Residential Land Market Assessment of Bangalore

Residential Land Market Assessment of Bangalore Challenges and Opportunities

Introduction

Land is the most important resource available to a city. Land, being a scarce and necessary resource,

its optimal utilization amongst the different competing uses - industrial, commercial, and residential,

improves the economic competitiveness of cities. The urban development and land management

processes need to be efficient for putting land to the best possible use, as well as equitable for

improving its access to people who could be marginalized by the market forces. Some of the main

challenges arising from the prevailing urban land management practices are: lack of long-term vision

in land management; not enough land in the right location at the right price; increasing land cost and

consequent low affordability of land and housing of economically weaker sections of the society;

outdated land development/floor area ratio, guidelines, ineffective enforcement of development

controls and regulations; lack of clarity in public-private partnerships of infrastructure development;

non-convergence of environment management and land use policies; increasing supply and demand

mismatch in developed land, institutional issues related to land acquisition; and weak policy

framework to leverage urban land and property tax for urban development.

To face these challenges city managers should have accurate and systematic information about its

land market. Such information is essential to make rational decisions on land use and development

strategies, structure and form of urban growth, sub-urbanization and land conversion processes,

public-private partnership opportunities, land administration and development controls and

regulations, managing urban land for inclusive urban development, etc. The Land Market Assessment

is a scientific method to address most of these issues. It helps to determine the role of public policies

and institutional drivers influencing the use of urban land, the role of price mechanism in determining

land market efficiency, supply of and demand for land where required, as well as the development

implications of unregulated development of cities.

An important outcome of the land market assessment (LMA) is that it would improve our

understanding of the supply and demand dynamics of land markets, growth elasticities, existing and

future supply of and demand for developed land in the city, role of structural and policy factors driving

the land market and investment pattern, development implications of land conversion and land

development practices, role of land use zoning and building regulations for the efficient use of urban

land, institutional and management of issues challenging the equity and efficiency objectives of urban

development policy, etc. These strategic issues have great fiscal and development implications

particularly in the context of inclusiveness and sustainability of urban growth.

Study Context

The scope of this study is limited to the residential land market, primarily due to the fact that a large

part of the current urban sprawl is attributed to the growth of residential land, particularly in the urban

peripheries. The real estate led land development practices taking place in the suburban areas are

driven by two distinct urban land development processes in most Indian Cities; while the low price of

land in the urban fringes influences in the development of ‘revenue layouts’ comprising mostly low

income housing and a large part of which is unapproved, and the increasing demand for large and

well serviced independent villas and condominium complexes from the urban rich driving the growth

of gated communities. Both these residential developments contribute to the urban sprawl. Even

though these development processes could be dichotomous in character, interestingly both deploy

elements of land and capital substitution process, leading to varied levels of land utilization and

efficiency.

Residential land market assessment of Bangalore 2012

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These patterns are very clear in the case of Bangalore City. The exponential growth of the city taking

place during the past two decades, both in terms of urban areas and populations, has resulted in

visible changes in the urban landscape and more so in the breach of green belt, conceived as a urban

growth boundary in the city development plan. This growth pattern is more or less same across most

of the Indian Cities. In this context, Bangalore City is taken as a suitable case study for improving our

understanding of these urban growth processes and the role of residential land market in shaping the

structure and form of a growing city. Bangalore is also an interesting case to understand these growth

processes in the context of city transforming its morphology from a mono-centric city to a polycentric

one during a short period.

Urban Morphology of Bangalore

The Bangalore Metropolitan Area/Bangalore Planning area covers an area of 1307 km2.. The BBMP

(Bruhat Bangalore Mahanagara Palike), otherwise known as the Greater Bangalore Municipal

Corporation, covers an area of around 800 km2 and houses a population of approximately 8.43 million

according to 2011 census. The BBMP comprises of 198 wards and is responsible for creation,

maintenance of infrastructure and provision of key urban services in the city. The BBMP area is

surrounded by a conurbation area as well as by a green belt, which is expected to act as an urban

growth boundary. Some of the important characteristics of Bangalore urban area are:

• Bangalore is the fastest growing city in India, at a rate of growth of 46% between 2001 and 2011,

i.e about 3.85% per year in the last decade;

• It is the 34th largest and one of the fastest growing cities in the world in terms of population. In

terms of land area, Bangalore’s area is nearly 100 km2 more than Singapore;

• In terms of population density, Bangalore is comparable to Beijing or Shangai with densities

hovering around the 11,500 persons/ km2;

• Bangalore is a major information technology center in India and this sector contributes, both

directly and indirectly, to nearly 45% of the city gross domestic product; and

• Other important factors include the phenomenal rise in urbanization, high influx of in-migration

and consequent high demand for housing, restrictive guidelines for the conversion of agriculture

land and ownership of agriculture land, steady growth in real estate prices, shortage of public

land for social housing, and a rapid growth of unapproved low income layouts in the suburbs.

Bangalore city has developed spatially in a concentric manner and historically it is comprised of five

major zones; Zone 1- the central business district (CBD) consisting traditional business areas,

administrative centre and the public transportation hubs; Zone 2-peri-central area consisting old

residential areas planned around the city centre; Zone 3- recent extensions of the city flanking both

sides of the outer ring road; Zone 4- new residential layouts with agricultural land in the periphery of

the city; and Zone 5- green belt and agricultural area in the city’s outskirts including small villages.

Table 1: Bangalore at a Glance

BBMP Area, population, 2011 800 km2, 8,479,183 persons

Bangalore District area, Population, 2011 2190 km2, 9,588,910 persons

Bangalore District pop. as % of Karnataka’s population 2001 12.37%

Bangalore District pop. as % of Karnataka’s population 2011 15.69%

Growth in population in last decade 46%

% of India’s population 2011 5.05%

GDP of Bangalore Urban District, Karnataka (ratio) Rs. 117,356 crore (34% of the State GDP) 1

Per capita income Rs. 162,043

The setting up of several manufacturing heavy industries in Bangalore in the 1950’s and subsequent

Information Technology boom has scripted Bangalore’s growth story. This has been ably aided by key

1 State GDP is estimated at 34,523,594 crores in 2011


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projects in the city such as the establishment of the Bangalore International Airport (North Bangalore);

Bangalore-Mysore Infrastructure Corridor (South-West Bangalore); Information Technology (IT)

Corridor (South-East Bangalore); Bangalore Metro Rail (cross-cutting Bangalore City); Location of

large-scale/manufacturing industries (East and North Bangalore); Location of IT/ITES/Biotech

Industries (East and South Bangalore); and proposed Peripheral Ring Road (around Bangalore).

Land Management Players: Bangalore Development Authority (BDA) is the planning and

development agency for the City and it designs and implements major infrastructure development and

residential layouts, primarily for low and middle income households. Apart from the BDA, there is a

multiple para-statal bodies involved in the land management in the city. The Bangalore Metropolitan

Region Development Authority is responsible for planning in the Bangalore Metropolitan region, the

Bangalore International Airport Area Planning Authority is constituted for the orderly development of

areas around the Bangalore International Airport, the Bangalore-Mysore Infrastructure Corridor Area

Planning Authority plan and manage land around the Bangalore-Mysore Infrastructure corridor, the

Karnataka Industrial Area Development Board acquires and develops land required for industrial

purposes and the Karnataka Housing Board and the Karnataka Slum Development Board work in the

areas of housing and slum improvement areas respectively. All these organizations design and

develop urban land for industrial and residential purposes and use varied institutional mechanisms

such as land acquisition and public and private partnership structures for developing land. The

structure of Bangalore urban land market is significantly influenced by their actions. Their

uncoordinated and cross purpose actions distort the urban land market, often crowding out the private

sector from land development process. There are about 70 large scale developers in Bangalore, and

more than 300 registered organised sector players in land and construction markets in

Bangalore. Bangalore’s residential market in 2011 had an absorption of 20,000 units and a CAGR of

22%. Annual appreciation rates and rental yield rates are in the range of 10 -12% and 5-6%

respectively.

Land Management Issues: A review of the planning and land development practices and outcomes

in Bangalore indicates inefficiencies in the operations of the land market. These could be summarized

as:

• The previous master plans for Bangalore city have failed to account for the increasing population,

due to natural growth, jurisdictional change, as well as in-migration (For the 2005 master plan,

estimated population was 3.8 million; actual, 5.1 million, for 2015 master plan, estimated was 8.8,

current 2011 census indicates 8.5 million already). The BDA, which is responsible for urban

planning and provision of residential layouts for low and medium income households, has not

been able to keep pace with the local demand, resulting in unplanned development, unapproved

conversions of land at the urban periphery, ribbon development along the major infrastructure

corridors, shortage of developed land for residential use and the consequent development of

speculative land market. This, coupled with poor land information systems, information asymmetry

in the land markets, and under-regulation of private players, has contributed to serious market

distortions.

• The city has ‘sprawled’ into low-density suburban areas. The urban ‘sprawl’ phenomenon in

Bangalore can be attributed to a supply side bottleneck, both in terms of developed land as well

as in terms of FAR provisioning. Sprawl increases the average commuting time of residents for

work, increases the travel costs, leads to incompatibility of urban growth elasticities and land

values, and low value capture of urban land. Unauthorized developments in the urban peripheries

have breached the green belt, considered as the urban growth boundary. Unable to provide the

basic urban infrastructure and services for the planned areas as well as enforce development

controls and regulations, the organically developed outgrowths have been periodically included

within the city limits and infrastructure has been extended to service those areas through

development ‘regularization processes. This approach has indirectly contributed to the growing


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speculation of undeveloped agricultural land and creation of unauthorized revenue layouts and

large planned residential gated communities in the urban suburbs.

• Since the creation of the greater Bangalore region, even though the per-capita land has

increased,(the BMP region in 2001 housed 4.3 million people in 284 km2 area, currently the

BBMP region houses 8.4 million in nearly 800 km2 of area) price of land has continued to

increase, largely due to a shortage of developed land and the high land speculation, limiting the

land and housing access of urban poor and the economically weaker sections in the process.

Figure 1: Existing Land use maps 2004 and 1995

Research Questions

The study attempts to address the following research questions.

• What are the development factors contributing to the exponential growth of the city?

• What are the major structural characteristics of ‘urban sprawl’?

• How is urban sprawl influencing the residential land market efficiency?

• What is the extent of unapproved conversions of agricultural land taking place in the city?

• What are the structural factors determining the residential land market prices in the city?

• Did BDA succeed in improving the land market efficiency and land access?

• What are challenges and opportunities for improving the land management efficiency in the city?

Methodology and Data Base

The study has examined the spatial and population growths based on data collected from secondary

sources such as population census, master plans, city development plans, and satellite imageries

over the past few years. The urban sprawl phenomenon is examined using a set of population density

indicators. The density and land use analyses capture the structure and form of city growth, growth

pockets, revenue layouts, and supply of and demand for developed land. The demand pattern for

residential land is examined using parcel level land conversion data collected from the revenue

department over the 2003 and 2010 periods. Agricultural land conversion data comprises of legal

conversion approved by the Deputy Commissioner and unapproved revenue layouts developed by

the private land developers. The agricultural land conversion analysis captures both the

encroachment of green belt as well as the vacancy of converted land. Use of satellite imageries and

Land Use Map 1995 Land Use Map 2004


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GIS maps between the years 2003 and 2010 not only helped in mapping the land development

pattern, but also the vacancy rates of converted land across various urban areas. Land vacancy, as a

proxy for the speculative indicator, captures the nature of investment in urban land in the city. Fiscal

and development implications of the unauthorized land conversion and vacancy are estimated using

sector level average land values.

The interplay of demand and supply forces in the residential land market impacts the land value and

nature of land transactions. The section on residential land prices attempts to delineate the spatial

trends of residential land prices over the 2003-2010 years. The price contour so drawn is used to

analyse the movements of price over time and to the structural factors determining the residential land

market prices. A hedonic price model developed for Bangalore determines the influence of physical

factors such as distance, access to infrastructure, type of land use, plot size and role of BDA, etc on

land prices.

There is no unified data source and market based land valuation data for Bangalore. The land price

data is scattered across different agencies dealing in urban land. One of the commonly used data is

the ‘registered land value’ or ‘guidance value’ available at the Registrars’ office. Even though, the

registered land value has been revised frequently, its under valuation and low variability across urban

areas are some of the main limitations2. Compared to data from 2003, the gap between the guidance

value and the actual market price is decreasing in recent year, still , it is not possible to conduct a

price trend analysis based on the registered land value. Based on the significant differences in the

registered value and market price, this study has used residential land price data collected from a few

primary sources such as:(a) land valuation data from the Institute of Chartered Valuers, (b) land

auction data from BDA, (c) land value data from commercial banks used for mortgage loans and

auction of recovered land, and (d) land price collected by the real estate sector agencies, including

published sources.

Since these different data sources have their own bias based on the purpose for which they have

been collected, we performed a consistency analysis (t-test) of these four different residential land

price data sets. Some of the main observations from the consistency test are: over the years these

four data sets are consistent, auction data tended to be on the higher side, bank data has the least

dispersion, bank auction data is closer to the BDA auction data, there is high level of correlation

between the real estate agency data and chartered institute valuers’ data, and based on the

movement of these data sets, two consistent data groups have emerged; one set consisting of Bank

and BDA auction data, and another set related to the published data by the real estate agency and

chartered valuers price data.

Urban Growth of Bangalore

The urban population density analysis restricts itself to the BBMP area only, with the main thrust

being on ward-wise population analysis. Urban population density is one of the main structural factors

determining the structure and form of city. The spatial area of the city has grown during the last ten

years due to an increase in the jurisdiction areas of the city and subsequently the average population

gross density has decreased from 15,146 persons/km2 in 2001 to 10,666 persons/km

2 in 2011. Nearly

36% of the population growth during this period is due to the jurisdictional changes in the urban areas

(Fig 1).

The spatial growth pattern clearly shows a clear trend towards suburbanization of the city over time.

This trend is further strengthened by the spatial dispersion and growth pattern of population.

2 The market price is the price at which the actual transaction takes place. The registration value is the price at which the

sale is registered in the registrar’s office – the registration value is usually bound on the lower side by the guidance value and on the upper side by the market value.


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Figure 2: (a) Distance wise Population Growth and (b) Density Gradient

Even though the density gradients3 of Bangalore mirror the pattern of most western cities (Fig 2), the

population growth across distance from CBD suggests a relatively slow growing city centre and

rapidly growing suburbs. Interestingly, the ward level population growth peaks at about 16 km from

the CBD and a larger part of this growth has taken place along the North West corridors of the city.

Figure 3: Population growth in urban Bangalore

The increased connectivity to Tumkur/Magadi

industrial areas, development of Hebbal industrial

area and International Airport, growth of electronic

city and IT parks in the south and east are some of

the main growth drivers of the city. Based on these

trends it is plausible to assume that residential land

market in these corridors could be active, leading

to increased land conversion and price speculation.

A spatial analysis of population growth across

various wards indicates that densities in the city

centre have dropped by more than 10% between

2001 and 2011 and densities in the suburban areas have increased by more than a 100% in some

sectors (Fig 3).

Urban Sprawl

The urban sprawl analysis is conducted using a set of key density indicators. These include measures

on population density and variance, measures on concentration index of the population, the median

tract weighted by population, as well as some transportation and accessibility measures. The analysis

indicates the following pattern of urban sprawl in urban Bangalore.

Table 2: Measures of Urban Sprawl

Measure 2001 2011

Average density of BBMP area 82 persons/ha 120 persons/ha

Maximum density 1136 persons/ha 1198 persons/ha

Minimum density 8 persons/ha 20 persons/ha

DENMED: the density of the "median tract weighted by 5-6 km range around 7-8 km range around

3 Using the simplified log function of density gradient: , for 198 ward level 2011 population data and distance

from the city center the, density gradient analysis suggests that the population density declines by 15% for every kilometer increase in distance (cons=6.38, slope=-.1528, std error is .1225 and the equation is significant. The same pattern is observed for the year 2001, even though; there is a decrease in the gradient over the 2001 and 2011 periods.


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population” the centre of the city the centre of the city

Gini Coefficient 0. 23547 0.16570

Theil’s coefficient (p90/p50) 2.155 1.771

The density pattern suggests that the city has grown uniformly during the past ten years, mainly

through infilling of areas within the BBMP. Peri-urban densities are lower compared to city centre, as

can be seen from the graph on density gradients. The growth pattern is confined within the city

boundary, though leapfrogging in nature. This is largely influenced by the green belt and restricted

agriculture land conversion policies followed by the urban local government. One of the main impacts

of the green belt, though there are cases of serious breaches along some spines, is that it has

succeeded to limit the urban growth within the city limits to some extent, with less than 12% of the

green belt area being developed.

The urban sprawl analysis suggests that the city is becoming more polycentric and with the growth of

information technology sector, urban jobs have been distributed across urban pockets. A

decentralized growth pattern is largely influenced by the government decisions to set up information

technology parks, improved access to infrastructure and better connectivity. The weighted population

density indicator has shown that the relative population share of BBMP wards outside the seven

kilometre radius has increased significantly. Other indicators such as the Gini-Coefficient, Median

Tract Population Weighted Density and Theil’s Coefficient also support the view that the city centre is

losing population and suburban areas are growing much faster and the city is becoming more

polycentric. Decentralization of job centres, development of arterial roads and increasing level of

motorization, etc, have minimized the diseconomies of urban sprawl to a great extent in the city.

However, it cannot be concluded that the city centre is experiencing serious urban blight due to the

inert character of city centre which provides unique shopping experience to the city population,

economies of agglomeration created by the formal and informal economic enterprises and mixed land

uses which provide housing and enterprise opportunities to the people living in the city centre. This

pattern is true across almost all Indian Cities and Bangalore is not an exception to it. However, the

increasing suburbanization and increasing breach of the green belt suggest a absence of a

densification policy and lack of infill strategy and poor enforcement of development controls and

regulations on the part of the local government.

The conclusion that Bangalore is not currently experiencing serious urban sprawl and diseconomies

associated with it is based on the assumption that the master plan has considered the growth

elasticities and rationalized the land development process within the boundary before drawing up the

green belt4. Given the availability of land for infilling within the urban boundary, there are opportunities

to create adequate supply of development land provided the local government provides urban

infrastructure and implement a clear densification policy, by revising the floor area ratio (FAR), for

enabling efficient land to capital substitution. It is true that the city centre has a high population density

and the government policy to restrict the FAR is influenced by the infrastructure bottlenecks as well as

the small plot sizes which cannot be leveraged for vertical development. Given the current trends of

leapfrogged urban growth and shifting of job centres to suburban corridors, there is a serious risk that

Bangalore would soon experience the diseconomies of urban sprawl, unless the local government

formulates a land management policy which encourages land pooling within the city centre as well as

review the FAR policy to densify existing built up areas.

Peri-Urban Land Conversion

4 The Green Belt was planned in 1995 by taking into considerations the projected urban population, planned density pattern

and permitted FAR at the time of preparing the City Development Plan


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One of the outcomes of the increasing supply and demand mismatch for developed land in the city is

the increasing conversion of agriculture land in the peri-urban regions and the emergence of a robust

speculative land market in the residential land market. Empirical analysis of land conversion

supported with satellite imageries suggests that there is a systematic encroachment of green belt

across all urban green belt sectors, particularly in sectors 1, 11 and 12.

To map the spatial extent of agriculture land conversion, the study has used three sets of data over

the 2003 and 2010 periods, consisting of the green belt demarcated in the 2003 base map, satellite

imageries of the land uses within the green belt sectors as of 2010 and the parcel level approved land

conversion data for 2003-2010 periods, collected from the Deputy Commissioner, which is commonly

known as the DC conversion5 or approved conversion. Using the overlays of these data on the 2003

base map, year wise agriculture land converted has been estimated.

Fig 4. Master Plan Sectors and Main Arterial Road Corridors

Green Belt Sectors in the Master Plan Road Corridors

Sector 1 Bellary Road to Hennur-Bagalur Road

Sector 2 Hennur-Bagalur Road to Old Madras

Road

Sector 3 Old Madras to Varthur Road

Sector 4 Varthur Road to Sarjapur Road

Sector 5 Sarjapur Road to Hosur Road

Sector 6 Hosur Road to Bannerughatta Road

Sector 7 Bannerughatta Road to Kanakapura

Road

Sector 8 Kanakapura Road to Mysore Road

Sector 9 Mysore Road to Magadi Road

Sector 10 Magadi Road to Tumukur Road

Sector 11 Tumukur Road to BEL Road

Sector 12 BEL Road to Bellary Road

Even though, the urban growth analysis has indicated that the leapfrogged growth pattern is

increasingly breaching the green belt, a few important questions that need to be answered are: How

much of these conversions in the green belt are unauthorized? To what extent these breaches are

unauthorized? What are the land market and fiscal implications of these leapfrogged land

developments? Using the land use map of 2003, the study has estimated the distribution of green belt

areas across the 12 sectors, net of all developments existing as of 2003. Since the master plan has

visualized the green belt as a loosely defined ‘no development zone’, all land conversions in the green

belt sectors post 2003, except the approved conversion sites, is assumed as unapproved. In the

absence of a historical growth data, it was difficult to estimate the approved and unapproved land

conversion prior to 2003. This main limitation of this residual approach is related to the data

interpretation entailed in the satellite imageries.

5 DC Conversion is a legal process and is mandatory Under Section 95 of Karnataka Land Revenue Act, by which the

occupant or the property owner makes an application to the Deputy Commissioner of the District seeking his assent/permission/sanction for the change of land use from agriculture to non-agriculture(Residential/Public Use/Semi Public Use/Industrial/Commercial) use. The Conversion fee/fine is levied and paid through an OM, to the state, and subsequently, the Deputy Commissioner will issue Conversion Order, subject to certain conditions. This process is called the DC conversion process, or the legal conversion process, or approved conversion process.


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Table 3.Land Conversion in Green Belt Sectors (area in hectares)

Notes: ELU 2003 is existing land use as of 2003 (satellite imagery undertaken for 2005-2015 Master Plan,

CDL 2010 is current developed land as of 2010 based on satellite imagery in 2010

Analysis of land conversion in the green belt indicates that nearly 11% of the total green belt,

amounting to nearly 4,716 Ha has been converted for non agriculture uses, of which about 2266 Ha

was pre-existing prior to 2003, and 2450 Ha has been converted after 2003. While nearly 48% of the

total area of the green belt converted occurred prior to 2003, the rest has taken place after 2003 6

.

The major sectors that registered the highest level of agricultural land conversions are along the

northwest corridor comprising of sector 1 (30%) and sector 10 (20%). The green belt is getting

converted at a CAGR of 11% per annum.

Importantly, a whopping 51% of the land conversion in the green belt is unapproved. The total

unapproved land conversion is estimated at 2230 Ha as of 2010 and nearly 30% of it has taken place

in the northern and western sectors. It is also observed that nearly 50% of all land converted across

the various sectors are unapproved, suggesting the endemic nature of illegal land conversion. A close

look at the satellite imageries also suggests that land conversion tends to be concentrated around

important roads, between intersections of two main roads, and transportation hubs. Increasing

demand for cheaper land for housing, and a general perception that all unauthorized developments

would be regularized over time are some of the factors driving these unauthorized land development.

The land conversion process is further accentuated by the whopping profits realized by the land

developers who mostly develop residential layouts through land pooling and exploit the existing land

titling and transfer loopholes, as well as systemic inefficiencies in land management. Besides the

environmental impacts of the unauthorized land conversion, the fiscal implication is also significant. It

is estimated that the loss to the State from these unauthorized land conversion is about Rs.500

crores7.

Land Vacancy

There is a general perception that unapproved land conversion is driven by the supply and demand

mismatch for low income housing, and in the absence of affordable land and housing within the

6 If the prior use of the land is vacant or quarry or unclassified, but development has occurred, this is marked as

developed land in the current study. 7 Based on the assumption that the average cost of land in the urban fringes is about Rs.250/ft

2


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developed areas of the city, low income communities settle in unapproved ‘revenue layouts’. Even

though, the purpose of land conversion needs to be stated during the approved conversion process, a

high vacancy in approved converted land parcels suggests that the driving force of land conversion is

land value speculation rather than using the land for which it has been converted.

Table 4: Vacancy of DC converted land (Hectares)

Sector

(1)

Total area

under DC

Conversion

(2)

Total

Constructed

(3)

Total

Vacant

(4)

Percentage

Vacant land

(5)

1 48.87 14.49 34.38 70.35%

2 5.42 0.34 5.08 93.73%

3 7.19 7.19 100.00%

4 17.44 17.44 100.00%

5 12.49 0.06 12.43 99.54%

6 9.07 3.35 5.72 63.07%

7 0.06 0.06 100.00%

8 0.13 0.13 100.00%

9 12.06 6.9 5.16 42.79%

10 3.28 0.09 3.19 97.18%

11 46.31 1.85 44.46 96.01%

12 56.39 12.76 43.63 77.37%

Total 218.71 39.84 178.87 81.78%

The vacancy rate of approved converted land has been examined in detail to understand the land

development process and land market dynamics. The total area converted through the approved

conversion process during the 2003 and 2010 periods is about 219 Ha. An application of satellite

imageries for these land parcels suggests that only 40 Ha, constituting nearly18% of the converted

land has been built over these years and 82% remains vacant as of 2010. The extent of vacant land is

highest in sectors 1, 11, and 12, which also share higher proportion of unapproved converted land.

A temporal analysis of the vacancy rates suggests that maximum construction on the converted land

has taken place during the 2003 and 2006 periods. Since 58% of the approved conversions are not

dated, the year of construction could not be estimated for nearly 65% of the constructed parcels. The

high vacancy rate of converted land further supports the view that land speculation rather than

housing needs seems to an important factor driving land conversion in the past five years.

Residential Land Price in Bangalore

Even though, unauthorized land conversion and a high vacancy of converted land suggest that land

market driven price speculation could be one of the main drivers for the leapfrogged urban growth,

some of the important questions which require further examination in this context are: whether the

residential land market and the price mechanism has been efficient in supplying developed land

according to local demand, whether the planning and land development mechanisms implemented by

the land management agencies have distorted the land market, and what are the drivers of residential

land price in Bangalore? Since the various residential land price data sets collected from various

sources are found to be consistent and they move together across years, these data sets are used for

various temporal and spatial residential land price analyses based on their applicability.

The residential land price analyses examine basically the following questions: How did the residential

land prices moved over time? What is the contribution of speculation is the growth of land prices?

How does the residential land price behave over distance from the city centre and along the various

urban spatial quadrants? What are the structural and policy factors determining the residential land


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price in Bangalore? What is the role of BDA in the land market? Primarily, these questions are

addressed through growth analysis, residential land price contour analysis, and a hedonic residential

land price model.

Residential land price in Bangalore has

grown at an exponential rate over the past

ten years, registering nearly 50% per

annum, one of the highest growth rates in

the country. The average residential land

price has grown from Rs.9372/m2 in 2000 to

nearly Rs. 95748/m2 in 2010. A simple time

series analysis of prices against time (prices

are deflated at the CPI rate of inflation for

Bangalore under the head of ‘Housing’)

suggests that there is an automatic increase in the price of land with time. The regression is

significant and about 64% of variance in increase in land price is explained by the time. It is observed

that more than the intrinsic value of land, residential land prices have moved in line with the capital

markets as well. During the boom period of 2004-2006, property prices have registered the maximum

increase followed by drop in the years 2007-2009 and a substantial rise in prices from June 2009 to

December 2010. It is assumed that the residential land price in Bangalore is not only driven by the

intrinsic land value and demand for housing, but also by the consideration of land as an investment

asset.

Speculative activity leads to increase in prices, and such increase in prices further fuels speculative

activity. The impact of speculation is addressed by capturing the price as a function of the increase in

price over the previous years. This is because, as price increases over time, the returns to land

holdings dictate the demand for land; so the higher the price increase, the higher the return to

investment and the greater is the demand for land as an investment asset.

When the prior period returns are added as a second variable to the regression, nearly 87% of the

total price variability is explained by the time and price of the previous year, and nearly 23% of the

variability is attributed to the price of the previous years, which is nothing but a price speculative

variable. A statistical test (Chow’s test) indicates that this level of variance explained by the addition of

previous years land prices is significant at the 5% level. Extrapolating this trend to the peri-urban

regions reinforces the view that a large part of the land conversion taking place in the green belt is

driven by the land speculations.

The residential land price contours calibrated for distances and across directions from the city centre

suggest that the average residential land price curve has shown an inverted ‘V” shape, with an

increasing price trend till three to four kilometre distance from the CBD and subsequently decrease

over distance. This trend is pronounced

after 2003 with the real estate boom in

Bangalore and the emergence of

suburban developments. This does not

mean that the city centre is losing its

competitive edge over suburban areas,

but an indication that Bangalore urban

morphology is showing polycentric

characteristics. A quadrant analysis of

the price movements suggests that

even though, the land price has

increased uniformly, the increase is significant along the south east corridor, even after 15 km from

the city centre. Some of the main development anchors driving the residential land price in Bangalore


12 | P a g e

are the Electronic City, ITPL, Bangalore International Airport, and Industrial activities along the

Tumku/Magadi corridor.

Hedonic Residential Land Price Model: To understand the structural factors affecting the residential

land price in Bangalore, a hedonic price model is calibrated using land transaction price data collected

from the Institute Chartered Valuers. The data set covers nearly 720 residential land transactions

distributed randomly across various urban areas8. The model has examined the significance of a large

number of structural and location attributes found to be relevant in various situations. The study has

used the stepwise multivariate regression model to determine the relationship between the land price

and physical attributes. In order to address the heteroskedasticity issue arising from the use of panel

price data, the model has used the fixed effect /random effect model of the multivariate regression.

The model has examined the significance of the following structural and location attributes such as:

locality, distance from the arterial road, distance from the city centre, distance from the transportation

hub, ward population, availability of access to electricity and water, plot size, type of land use, and

neighbourhood characteristics such as closeness to slum and flood prone area. Some of these

physical attributes are estimated using the GIS maps, master plan, and information collected from

BDA and other agencies.

The hedonic regression model results establish that nearly 61% of residential land price is explained

by the key factors such as distance from city centre, distance to arterial road, access to infrastructure,

type of land use, BDA developed parcel, and plot size9. Nearly 20% of the land price is attributed to

access to main road networks. Since there is a significant correlation between arterial roads and

access to water and electricity, these variables are not significant. As expected nearly 16% of the

price variation is explained by access to ‘anchor infrastructure’ such as access to commercial centres,

IT parks, etc. The distance friction explains nearly 14% of the land price variability. However,

important to note the impact of distance factor on land price is less in Bangalore as compared to

similar cities in India10

. Ward population and density are not important factors determining residential

land prices. This is largely due to the fact that ward boundaries are demarcated based on uniform

population densities and thus did not show much variability. Interestingly, BDA land commands a

premium in Bangalore and it contributes nearly 9% variation in land price. This is mainly due to factors

such as clean land titling, access to core infrastructure and the threshold size of layouts being

developed by the agency. Opportunities to develop the land for mixed uses, such as corner plots and

plots along the main roads, etc, explain nearly 4% of the price change, however, it is statistically

insignificant. Though the relationship between plot size and land price is positive it is also found to be

insignificant.

The hedonic price model clearly establishes the role of key structural and location factors in

determining the price of residential land. However, it is important to recognize the fact that nearly 39%

of the price variation could not be explained by these physical factors. This is largely due to the

inherent structural issues involved in hedonic price modelling. Some of the limitations that could

explain this limitation are that the lists of attributes are not common across data points, that the

neighbourhood and location attributes specific various sites are not available, and that the subjectivity

involved in determining the site specific land and neighbourhood quality. An important conclusion of

this analysis is that residential land price determination, particularly the valuation of land for the

purpose of title registration, could be made more sensitive to the above structural and location factors.

8 The hedonic model is represented in its log-linear form by the equation;

ln V = a0 + a1X1 + a2X2 + ……+anXn + e; Where the attributes are defined by X1 to Xn with weightages a1 to an and e is the error term. The coefficients in the log-linear model (a1 to an) indicate the percentage change in V associated with a change in the independent variable. Land price can be broken down into its component attributes using the hedonic regression approach, wherein a multiple regression framework with explicit specification of variables is used to capture the impact of each attribute/factor. 9 The model estimates are: R

2=0.732 and adjusted R

2=.613, standard error=2560.

10 David Dowell, Land market assessment study for Chennai metropolitan region, 2001


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Role of BDA in Residential Land Market

The Bangalore Development Authority was set up with the primary objective of planning and

monitoring the development of Bangalore city. It is the planning and land development agency for

Bangalore and develops major urban infrastructure. It is also involved in developing residential

layouts, primarily for low and middle income families who do not own residential properties. As the

planning authority, it is responsible for preparing master plans and formulating land development

regulations and controls and enforcing them in areas under its jurisdiction. Some of the land

management functions performed by BDA influencing the structure of urban land market, particularly

the residential land market are related to the acquisition of private land for the purpose of public and

social projects, layout planning and development, and development of external infrastructure. Even

though, one of the main objectives of BDA is to provide affordable housing to economically weaker

sections and low and middle income families, its performance has not been very impressive. Since its

inception, the erstwhile city improvement trust and BDA have allotted only 107,389 sites, which is

much less as compared to the demand for housing sites in the city.

Discussions with BDA officials indicate that delays in land acquisition due to disagreements on

compensation, financing issues involved in infrastructure development, political issues involved in

land acquisition and de-notification of land, lengthy land allotment process, etc are some of the

institutional bottlenecks affecting its performance. However, one of the indirect impacts of its current

practice is that its policy of notification of land much more than its actual need actually deprives

development of large area of private land. This results in an artificial shortage of land for development

in some locations and contributes to price increase.

The poor performance of BDA in the area of enabling large scale affordable housing has created an

artificial shortage of land for private development. BDA could not address the widening gaps in the

supply of and demand for urban infrastructure, and its poor enforcement of land development

regulations has paved the way for unplanned development of private revenue layouts and the growth

of a highly speculative residential land market, further marginalizing the economically weaker sections

from the residential land market. Given the fact that BDA has not posted an impressive record in

terms of enabling large scale affordable housing and its residential layout practices distorted the land

market, it is desirable that BDA reposition its role as a land management organization, enabling

creation of mass housing stock of affordable housing through suitable public and private partnership

models rather than perform the role of a land development organization.

Residential Land Management Perspectives

BDA has a serious role to ensure that the residential land market in Bangalore is both efficient and

equitable. Experiences from some of countries such as Japan, South Korea, China and Thailand

suggests that residential land market efficiency could be significantly improved through land pooling

and efficient provision of urban infrastructure. In most cases, urban development agencies are

basically land management agencies rather than land development agencies and their primary role is

to improve the land market efficiency. This is successfully practiced in Gujarat through the town

planning scheme. The town planning scheme involving readjustment of land parcels and development

of infrastructure against the appropriation of nearly 35% of the private land, and collection of an

external development cost/betterment levy has been successful in developing urban areas and

infrastructure without additional financing on the part of the development agency. The consultation

process imbibed in the town planning scheme also improves accountability and transparency in the

land management process.


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Needless to say that, the town planning scheme may not address the affordable housing problem of

economically weaker section and low income households in the city. This requires a separate public

land leveraging strategy on the part of BDA. While housing the urban poor strategy would entail both

curative and preventive measures, the former is largely undertaken by the municipality through slum

land leveraging, and success of the latter strategy would mainly depend on the creation of mass

housing supply, both rental and privately owned housing, through many interventions including,

possibly through public-private partnerships.

The role of BDA as a land management agency gets importance in this context. Land acquired for

affordable housing could be developed through appropriate public private partnership arrangements

as is done in the case of Rajasthan. Successful implementation of an effective land leveraging

strategy would necessarily involve a clear strategy for optimum utilization of land development

through a densification policy and rationalization of the FAR in the city centre and along the major

development corridors. The role of transit oriented development (TOD) and land leveraging strategies

for developing infrastructure and affordable housing funded through appropriate ‘value capture’

mechanisms gain significance in this context. The interplay between the public transit and affordable

housing needs to be calibrated for creating mass affordable housing stock in the urban suburban

areas. Studies from South America and Ahmedbad support the view that an efficient public transit

system, such as the bus rapid transport system, could significantly improve residential land market

efficiency as well as land and housing access of low income communities in urban areas. These

multipronged strategies are expected to achieve an inclusive and sustainable urban development.

Summary and Conclusions

The study could answer most of the research questions. Analysis of urban morphology of Bangalore

suggests that the city has recorded one of the highest population growth rates in the country and its

population density is similar to Shanghai and Beijing. Even though, the spatial growth has been

leapfrogging and the city has experienced significant level of suburbanization during the past years,

the city is yet to experience the diseconomies of urban sprawl. The density gradient shows a

downward sloping trend, except in the north east quadrant in which the density has decreased up to

four kilometres from the CBD, increases up to eight kilometres and declines thereafter. This is largely

due to the decentralization of job centres, improved transportation linkages and increasing

motorization. The city centre is yet to experience growth diseconomies, even though, the population

growth of the city centre has been only 10% as compared to 100% in the suburbs during the last

decade. An important characteristics of Bangalore growth has been the urban infilling during the past

few years and with the rise of regional centres, Bangalore is increasingly becoming polycentric. This

phenomenon would significantly affect the residential land market efficiency.

One of the reasons for the leapfrogged growth of the city is the serious mismatch in the supply of and

demand for developed land for residential use. Growth of IT sector and key development anchors

such as the international airport, IT parks, and transportation networks, etc are some of the key

factors contributing to the decentralization of work places and related growth of residential and

commercial activities in the suburbs. The problem of supply and demand mismatch of residential land

and consequent increase in land prices is accentuated by policy and administrative constraints related

to densification, rationalization of floor area ratio, land use conversion and land administration, and

enforcement of development controls and regulations.

The polycentric pattern has pushed the city growth in all directions. The city has experienced the

sporadic growth of ‘revenue layouts’ and ‘gated communities’ in the suburbs on land converted in

recent times. Even though, both these developments are driven by the ‘land and capital substitution

mechanism’, they follow distinct land market dynamics. Large scale conversion of agricultural land for

non agriculture purposes, mainly residential, is one of the main outcomes of the current urban growth

of Bangalore. A detailed analysis of land conversion using satellite imageries, land use plans


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prepared as part of master plan, parcel level land conversion data collected from the office of the

Development Commissioner, suggests that nearly 11% of the green belt, considered as a urban

growth boundary, has been encroached/converted during the 2003-2010 periods, and nearly 50% of

those conversions are unauthorized. In addition to the environment management impacts, the loss of

revenue to the State due to the unauthorized conversion is estimated at about 500 crores. It is

estimated that at the current level of land conversion, the green belt would disappear within 18 to 20

years. An important implication of this land management issue is that if the city desires to maintain the

structure and form of the green belt, conceived as an urban growth boundary, it necessarily has to

rationalize the density and FAR policies for improving the land market and land management

efficiency.

Land conversion in the green belt, contrary to the common belief that it is driven by the housing needs

of low income communities, is largely driven by the land speculation. The land market practices are

very robust in these areas. Practices such as land pooling, contract development of layouts, land

arbitrage, etc, are common in these land markets. One of the commonly accepted features of a

speculative land market is that land is consolidated and held without development and use, resulting

in high vacancy. The vacancy analysis of DC converted land suggests that nearly 82% of the land

converted from 2003 to 2010 remains vacant. The above analyses suggest that the structure and

form of residential land market in Bangalore is influenced by the leapfrogged nature of urban growth

and price speculation.

The residential land market dynamics is examined through a detailed price analysis. The average

land price in the urban peripheries of Bangalore has recorded 50% per annum over the past ten years.

Nearly 64% of the growth in land price is driven by the time factor. Inclusion of previous land price, as

an indicator of land price speculation, in the price analysis has observed nearly 23% of the growth is

attributed to the land speculation. The supply of and demand for residential is determined by the price

mechanism and due to the shortage of developed land, often the demand often outstrips supply,

particularly when land is treated as an investment asset. The polycentric characteristic of the city is

further established by an inverted “V’ shaped price gradient, increasing price from the CB to

approximately ten to twelve kilometres and declines thereafter. This trend is true for all spatial

quadrants, except in the case of south east corridor, which has an extended upward movement of

land price up to fifteen kilometres from the centre of the city.

The structure of residential land price in Bangalore is examined by developing a hedonic price model,

using fixed effect/ random effect multivariate regression, the model has examined the significance of a

large number of physical and location factors. The model has found that nearly 61% of the residential

land price in Bangalore is determined by factors such as access to arterial roads (20%), access to

‘anchor infrastructure’ (16%), distance from CBD (14%), BDA developed parcel (9%) and

opportunities to use the land for mixed uses (4%). The model did not find ward population, density,

and plot size significant variables in determining the residential land price. One of the important

implications of the hedonic price model is that these structural and physical factors could be used

while determining the ‘registered value’ by the State for the purpose of land registration. Registered

land value could be calibrated based on a composite index using the above listed physical indicators.

The price model has established that land developed by the BDA commands a premium. This is

mainly due to factors such as clean land titling, access to infrastructure and threshold size of the

layout. Even though, BDA participation in the land development has improved the land market product

options, its performance in creating adequate supply of serviced land is not very significant as

compared to the local demand. This is mainly due to the institutional bottlenecks experienced by BDA

as a land developer. The entry of BDA in the land development and the policy to create a large land

bank and subsidized provision of developed land has crowded out the private development and

distorted the land market. An institutional assessment suggests that BDA should reposition its role as


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a land management agency, primarily focusing on improving land market efficiency and land access

to low income communities, rather than a land development agency.

The study urges BDA to consider its densification and FAR policies for improving the land market

efficiency. Rather than developing residential layouts, BDA should focus more on developing urban

infrastructure through the application of land readjustment and introduction external development

charges as done under the town planning scheme of the Government of Gujarat and the affordable

housing program of the Government of Rajasthan. Successful implementation of an effective land

leveraging strategy would necessarily involve a clear strategy for optimum utilization of land

development through a densification policy and FAR rationalization processes. The role of transit

oriented development (TOD) and land leveraging strategies for developing infrastructure and

affordable housing funded through appropriate ‘value capture’ mechanisms gain significance in this

context. These multipronged strategies are expected to achieve an inclusive and sustainable urban

development.

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