This Wired piece manages to combine 4 of my favorite topics into a single article –
The story? The crazy things Bangaloreans have to do to establish title to a piece of property.
Let’s say that you or your company wants to build a tech office building on a piece of land currently occupied by a house in Bangalore. Normally, you’d just pay the homeowner for the property and tear down the house to start constructing your office building.
The problem is that actual legal title to land is a pretty murky problem in India (as well as many other parts of the 3rd world). In other words, the guy you bought the land from might not have owned it in a legally clear manner to begin with. His father may have simply squatted on it, and later his eldest son decided to build a nicer house on his boyhood plot of land. Or perhaps his backyard garden – the one you planned on turning into a Nano parking lot for employees – actually belongs to his neighbor?
In India, this messy problem is made even worse by a couple of factors –
- The famously clogged court system can literally take a decade to resolve disputes like this. So even a knowingly false claim – if it can stall progress – can be wielded as a negotiating tactic.
- Title transactions, like many other government functions, are subject to a notoriously corrupt Indian bureaucracy
So given this morass, who you gonna call? Your local goonda –
City officials–at least those who aren’t taking bribes–struggle to reconcile the gleaming promise of the information economy with the gritty reality of systemic corruption, a Byzantine justice system, and a criminal underworld more than willing to maim and murder its way into control of the city’s real estate market. As tech companies gobble up acreage, demand has pushed prices into the stratosphere. In 2001, office space near the center of town sold for $1 a square foot. Now it can go for $400 a square foot.
…Some 85 percent of citizens occupy land illegally, according to Solomon Benjamin, a University of Toronto urban studies professor who specializes in Bangalore’s real estate market. Most land in the city, as in the rest of India, is bound by ancestral ties that go back hundreds of years. Little undisputed documentation exists.
…With the courts tied up in knots, gangsters offer to secure deeds in days rather than years. “Businesspeople like to do their business, but many times the system does not permit them to do it,” says Gopal Hosur, the city’s joint police commissioner. “Because of escalating land values, unscrupulous elements get involved. They use muscle power to take control of the land.” Some 40 percent of land transactions occur on the black market…Often the local authorities facilitate these deals. A World Bank report rated the Bangalore Development Authority, which oversees urban planning, as one of the most corrupt and inefficient institutions in India.
And there are some mighty interesting characters in this particular black market including Lokesh “Mulama” (pictured above) –
On the ground, violence is meted out by local toughs like “Mulama” Lokesh, whose first name means “medicine”–as in, if you have a problem, Lokesh has the cure. He’s an old-school gangster who happily shows off a bag full of curved swords called longs and cruel Chinese-made knives that he keeps in the trunk of his car.
Another, supposedly reformed, OG is now a billionaire –
[Police Inspector] Umesh points to a face on his screen: Muthappa Rai. Owing to a successful career as a mob don, Rai has a net worth measured in billions of dollars. Once he was among the most wanted men in India. Today he professes to have reformed, renouncing violence and founding a charitable organization. But he’s also in real estate.
“In a way, Rai is just like any other goonda in Bangalore,” Umesh says. Still, the mobster has made his mark on the city’s underworld. In the 1980s, land disputes were settled with fists, knives, swords, and bamboo canes. But after Rai’s arrival in the mid-’80s, guns became the weapon of preference.
p>Muthappa Rai gained his fortune by becoming a King Solomon of sorts for property — he finds ways to split the difference between potential claimants and the purchaser while keeping a cut for himself. And if anyone disagrees with the solution or if new claimants try to pop up, he’s got an army of Mulama’s to dispense, uh, medicine.
p>The story also highlights another example of the bottoms-up nature of capitalism and regulatory arbitrage. In lieu of reliable governmental property rights enforcement, the private sector has unfortuately been forced to come up with a solution to adjudicate and enforce property rights themselves. IBM, Cisco, and Wipro don’t necessarily want to deal with Muthappa Rai per se but he’s the best/only solution that’s sprung up from the ground beneath them.
p>The result in this case is a type of thuggery many in the West can hardly imagine because we’ve lived within a stable & liquid land property rights regime for generations. Clean titling is one of those behind the curtain things that silently secures the whole dang system. And we take it for granted that it’s efficiently maintained by an army of humble civil service title clerks around the country.
p>There are interesting fringe cases, of course – for ex., NYC mobsters supposedly offer their services to landlords who want to “encourage” tenants to leave rent controlled apartments (rent control is arguably a sort of legalized “de-titling / squatting” and thus encourages this extralegal tactic). In expansion-era America, by contrast, the problem was often the reverse – too much land and not enough claimants… hence homesteading.
However, we don’t have to look too far into Western history to find a similar “modernizing” transition where communal, pastoral land was titled and divvied up into private parcels. Britain’s well documented Enclosure riots were a similar transition which started in Medieval times. The result then as now was violence & mayhem as the first set of legally enforced land property rights were established. Once clear rights were in place (and in the Brit case, a relatively efficient court system was available to enforce transactions), Coasian bargaining had room to take place and a good chunk of the modern property world was born.