Bill hits roadblock

Tags: Real Estate

Real estate developers want private-to-private land acquisitions to be off the new land acquisition bill and fear the implementation of the same in its present form will lead to drastic increase property prices

Bill hits roadblock
The much-awaited land acquisition bill, 2012, which was recently cleared by the Union Cabinet and is now likely to be placed in Parliament during the forthcoming Budget session, has raised concerns from the real estate and property developers, who fear that the implementation of the same in its present form will lead to drastic increase in land prices, thereby jacking up property prices.

The bill, makes 70 per cent consensus of land losers mandatory for government acquisition for private project and 80 per cent consensus for properties to be acquired by the private sector, is replacing the existing British-era Land Acquisition Act.

The new bill is focused to ensure optimum compensation and rehabilitation package for land losers, a major factor that the present act was found to lack leading to heartburn and controversies. However, the very same compensation and rehabilitation package has drawn criticism and despair from the private sector, especially, from the real estate and property development industry.

The industry’s contention is straight and simple. The very need for a new Land Acquisition Bill was to overcome the lacunae of the earlier one, which threw up controversies every time when government authorities were involved in land acquisition either for public or private industrial projects or public private partnership projects.

When that is the case, why include open market land acquisitions by real estate and property developers, when they actually go about acquiring land through mutual consent and at market valuations. The move, especially stipulations like acquisition in excess of 50 acres in urban areas and in excess of 100 acres in suburban areas, are certain to not only negate the process of urbanisation, but also lead to unauthorised and haphazard development thereby, bringing further strain on the already constrained local administration in providing the much required infrastructure facilities. It will also inadvertently delay the development process, due to the intervention of a government authority.

Further, the industry fears that the whole move will impact the focus on the very concept of affordable housing, an area where the country is already lagging behind with more actions on paper than on the ground.

According to Mayank Saksena, managing director – Kolkata and head – land services, Jones Lang Lasalle India, the proposed bill stipulates that if the land is being acquired for urbanisation purposes, the government needs to set aside 20 per cent of the land for the person who is parting with it. It also says that any unutilised land has to be returned to the land owner. These are certainly positives and in line with the larger purposes that the bill seeks to address. However, “one point of doubt would be that the proposed bill says that the provisions would be applied retrospectively if the award of compensation has not yet been made. By award of compensation, one would assume that the land owner has actually received the funds in his bank account. If the land owner in question has not accepted or otherwise received payment, it does not count as award of compensation. The implication is that if the land owner has not received compensation for any reason at all, he can bargain for a higher price and thereby, hold up the process and also contribute to further inflation in land prices.”

The bill states that the entire process of land acquisition and award of compensation needs to be completed within five years from the date of proposal, else the transaction stands cancelled. “While it all seems positive on the surface, the fact is that there is also potential for even more uncertainty in the process of land acquisition,” Saksena points out.

The idea of the bill was to ensure that land owners get fair and timely compensation and also resettlement options. However, it would need further tweaking to ensure that there is no potential for land owners to drive up land prices in the bargain which, in turn, would mean that the cost of the finished products also rises, he observed.

According to Lalit Kumar Jain, national president, Credai - the major issues of the proposed bill are – providing rehabilitation package to private land owners in the form of accommodation and compensation and sharing of the profit on developed land, if it has not been put to the original purpose of use.

“With the huge compensation burden coupled with the current market price of land, the move drastically increases the input cost. If one tends to avoid these, then it leads to un-authorised development. Any land acquisition law that is rolled out just to please the electorate will not work,” Jain pointed out.

According to him, the government should clearly say that private developers acquiring land on their own, based on market prices, should have no restrictions. There should be no interference from the act and it should be restricted only to government acquisition moves. Only a very practical approach will help. Otherwise, it is not only the issue of monetary compensation, but the amount to be fixed will be a big test to overcome.

Normally, Jain said, private developers acquire land with mutual consensus and no land owner will agree to sell at below market prices. “Mere populist measures will not help,” he added. Further, the final form of the bill, which has been cleared by the Cabinet, has not yet been circulated. Only, when it is done, the industry can decide on taking it up with the government to address the problem areas,” he pointed out.

The country’s leading property developer, DLF’s executive director, Rajeev Talwar agrees that the government’s plan is to be fair to the land owner also. It is a very old act that needed changes. “But, any change has to be balanced. It should make people happy that the country is progressive and is for industrialisation and urbanisation,” he added.

For that to happen, Talwar feels, all private to private transactions should be kept out of the purview of the Land Acquisition Act. Because, private transactions, largely and mostly, tend to be market driven. While the general complaints always have been on government acquisition of land, where the prices paid tend to be below market price, leading to heartburn among land owners. That’s why the government is also bringing in stipulations like 70 per cent or 80 per cent consensus.

“That has not been the case in private to private transactions and acquisitions under this segment normally come under the Land Transfer Act and not under the Land Acquisition Act,” says Talwar.

In fact, by offering to provide housing and other forms of development infrastructures, private players are actually coming to the aid of the government. But, instead of recognising this fact, the government’s move through this bill, is placing huge burden on them.

With talk about compensation and other issues, this is sure to lead to time delays. Since, public authorities would be involved, transparency is needed, as lack of it means lack of accountability. Even though its timeframes have been fixed in the bill, the same is impractical.

Further, by preventing urbanisation or creating hurdles in smooth transition, the government will end up creating artificial shortage, thereby jacking up prices. With a definite focus, the system tends to overlook other prime facts of the game. “You cannot have a legislation that is going to create further problems, rather than solving existing ones,” Talwar points out.

According to him, by bringing acquisition of 50 acres and above in cities and 100 acres and above in suburban areas, the government may well end up forcing private players to carry out extra legal ways or beyond the legal means of development. Because, some players will start thinking of breaking down larger development plans into smaller units to overcome the new restrictions.

Naushad Panjwani, senior executive director, Knight Frank India is of the view that prices are going to rise in effect to the Land Acquisition Bill and along with land, prices of the end product will also escalate. On account of this, the affordable housing segment would suffer.

“The bill has tried to address the grievances of landowners, but does not cater to consumers’ interest at all. The intent of the bill is justified, but the needs of the landowners, developers and end consumers should be addressed as a whole and not separately, which is why it may need some more restructuring,” Panjwani concluded.

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