Repeal and rejoice?

SPECIAL REPORT/ The celebrations on lifting of ULCRA may turn out to be short-lived

The long-awaited repeal of the Urban Land Ceiling and Regulation Act (ULCRA) is finally here. Stock prices of Mumbai-based real estate developers shot up 10 per cent plus over the week. Among the important cities of Maharashtra that were under the ULCRA include Mumbai, Thane, Pune, Nashik and Nagpur, along with a few others.

Those who owned significant amounts of land parcels in these cities are certainly going to benefit from the lifting off of the law. This includes the likes of the Godrej and Wadia groups, a number of defunct textile mills and those developers who hold the power of attorney to conduct development on such land parcels.

Evidently, the stock prices of companies like Bombay Dyeing, Godrej Industries, Phoenix Mills, Ruby Mills and Shree Ram Mills have been zooming for the past week merely on speculation about their real estate holdings.

The question is what would be the nature of the impact of this move? Would it really hold the rising real estate prices in the city and the neighbouring areas? More importantly, will the demand-supply gap narrow down? There are both the hopefuls and the sceptics.

"More land will be released for higher construction activity in the city, which may result into the demand-supply situation to move toward equilibrium. This may have some impact on pricing, but we are certainly looking at a 12-24 month window for any tangible impact to be seen," says Ritesh Vohra, director-investments, Saffron Asset Advisors, a real estate fund. He further warns, "Any shift in pricing of real estate is likely to remain micro-market and location-specific, and may not affect the broad trend in pricing across the market."

On the other hand, Ramesh Jogani, managing director and chief executive officer, IndiaREIT Fund Advisors says, "There isn't likely to be any impact on real estate prices since only a marginal amount of land will be released for development, which is minuscule compared to the demand in the sector. However, this may stabilise prices in rest of Maharashtra."

Considering the situation, we can come to a few conclusions. The increased supply of land, even though it may be marginal, is likely to create robust development pipeline for real estate developers in these cities, for one. Second, with the legislation being removed, real estate developers will be saved of the pain to get a number of approvals and as a result the delay in launching new projects will be cut short.

This is likely to save the developers anywhere in the vicinity of Rs 100 per sq ft, according to industry estimates, slightly fattening the developers' margins. Finally, if real estate prices are to ease, the fervour may return to realty shopping as properties may come back well within the reach of the genuine buyers' budgets.