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Need for scientific land valuation to curb realty conflicts: study

Study has has analysed price trends over 30 years using 680,000 primary transactional data

Mansi Taneja  |  New Delhi 

Gujarat and Andhra Pradesh are the only two states which have shifted to new methods of measuring land through while the rest of India is still following decades old model. However, the pricing model is still the same across the country, which was formed about 30 years back, according to a study released today by a Delhi-based think-tank Thought Arbitrage Research Institute (TARI).

The study, ‘Fair Pricing of Land and its Compensation in an Emerging Economy: Case for India’, which has analysed price trends over a period of 30 years using about 680,000 primary transactional data, is significant n the backdrop of the recently cleared legislation on Land Acquisition.

A lack of a scientific basis in land pricing in India has led to arbitrariness resulting in social conflicts between land owners, marginal farmers and tribals living off the land and the acquirers being government, industrial groups and developers, pointed out the study.

There is a need for comprehensive valuation model in rural and semi urban India for reducing pricing conflicts in the face of growing industrialization. “With transactions shifting towards interior of India from urban, there is an undervaluation of land prices due to information asymmetry between buyers and sellers which gives rise to conflict on a later date, when it emerges that the sellers may have taken advantage of the lower price,” the report says.

For instance, in Mandla, a backward district of Madhya Pradesh, such transactions are pervasively undervalued, raising a potential for future conflicts. In developed land market, sellers normally sell at a lower price than the fair.

The study, which comes after the Land Acquisition Act, offers a workable solution towards reaching a fair value of land, based on economic and other factors in a region.

The model recommended is based on about 18 factors such as size of the holdings and inflation, the type of land, fertility of land and irrigation, level of industrialisation and urbanisation of the districts in which the land is located and location factors such as distance of the land parcel from railway station, major road, main town in the district amongst others.

Currently, the government follows a pricing model based on fixed circle rates. Though the circle rates are expected to be revised every now and then to take into account inflation and other variations, the study says that the circle rates do not move in tandem with the inflation rates over the years.

The study also said the amount offered by the government led acquisitions is between the free land sale transaction value, which is grossly underpriced, and that predicted by the model in the study.

In most cases, it was less than half of the predicted fair value. This happens as the base for pricing is circle rates, which is largely unidimensional and based on under reported data.

Where Africa is lacking

Only 10% of Africa's rural land is registered and land administration is inefficient; China's coercive land switches have limited role of markets in acquisitions

Sub Saharan Africa is home to nearly half of world’s usable, uncultivated land but so far the continent has not been able to develop these unused tracts, estimated at more than 202 million hectares, which if done could bring down poverty and boost, growth jobs and economic prosperity.

With only 10 per cent of Africa’s rural land registered, inefficient land administration means that it takes twice as long and costs twice as much to transfer land, compared to industrialised countries and weak governance is the leading cause of for corruption in the land sector.

Surging food commodity prices and FDI have increased the potential return on investment in effective land administration through higher agricultural yields and better market access and prices. Most African countries already have the basic land laws in place that recognize customary land rights and gender equality which are essential to reinforce needed reforms.

What China is doing

China has engineered the most extensive scale of land switch in the world in the past few decades. Unlike the cafeteria approach espoused by India, this process has been fully coercive. This has automatically restricted the role of markets in the acquisitions.

China’s compensation principles have unique characteristics. For example, property title exchange is a barter based compensation method that fits the ideology of a socialist country.

The biggest problems with the current compensation principles include the non-existence of a just terms compensation principle in compensation laws, limited consequential financial loss payments, no concept of interest in land,no right to claim compensation, lack of a market value definition, non-uniform compensation standards and a lack of transparency.

Efficient use of land in China has emerged as a key focus area for China. There is a growing recognition within the policy circles in China that the country’s new urbanization drive should shift away from the previous reckless expansion of urban area towards efficient use of available land.

First Published: Wed, January 22 2014. 12:30 IST