Land Bill: Real estate project cost may shoot up
Big projects face slowdown owing to mandatory clauses in Bill
Sep 02, 2013
Source : The Hindu

 

DELHI: The Land Bill, passed in the Lok Sabha on Thursday, may ensure transparency and fair compensation for farmers, but the slowdown-hit real estate sector feels it will add to project costs and lead to execution delays. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012 replaces a 120-year-old law.

The highlights of the Bill include a transparent land acquisition strategy, compensation and rehabilitation as a matter of right.

The industry notes that the cost of infrastructure projects is likely to go up by almost 3 per cent and companies will tend to avoid bigger infrastructure projects because of clauses such as ‘time-bound’ execution.

Niranjan Hiranandani, Chairman, Housing and Real Estate Committee of the Federation of Indian Chambers of Commerce and Industry, and the Housing Committee of the Indian Merchants Association, said a new law was definitely needed to replace the existing archaic law. But the provisions of the proposed law will hike up land costs multi fold and make most infrastructure projects and affordable housing projects unviable.

In affordable housing projects land costs can be about 30-40 per cent of the project cost. But if this is to go up four times or even double, affordable housing will simply not be possible.

Also, the social provisions like compensating people who have worked on the land, how are the beneficiaries to be identified? How will the governments implement this provision especially if the law is the take effect retrospectively, he asked.

Sanjay Dutt, Executive MD, South Asia, Cushman & Wakefield, said: “The cost of land acquisition will surely go up for all projects, irrespective of them being Government or private or public-private-partnerships (PPP). Further, the clause of mandatory consent of 80 per cent of owners for private projects and consent of 70 per cent for PPP projects will delay the process of acquisition and the projects.”

LAND-OWNERS GAIN

Mayank Saksena, Managing Director - Land Services, Jones Lang LaSalle India, said the Bill was beneficial for land-owners. “The Government’s role in land acquisition has been curtailed as far as private enterprises are concerned. These enterprises can now enter into their own negotiations and arrive at the price for acquisition,” he added.

The Bill also requires a Social Impact Assessment, which will outline how the acquiring parties intend to use the land, and how the original inhabitants or owners will be rehabilitated.

Ajay Aggarwal, MD, Microtek Infrastructure, said: “The Bill may convey the impression of welfare of farmers or land-owners on the surface, but it will harm their prospects in future, as industry and the real-estate sector will avoid investing in areas that have a history of land disputes.”

RISING COSTS

With the law being enacted, the real estate sector has no option but to face the repercussions. Project costs will spiral upwards and implementation will be delayed. J. Rao, Chairman, Value and Budget Housing Corporation Pvt Ltd, says the law will have an overall negative impact on housing for the mass market segments, including the middle-income group and the poor.

If the purchase price of land has to be over two- to four-times the prevailing market price, depending on the location, just one transaction will drive up land costs and make projects unviable.

Anuj Nangpal, Managing Director, Investment Services, DTZ India, said: “The Bill walks a tightrope. While an enhanced compensation package ensures that land-owners get their due, the same would make a project financially unviable.”

Since developers will want to preserve their profits, there could be more joint development projects happening, wherein the profits as well as the resources and risks will be shared.

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