Saturday, 27 April 2013

Proposed Land Bill Will Stymie Growth

Experts say that the Land Acquisition Bill, if passed in its current form, would slowdown urbanization in the country and hamper the growth of the economy. 

The proposed Land Acquisition Bill is likely to affect the implementation of most of the real estate projects including housing projects. Experts and developers say that if the bill is passed in its present form, it will not only increase the cost of a project but would also prolong the time required to implement the project. 
In fact, experts say that the bill, if passed, would slowdown the planned urbanization and hamper the growth of the economy. 
 In modern times, cities have emerged as engines of growth and the availability of land is very crucial in this development. According to FICCI, an industry association, the average time required for acquiring land for industry will be six-seven years, since there are a number of steps that have been added to the whole process of land acquisition. The provisions of the bill will be applicable in cases where land acquisition is 50 acres or more in urban areas or 100 acres or more in rural areas. Cushman and Wakefield, a global consultancy firm, says that the compensation for land acquisition after the bill is passed will at least double in urban areas and will go up by four times in rural areas. Further, the clause of mandatory consent of 80% of the landowners for private projects, and mandatory consent of 70% of the landowners for public-private-partnership projects will delay the process of land acquisition, and the projects in turn. 
But the worst is the provision for leasing out the land to industry by landowners. FICCI said that the provision should have been discussed with the industry before being included in the bill. But neither the standing committee nor the government had earlier suggested the ‘lease’ as an option under the bill. 
FICCI says that on the one hand a lease may significantly reduce the front-end outlays, as the total compensation will not have to be paid up front, while on the other hand it has got uncertainty factor attached to it. It said leases have inherent uncertainty regarding renewals, particularly when the period is short. A lease may restrict flexibility over development and operations, adding further to the uncertainties. Also, leased lands will impact mergers and acquisitions, as there are obvious limitations to the automatic transmission of leases in rearrangements. The bill continues to prescribe for consent of 80% of “affected families” for acquisition for private-sector projects and 70% for PPP for the defined public purpose. FICCI said that “affected families”, and not the landowners, have been made the basis of consent requirement in any acquisition. The definition of “affected family” includes agricultural labourers, tenants including any form of tenancy or holding of usufruct right, share-croppers or artisans who may be working in the affected area for three years prior to the acquisition, whose primary source of livelihood stands affected by the acquisition of land. 
This definition of project-affected families is too wide and it would be practically impossible to identify the genuine families affected and obtain their consent. 
The bill not only wants the industry to pay for compensation for land to landowners but also for the relief and rehabilitation (R&R) of the affected families. Compensation and R&R, as per the bill, will raise the cost of acquisition by six to seven times for the industry, FICCI said in a paper. 
Further, in case land remains unutilized after acquisition, the new bill empowers the government to return the land either to the owner or to the state land bank. The period for the return of unutilized land has been reduced to five years in the bill, from the earlier stipulation of 10 years. 
Now, in case of infrastructure projects like industrial corridors, the project does not take off before five years because of problems in clearances. So, the definition of “unutilized” needs greater clarity; also, five years could be too small a time period for many infrastructural projects, depending upon the definition adopted for “unutilised” land. 
Further, where acquired land is sold to a third party for a higher price within 10 years of the acquisition, 40% of the appreciated land value (or profit) will have be shared with the original owners. This comes at the top of the already increased R&R and compensation amount to be paid and will create problems in tracing the original landowners after some years. 
In these circumstances, Cushman and Wakefield says, besides housing projects, urban infrastructural projects are the ones that will receive the sharpest blow. In many instances, this rise in input costs is likely to make many projects unviable. 
The growth of Indian economy is largely dependent on infrastructural development, which the government cannot take up singlehandedly; cooperation of the private sector becomes inevitable. But, the consent clause in the bill will delay the start of projects and impinge on their viability, C&W says. 
Om Chaudhry, the founder a n d CEO of FIRE Capital, says that land acquisition is the most critical factor in real estate development and any dislocation here would create a lot of downstream issues in urban development and hence the country’s economic growth. 
“The state has gradually reduced its involvement in real estate development over the years and the private sector has acquired lands on market terms and carried out the necessary development to expand our urban city infrastructure in order to cater to the needs of the fast expanding urban population. The government should suggest a practical and feasible rehabilitation and resettlement policy,” Chaudhry says. 
Harsh Trehan, the CMD of Trehan Home Developers, says: “Homebuyers will be the most affected party (if this bill is passed) as the developers will have no option but to transfer the entire cost increase upon them. It will be a big setback for the housing sector, especially low-income housing where the shortage is maximum. It may also jeopardize the slum rehabilitation and resettlement schemes.” 




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