Land Acquisition Bill may push up property prices 30%

Real estate developers say the passage of the Land Acquisition Bill could push up property prices by as much as 30% in projects where land is yet to be acquired.

The Bill, passed by the Lok Sabha on Thursday, aims to provide higher compensation of four times the market value for land sold in rural areas and twice the market value for land in urban areas, among other benefits to land owners.

While developers agree that the Bill will increase transparency in land deals, they say the higher compensation to land owners could make several real estate projects unviable. While large projects of over 50 acres will become difficult to execute, even prices of smaller parcels of land that do not come under the purview of the Bill could double, they add.

"The process of acquiring land for projects will become tedious, especially in the case of large land parcels," said Lalit Kumar Jain, chairman of Confederation of Real Estate Developers Association of India.

Developers say the worst hit could be lowcost and budget housing projects. "The idea of low cost housing was to get cheap land. If land prices shoot up, so will the prices of the finished product," said Niranjan Hiranandani, chairman of Mumbaibased Hiranandani Group.

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012, will replace the Land Acquisition Act of 1894. It needs clearance from the Rajya Sabha and the President to become law. Besides ensuring fair compensation, the Bill says that land acquisition for public private partnership (PPP) projects will require the consent of 70% of the landowners while private projects will need the consent of 80% of the owners, conditions that will leave little room for forcible acquisition of land. The Bill also says that if the land is sold to a third party, 40% of the profits will have to be shared with the original owners.

According to the Bill, affected "families" would include farm labourers, tenants and workers who have been in the area for up to three years before the land acquisition. Such persons will have to given a job or compensation of .Rs 5 lakh, an allowance of.Rs 3,000 a month for a year, besides other allowances as part of the rehabilitation and resettlement (R&R) package.

This means that a private company acquiring land will have to first seek the consent of 80% of the land owners before approaching the government to acquire it. Once cleared, it will have to offer an R&R package, too.

One of the amendments to the Bill allows a buyer to leas land, instead of buying, as suggested by BJP leader Sushma Swaraj. "For the real estate industry, the addition of R&R component will be a big financial burden," said Sanjay Dutt, executive managing director of South Asia at Cushman & Wakefield.

The Bill has drawn protests from developers, who maintain they always ensure full consent of the seller in any land deal. "A willing buyer and a willing seller should be exempted from the Act, as in such cases there is always 100% consent and the best market price for the land is paid," said Rajeev Talwar, group executive director at DLFBSE -1.26 %.

"Going through the government compulsorily will only add to the cost and time taken and will put unnecessary burden on the buyer. The government should rather make it easier for the private sector to operate." To insulate against any increase in land price, several developers have adopted the joint development model, where landowners and developers share profits as well as risks.

For developers, the cost of land is expected to increase significantly, impacting project cost and margin.