Despite the negative sentiment surrounding West Bengal’s image, property prices in Kolkata have continued to escalate.
Defying the national trend, residential real estate prices have appreciated between 20 and 30 per cent in the last two years, say realtors. However, the high returns are not on account of a booming real estate market in the state, but the lack of new projects in the city and its fringes. As a consequence, prices of existing properties have risen, almost disproportionately.
After, Durgapur, no new planned city has come up near Kolkata over the last decade. Even plans to develop satellite townships in areas like Bariupur in the southern fringes of the city has failed to take off. Suburbs in West Bengal continue to be victim of poor infrastructure and connectivity.
Notably, unlike tier I cities like Delhi and Mumbai, Kolkata real estate market caters to end-user buyers, rather than speculative investors. The ticket size of the investment is also low, between Rs 2 crore to 5 crore, compared to Rs 10-15 crore in other Tier I cities.
"The slowdown the real estate market is linked to the general economic slowdown, rather than local issues. In the medium and long term, the investment perspective in Kolkata is fairly good. The price escalation is mainly in prime locations. The supply is limited, and in good locations the land holding is small, which has resulted in steep rise in prices," said Harshavardhan Neotia, Chairman, Ambuja Realty Group.
"In the short and medium term, some projects in Kolkata have given up to 30 per cent return to investors, which is much better than other cities. " said Jitendra Khiatan of Pioneer Properties.
Yet, not many consider investing in Kolkata. The reason is negative sentiments linked with the business environment in the city, he said.
Some of the areas where investors got good return include prime locations like E M Bypass, Salt Lake, Garia, where property prices recently escalated in anticipation of Metro linkages.
A major reason for the unrealistic land prices is linked to government policy.
Land prices have gone up by more than 50 per cent in many plush localities, as demand remains steady and hardly any new townships have come up in urban and semi-urban areas in city fringes.
The recent land auction by government bodies like Kolkata Municipal Corporation (KMC) and Housing Infrastructure and Development Corporation (Hidco) give a fair idea of the burgeoning land prices in the city. In June this year, KMC sold a 2-acre plot on EM Bypass for Rs 115 crore, making it the biggest land deal in the city so far. The last big land deal was in 2009, when a 3.35-acre plot on EM Bypass sold for Rs 135 crore. More recently, in the IT township of Rajarhat, a 2.5-acre plot for a retail-cum-office complex fetched Rs 51.13 crore for Hidco.
"The value of land has gone up by around 50 per cent in Kolkata, the impact of which will be reflected in the upcoming project. The land supply is reducing, but the demand remains steady and there are hardly any new townships coming up to meet the demand," said Santosh Rungta, a city-based realtor.
Yet high land land prices in West Bengal is not exactly new. Around 2009, in the earlier Left Front regime, government agencies made windfall gains by selling land in prime locations.
For example, three prominent government agencies involved in land deals in and around Kolkata -- the Kolkata Metropolitan Development Authority (KMDA), Kolkata Municipal Corporation and West Bengal Housing Board-- signed deals worth more thanRs 18,000 crore, for over 5,250 acres of land during the period in little over two years. In fact, KMDA was credited with signing deals, worth more thanRs 800 crore with real estate developers on a single day.
One of the biggest hurdles in developing new townships in West Bengal is the the Urban Land (Ceiling and Regulation) Act (ULCA), 1976. According to the Act, the ceiling limit on vacant land in a category ‘A’ city like Kolkata is 7.5 cottah or about 500 square meters.
West Bengal is one of the few states in the country to have a legislation like the ULCA. The move is in sync with the apprehensions of the chief minister. After all, Banerjee had once wondered, "What will happen if someone wants to buy the city?"
The demand for repealing the ULCA was raised for the first time by Godrej Properties chairman Adi Godrej, at an industry meet within the first month of Banerjee taking over as the chief minister.However, much to the disappointment of the developers, urban development minister Firhad Hakim has recently ruled out the possibility of repealing the Act.
"We are not going to abolish the Land Ceiling Act," he said. "Instead, we will give permission to developers for purchase of land beyond ceiling, provided they reserve 30 per cent housing for low-income housing segment."