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Tuesday, June 15, 2010

2010-11 Budget : A Land Monopolists Budget

By Mwarang'ethe

In the DN, we read a celebratory headline that: "More Kenyans can now own homes". In this story, we are told that, “Mr Kenyatta increased the threshold of core capital that banks are allowed to invest in mortgage finance from 25 per cent to 40 per cent to enable more Kenyans to own homes." In the Standard, we read this: This year’s Budget proposals seek to amend the Stamp Duty Act to reduce stamp duty on mortgages, charges and debentures from 0.2 per cent to 0.1 per cent. The Stamp Duty Act provides that every instrument be stamped with proper duty paid within 30 days, failure to which penalty is charged. The current rate of penalty is charged at 25 per cent for every three months. "In order to reduce the penalty burden on new property owners, I propose to reduce the rate of penalty from 25 per cent to 5 per cent".

Ignoring the big scandal of the big government we are creating, we focus on this issue of housing only for what happens in this sector will affect the whole economy. That being so, contrary to this communicated nonsense from our mainstream media that more Kenyans can now own homes courtesy of my Kenyatta's generosity, we argue that, the proposed 2010/11 budget is just a bonanza for the idle land monopolists and bankers at the expense of wealth creators.

However, we are not surprised for we saw this coming. On 16th April, 2010, the Standard told us this: "High - end residential property boom is over". Among other stuff, we are told this. "It is not good news for high-end residential property investors, but rental yields are falling, and may not rise any time soon. Hass Consult, a leading property firm, is warning those looking to buy high-end residential apartments with the intention of renting them out to earn income to go slow.”

Hass Property index report for the first quarter of this year — the period between January and March 2010 — indicates that rents for the high-end residential market have stagnated over the last three years, while property prices in the same market have more than doubled over the same period. "In short, the high end residential apartment boom is over after a market correction that has lasted over three years since the height of the boom and the market is stabilising." Translated this means this. The land speculation has gone too far. Since land speculation has nothing to do with the real economy, i.e. Kenyans incomes and productivity, speculators and bankers are losing or about to lose money.

This is confirmed by this from Standard: "Apartment prices go through the roof". Among other stuff, we read this. "When the price is too high, think twice. And so, too, should those buying apartments and flats in Nairobi. According to latest findings, investors targeting these two classes of homes are being ripped off, with most of the properties overpriced." More significantly, “The Hass Index, a quarterly survey on the country’s property market, further revealed that there was sluggish demand for property during the first quarter of the year. Asking prices, however, rose sharply in the quarter by about 7.8 per cent driven largely by the apartment prices." In simple words, in just 4 months, the price of LAND went up by 8%. Did Kenyan's incomes go up by that margin? No. This is at the heart of the current global economic mess. And, as a by the way, do the statisticians at the Kenyan Bureau of Statistics, who calculate that small animal they call inflation factor house prices in their calculations? Why not call them and ask as a patriotic duty?

So, when land speculators, i.e. those who profit without production comes to an end due to low incomes, what do they do? As we would expect of socialists/communists and monopoly capitalists hiding under the cover of free markets, they run to the tits of the state, i.e. the taxpayers for more subsidies. For this, we read in the Standard that: "Mortgage industry pushes for more incentives".

We hear the socialist, oh, no, a banker in the name of Frank Ireri, the MD of the Housing Finance saying this: "We are anticipating the budget to give more tax breaks, especially for those in the low-income bracket. We also hope there will be tax exemption on inputs used in the construction business." He also tells us this. "The mortgage industry is seeking for more relief on mortgage interest as well as more incentives for those saving to buy a house."

What is the response of the central socialist/banker to all this? Since figures indicate that credit to the real estate sector amounted to Sh92.5 billion as at December last year, accounting for 12.2 per cent of total credit, "[g]iven the excess demand for housing, there is considerable headroom for expansion of credit to support provision of housing," said Ndung’u. Deal sealed. Simply, we will allow you to create money out of thin air, i.e. unearned money to give land speculators to ensure prices do not come down for they will lose and bankers will lose. In other words, you gamble, you keep the profits, but, if you lose, Wanjiku gets f%£%&.

To impress the stupid and ignorant, our property analysts such as Wilberforce Oundo cheerfully, tells us that, "Property players have always been of the view that stamp duty should be done away with as is the case in countries that have followed the route and successfully encouraged investment into the real estate sector," To add weight to these wise observations of Oundo, Treasury PS adds that: "Payment of stamp duty and a number of contradicting regulations in the real estate sector have been a major concern to Treasury." Who would doubt PS Kinyua, a man who "is a first among equals when it comes to control over the Budget. He is one of the few civil servants whose position is created by an Act of Parliament." This important information is revealed to us by Justus Ondari of the DN under the title: "Behind every estimate are men and women doing all the donkey work".

To, perhaps shock and awe us, Mr Ondari, who instead of being a journalist is just a PR man, volunteers to inform us that, this man PS Kinyua, has had wonderful opportunities to work and be mentored by the gods of money at the International Monetary Fund, the World Bank, and off course, their minion, the Central Bank of Kenya. Yes, working with satanic slave drivers who see Africans as monkeys is considered the most significant achievement in the land of stupid and ignorant. If you think we are rambling, you just need to read an internal memo by former WB chief economist, Larry Summers. A brief history of this man is in order. After leaving the WB, he became the U.S. Treasury Secretary under the American "first black president." Thereafter, he went to brainwash at Harvard. Today, this insane man is advising our “dear brother” at WH. The memo read like this:

'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:

1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.

2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always thought that under-populated countries in A[FRICA] are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City.

How does Larry Summer’s idea compare with those of Hitler? In expressing his views about Africans, he said this:

“What we see before us of human culture today, the results of art, science, and techniques, is almost exclusively the creative produce of the Aryan... Without this possibility of UTILIZING INFERIOR MEN [AFRICANS], the Aryan would never have been able to take the first steps towards his later culture; exactly as, without help of various suitable animals which he knew HOW TO TAME, he would have never arrived at a technology which now allows him to do without these very animals. ... The words The Moor had done his duty, he may go has ... unfortunately too deep a meaning.”

When Summer’s memo became public in 1992, the Brazilian then secretary of Environment responded to this man this way:

"Your reasoning is perfectly logical but totally insane... Your thoughts [provide] a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional 'economists' concerning the nature of the world we live in... If the World Bank keeps you as vice president it will lose all credibility. To me it would confirm what I often said... the best thing that could happen would be for the Bank to disappear."

For lack manners, this Brazilian man was fired. For the Summers, he continues to climb the pyramid. See the memo here:

To leave us with no doubt on the wisdom of subsiding land speculators and bankers, Morris Aron of Standard tells us that, the result of his deep and wide research is that, "In countries like the United Kingdom for example, which coincidentally Kenya draws most of its laws from, stamp duty tax regime was revised several years ago to take into account the nature of the transfer transaction and other interests. In the UK, stamp duty is varied depending on the property being sold among other considerations while in Kenya, it is charged at a flat rate of four per cent of the total value of any commercial property transaction." See "Budget could scrap property stamp duty".

Firstly, when these "experts" talk about property or housing, they are hiding the truth. Land grows in value while the mortar and bricks depreciate. Land therefore, animates the propensity to speculate, while capital favours prudential behaviour. As such, it is the speculative activities of the land that fundamentally distort the modern economy. Sample this. In the first 10 years of Thatcher's government, land prices soared by 900%. The building cost index rose by only 82%. In five years after the 1992 recession (land speculation crush), land rose by 101% while house prices rose by 25%. In the first 5 years after Tony Blair election, land prices soared by 300% while the cost of building only went up by mere 30%. Why is this? Advances in productivity and competition tend to even out the relative costs of labour and capital. As a result, the INCREASING GAINS from innovation, infrastructure etc surface as increases in land values. These land value increases eventually outpaces economic growth which leads to a crush as we see now in Kenya and elsewhere. The failure to separate land and buildings is how the secret is kept away from the masses.

Let us now focus on the UK which we are told, we the mental slaves should emulate in matters of housing. In 2004, Gordon Brown, the former UK Chancellor, said this:

"Let us call that most stop go betweens that Britain has suffered in the last 50 years have been led or influenced by the HOUSING SECTOR. Forty years ago we built 400, 000 homes a year, by the mid 1990s it had fallen to just 200, 000 so we will press ahead with resolution ... to tackle the large and unacceptable imbalance between supply and demand in the British housing market." He continued to tell us that, "we have cut capital gains tax from 40 pence to 10 pence for long term business assets and in budget after budget I want us to do even more to encourage risk takers, those with ambition, to turn their ideas into reality and make most of their talents." However, while blowing his own trumpet, he forgot to say that, under his stewardship, the house output had declined by 20, 000 a year. Why did this happen when he had cut capital gains then?

Simple, when you cut capital gains tax as Brown did and as we are now doing, these cuts are nothing but a PUBLIC SUBSIDY to the land market and a penalty to the job market. Around 2005, as the housing market started to pause as we see now in Kenya, Gordon, just like socialists who are led by emotions and not facts, decided it was time to boost the house output by pouring public money into the construction industry without NEUTRALISING the impact of capital gains from the land. So as to "help" low income families, he decided to spend £ 250 m on low cost housing for key workers so as to provide 56, 000 homes. However, by announcing these plans, the land owners reacted as one would expect. They decided to retain their sites vacant or under utilised in the expectation of even higher capital gains. For instance, when Deputy Prime Minister Prescot announced that in The Thames Gateway project, they would ease planning restrictions so as to cram hundreds of thousands of houses into a few acres, it immediately increased the prices of farmland without permission for development by 30%. In other words, as Gordon plundered private wealth in the name of taxes, he was poured the same into activities that elevate the land price. The results are there for even the blind to see.

We are doing exactly the same thing for any cut in stamp tax automatically translates into HIGHER LAND PRICES. As such, those who seek to own homes SHALL not benefit at all from this measure. As this land price increased, those who add value to the economy suffered. For instance, manufacturing fell by 3% in 1999, continuing the hollowing out process started by Thatcher. Meanwhile, those owning houses were sitting on piles of "equity" which they turned into a piggy bank. They re- mortgaged their houses so as to go for holidays in Spain and lie in sand like lizards. All in all, in the last 20 years, in the UK, house prices rose by 36%, while land prices have gone up by 307% over the same period. What is even so cruel is that socialists like Gordon in their weird logic; they create huge bureaucracies that serve no useful purpose other than recycling taxpayer's money. To the masses, this creates an illusion of enlightened government generosity. What a political hoax!
From this we can see that, the driving force in business cycle is the pursuit of capital gains from land and the governments help this by the tax system they adopt. They PRIVATISE social rents while SOCIALISING and CRIMINALISING private wealth. For instance, to fund this monster of a budget, Kenyatta talked about increased tax compliance. This means criminalising private wealth possession so as to communalise it for force and fraud.

To assist the rentier class even further, Kenyatta also allowed the banks to put more credit into the land market. Without saying too much, this will divert credit from productive sector while increasing the debt volume relative to national income and production. As we neglect our productive sector as we chase free lunch, we shall be become (but we are already there) a captive market of foreigners which is the objective of the WB and the IMF. For instance, as we import BABY DIAPERS of all things from Korea, as we read here: LG tries its hand in local diapers market” , all Kenya/We as a nation can think of is digging fish ponds and expanding hawking, kiosks and Mama Mboga kiosks as we read here: Kenya’s Budget for business. What kind of men are we who cannot even make diapers for their own babies? As such, as we go forward, more and more of incomes will have to be diverted to payment of interest to the financial sector which will be used to pay atrocious salaries and bonuses to gamblers who create no wealth.

Since this revenue will be recycled to bid up land, its value will continue to rise. As this goes on, more loans will be issued backed by speculative land values, i.e. fictitious wealth. As land values rise, the more assets banks will have to back their money creation racket. This will accelerate the ratio of debt - service to wages and profits until the whole pyramid collapses as we see in the UK, USA, Japan, Spain and many others. When that happens, since the banks will be too big to fail, the debts will be transferred to the taxpayers. Thereafter, the gods of money will turn around and tell us that, we must have austerity measures, i.e. deepen our poverty so as to reduce our public debt to appease Mr Market.

Anyway, if you want to make hay while the sun shines, this is the formula in accordance with neo classical junk economics of Larry Summers’, Greenspan’s, Kibaki’s and Kinyua’s. As the share of taxes as a proportion of the GDP goes up, as they will with the trillion KES budget, the best hedge against the tax and inflation that which will erode the value of your income is to BUY LAND and HOLD IT VACANT. However, make sure the unemployed thugs do not get you at night. If they get you, we shall only say like Peter Tosh, after all we can’t blame the youth. Their bellies are empty while yours is full with the bread of sorrow.


Anonymous said...

Thank you sir Mwarangethe, you are the reason many of my friends visit Kumekucha and this is just brilliant!!

Anonymous said...

great read mwarangethe despite the feel of anger in your article. i wonder why the mainstream media like the east african or dn can't publish such critical analysis.

kudos buddy.

Anonymous said...

great stuff. when u speak, we just listen.....and left with no further thinking. honest.

Anonymous said...

why do the most insightful articles get the least attention? mwarangethe, maybe the average kumekucha visitors need you to break it down into layman's language. good stuff

Anonymous said...

Thanks man. Kenya has 143,411,809 acres and a land shortage! If LVT was the only tax, the KSh 534.4bn that KRA raised in the last FY would work out to an average of 3,726.33/- of LVT per acre per year. This is very reasonable. Of course desert land in Northern Kenya would attract negligible LTV per acre while land in Nairobi CBD or Westy would attract a hefty LTV per acre. Why don't you launch a Facebook campaign? That would be a good starting point. Don't give up!

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