In recent times, the real estate sector has seen several regulatory changes and more are in the works. While most of these changes are aimed at protecting buyers' interests, some of them carry a cost.
Here is a look at how they will affect your interests and your pocket.
New Land Acquisition Bill
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012, was passed during the monsoon session of the Parliament. The basic goal of this legislation is to improve the compensation paid to landowners, whose land is taken over for industrialisation, infrastructure development and urbanisation. One key provision of the Bill is that the minimum payment to the landowner will be twice the market value in urban areas and four times in rural areas.
On the positive side, the major grievance of landowners—that they are paid a low compensation in lieu of their land—has been adequately addressed. Says Anuj Puri, chairman and country head, Jones Lang Lasalle India: "Litigation and related costs can be expected to decline."
Fears have been expressed that this legislation will raise the cost of land acquisition for developers and, hence, make real estate more expensive for the end-user. This is only partly true. The provisions of the Bill apply only if the developer is trying to acquire at least 50 acres of urban land or 100 acres of rural land. "Most residential, commercial and retail real estate projects are developed on smaller parcels of land," points out Sanjay Dutt, executive MD, South Asia, Cushman & Wakefield India. So, small acquisitions will be exempt from the provisions of this Bill.
A developer wanting to build a large township will, however, have to bear the brunt of the Bill's provisions. "The enhanced compensation clause and the R&R (resettlement and rehabilitation) clause will have a direct cost implication," says Puri.
The way 'market value' has been defined could also lead to an incorrect assessment of the price of land. "Since the market value will be determined on the basis of registered sale deeds, where the price is significantly under-reported, the Bill adopts an arbitrary multiplier to inflate the value," says Sachin Sandhir, managing director of RICS India, a company that deals in professional qualification and setting of standards in the field of real estate. He adds that for the land market in India to function efficiently, the Bill should have adopted internationally recognised valuation standards.
The Bill also requires that a private acquirer must get the consent of 80% of landowners. Getting the consent of such a large majority is always difficult. "The consent clause has the potential to delay the start of projects," says Puri.
Both higher compensation and delay in acquisition are expected to have a cascading effect on project costs and could lead to higher prices being charged from buyers in large township projects.
Due to the high rate of migration from rural to urban areas, developing a large number of new townships has become imperative in India. This is the only way to relieve population pressure building up in cities. However, as Dutt of CWI says, "The new Bill will make the task of developing large cities more difficult."
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