The passage of the much debated Land Acquisition, Rehabilitation and Resettlement (LARR) Bill, 2012, through both the houses of parliament, has come as good news for land owners in the long run. Those hit in the process will be developers who will be paying higher prices for land acquisition and passing on the costs to homebuyers.
The bill seeks to provide significantly high compensation to landowners at four times the market value of land in rural areas and twice the market value of land in urban areas. This will lead to increased cost of land, pushing up project costs and, therefore, margins of developers, say experts. Mayank Saksena, managing director, land services, Jones Lang LaSalle India, says that anyone without an existing land bank will now be looking at vastly increased entry costs.
According to CRISIL Research, land prices will increase as landowners will expect higher prices. The acquisition process will get longer and project gestation period will increase. In case of industrial and infrastructure projects, the overall project costs will increase by around 3 to 5 percent. This will impact the viability of such projects.
An immediate reaction, say real estate experts, is that the realty market is frozen. Farmers have already started quoting abnormally high prices for their land, and in the next 18 months, finding any product in the range of R4000 per sq ft could be difficult, even in far-flung NCR areas.
According to Anshuman Magazine, CMD, CBRE South Asia Pvt Ltd, this bill will make it more difficult to acquire land and will act as a deterrent for investment into large township projects.
The provisions of the bill will be applicable in cases of land acquisition of 50 acres in urban areas or 100 acres in rural areas. Thus, the cost of land acquisition will surely go up for all projects irrespective of them being government or private or public-private-partnership (PPP) projects as they will have to adhere to the new norms, says Sanjay Dutt, executive managing director of South Asia, Cushman & Wakefield.
Delays in land acquisition and, subsequently, projects, are also likely to result from the clause of mandatory consent of 80% of owners for private projects and consent of 70% landowners for PPP projects. Those already invested in large parcels of 75 acres and above are in a Catch-22 situation. They will either be forced to finish projects quickly or launch at higher prices.
Anckur Srivasttava of GenReal Advisers says that as far as joint development is concerned, not many would be ready to enter into such a partnership when there is no clarity on land valuations. “How does one arrive at the market value of the property in some areas?,” he asks
Even in areas that have recently been brought under the ambit of various master plans, the bill will lead to confusion because of the ambiguity on account of land being categorised as either rural or urban and the compensation multiplier that will be applicable to it. This could end up negating the master planning efforts due to the unforeseeable land acquisition timelines, Srivasttava adds.