Land Bill to push up realty prices, hit infra projects & budget housing

Analysts and developers have said the land acquisition Bill passed by the Lok Sabha on Thursday would raise property prices, delay projects and have an adverse impact on affordable housing projects.

The Bill was a negative for the real estate sector, infrastructure projects in ports, airports, and power & manufacturing-intensive sectors such as automobile and mining, analysts said.

The Bill states affected families would get four times the market value of the land acquired in rural areas and twice the value in urban areas; this would increase project costs. Adidev Chattopadhyay, an analyst with HDFC Securities, believes the cost of land acquisition for companies would rise three-four times due to the Bill. “We believe listed realty companies may only be marginally affected, owing to the existing land bank for 15-25 years. However, setting up new projects in the industrial and manufacturing space may face significant hurdles,” he said.

He added complying with the land acquisition Bill and securing the necessary environmental clearances were likely to result in the entire acquisition process for a new project taking four-five years, against the current one-two years in cities such as Mumbai.

CRISIL Research expects land prices to increase, as expectations of land owners would now be more. “The land acquisition process will be longer and the project-gestation period will increase. Currently, the proportion of supply (which comprises projects spread over more than 50 acres) to total planned supply in the top 10 Indian cities is 25 per cent,” CRISIL Research said in a note. The Bill is applicable on acquisition of more than 50 acres in cities and 100 acres in rural areas.

Rajeev Talwar, group executive director of DLF, said, “We already have huge land parcels. But if it will make land acquisition difficult and time-consuming, the value of the land will go up and ultimately, impact prices.”

Sunil Rohokale, managing director of ASK Group, a Mumbai-based asset management firm, said, “If you pay two or four times the market value of a property, depending on where you buy, land costs would go up, which would increase the price of the end-product.”

Budget housing to be hit
Many have said the Bill would have an adverse impact on affordable housing projects in the country. “Land costs in power projects are three-four per cent of overall costs. But in housing, these are substantial. When land costs are high, affordable housing is not possible,” said Niranjan Hiranandani, managing director, Hiranandani Constructions.

Sanjay Dutt, managing director of global property consultant Cushman & Wakefield, said the government should have given additional development rights to developers for paying higher land prices to farmers. “Now, a lot of affordable supply would be impacted. If you give four FSI (floor-space index), developers think they are paying more for additional developable space,” Dutt said.

FSI refers to permissible construction on a given plot of land.

The Bill states the consent of 80 per cent of land owners is required for private projects, while that of 70 per cent is needed for projects built through public-private partnerships. Dutt said this provision would delay the land acquisition process and, therefore, projects. “As land titles are not clearly documented in our country, it would take quite some time to change the current situation. The Bill is expected to add to the cost of a project substantially, as the expected time taken for acquisition would increase, delaying the entire process,” he said.