Land Bill draws flak from real estate developers

The passage of the Land Acquisition Rehabilitation and Resettlement Bill has upset real estate developers and builders as they feel it will lead to higher prices.

Developers have been bemoaning a liquidity crunch in the market for some time now.

The Bill, which replaces the Land Acquisition Act, 1894, set out clearly the compensation to be paid for land acquired for infrastructure projects and for industry.

Accordingly, now compensation for land acquired in rural areas will be four times the market rate while in urban areas it will be twice the market rate.

Besides, developers are required to get the consent of up to 80 per cent of people whose land is acquired for private projects, and 70 per cent of people for public-private partnership (PPP) projects.

Too late

“This has come too late,’’ Lalit Kumar Jain, President, Confederation of Real Estate Developers Associations of India (CREDAI), told The Hindu . “The 80 per cent consent clause and two and four times compensation now make land acquisition difficult if not virtually impossible, and, given these conditions, time targets for projects will get stretched.’’ Analysts tracking the sector, too, feel realty prices will inevitably rise. Parikshit Kandpal, Senior Analyst, Karvy Stock Broking, said, “Typically, for projects in urban areas, land accounts for half of total cost while in rural areas, it is 15-20 per cent. This Bill will create higher property prices, and, no doubt, create entry barriers for new prospective players.’’ He added that companies with large land banks would be relatively unaffected, but “asset-light companies will have to bear higher costs.’’

Increased costs

For developers, the cost of land is going to increase significantly, impacting their project costs, and, therefore, margins, felt Mayank Saksena, Managing Director (Land Services), Jones Lang LaSalle India, a real estate consultancy.

“Land valuations are already high, and by further increasing them, land acquisition becomes even more difficult.

Anyone without an existing land bank will now be looking at vastly increased entry costs.’’

According to Mr. Jain, politically the Bill makes sense, “but if growth is the intent, then it makes no sense. The compensation rules will have a cascading effect on price in the whole realty sector.’’