing fields for cattle. Locals say “For Sale” signs have been replaced by “No Sale” signs as farmers try to fend off a rush of buyers who seem to have appeared overnight.

As for who the buyers are, theories abound. At markets and at tea-side stalls, people rattle off the names of politicians who reportedly visit late at night to survey a property undetected. They wonder if the recently retired cricket hero Sachin Tendulkar really bought 100 acres in a nearby town, as the newspapers say.
At first glance, these mango groves in the middle of nowhere seem an unlikely spot for a speculation boom. But in June, after years of impassioned debate, India split Andhra Pradesh, a large state in southern India, in two, creating India’s 29th state, Telangana.

The new state will keep the ancient city of Hyderabad as its capital, so what is now Andhra Pradesh will eventually need a new capital, and these tiny villages could end up on the outskirts of what might be a sprawling new city.

In India, the politically connected seem to have a knack for buying land at just the right moment. Privy to government decisions about zoning or development, they are often accused of acquiring land near a planned development or using clout to get land rezoned, ending up with a windfall.

In Andhra Pradesh, the location of the new capital has become an opportunity, especially in and around the roughly 25-mile stretch between two towns: the trading town of Vijayawada and the tobacco fields near Guntur, each strongholds of politically connected castes.

Agiripalli and the villages surrounding it have the advantage of being just outside Vijayawada, where land holdings are dominated by the caste to which the business-friendly chief minister Chandrababu Naidu belongs. Naidu - who has earned global fame through pro-market policies, which are credited with building Hyderabad into the information technology metropolis it is today - has hinted to local media that the capital will be somewhere in the stretch of Vijayawada and Guntur.

Ram Babu Nardala, 31, a mango and rice farmer, has positioned himself as the village real estate broker in recent months, an intermediary between farmers and shadowy buyers from town.

Nardala does not know if this expanse of fields will become the new capital, but he does know that business is good. He spends his mornings managing his crop, then drives his new sport utility vehicle, with the chief minister’s party flag on the hood, to a small pillared shack nestled among banyan trees that line the main road. This unassuming space is the spot where many real estate deals in the village are negotiated.

“I have a circle of people in Vijayawada,” he said, periodically reaching into his jeans pocket to quiet his ringing cellphone, “and I keep getting offers.” He recently oversaw the sale of an acre of farmland belonging to his brother-in-law and said the deal brought in nearly $180,000 from a Vijayawada buyer he would describe only as a businessman. “If you’re farming on it,'' he said, ”you won’t even earn 50,000 rupees," or around $800.

The documents he drew up to register the sale show a price that is much lower, he acknowledged. He has arranged eight deals in recent months, he said, some to buyers who have told him to help them flip the land for a higher price.

Many say that the beneficiaries of the speculation are not likely to be the farmers, who sell for relatively low prices. Nor will the government benefit, since it misses out on crucial tax revenue by turning a blind eye to  off-the-book sales and illegal construction of housing and apartments on land zoned for agriculture.

For Andhra Pradesh, which will need an influx of industry after losing Hyderabad, the Vijayawada-Guntur corridor represents an imperfect opportunity.

“I know for a fact that politicians are buying land there,” said Anant Maringanti, the director of Hyderabad Urban Lab, an urban research program. “They’ll build real estate or high-value apartments. I don’t know if that’s really going to jump-start the economy.”

And despite the optimism, a bubble is a bubble, even for locals unfamiliar with the term. One resident compared the astronomically rising land prices to a pot of milk on the burner: quick to boil up, and, once the heat dies down, just as quick to vanish into nothing.

Naveen Surya, an infrastructure developer based in Hyderabad, tried to buy half an acre near Vijayawada and quickly abandoned the enterprise, daunted by the competition which he believes comes from politicians and the politically connected. By his calculation, the prices offered for this agricultural land in an undeveloped area are exorbitant.