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Why land prices zoom in TN?

S Mahalingam, ex-CFO, TCS, once pointed to Tamil Nadu fast losing its attraction as an investment destination. Apart from the pervasive power shortage, another major cause he mentioned was the high cost of land.

High cost of land is not Chennai-centric. It has spread to other parts of the state.  Certain developments contributed to a huge hike in price of even marginal and fallow lands. The first of these related to the boom in demand for professional colleges. So, large real estate dealers, civil contractors and other businessmen entered this field. The huge demand for seats in engineering, medical and other colleges imparting management education made these a highly profitable business. It was just a matter of time before politicians entered both the real estate and the business of education.

A second development related to the attractive sops given for wind energy. The 100 per cent depreciation and other liberal tax incentives attracted a wide range of businessmen to invest in windmills, making Tamil Nadu the lar-gest wind energy producing state in the country. An inevitable consequence of this was a huge increase in the price of land in the windy southern and western districts of the state.

A more recent development related to solar energy. The state that went through a severe power crisis in 2012 was bestowed with warm weather right through the year; it was further aided by the state policy to encourage solar power with liberal tax incentives. But, solar power required large tracts of land. Presto! The barren arid land mass of even Ramanathapuram district and its neighbourhood suddenly received attention, when a few manufacturers of auto components and forge units helped by Mahindra Solar, acquired large tracts of land at Aruppukottai. So the land that was not quite attractive in the arid district suddenly shot up in value!

Thus one sees a huge escalation in land prices across the state. This will impact the reputation of the state as an attractive destination for investment. There is the inevitable spread-effect: land sharks and speculators had little difficulty in jacking up price of land in other areas. At Tuticorin, when the Tatas planned to set up a titanium plant at a cost of Rs 3000 crore, they were discouraged by land prices shooting up from Rs 5000 an acre to Rs 5 lakh per acre. Of course, Tata’s abandoned the project.

 

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