The chambers may have cheered it but as businesses read the fine prints of the draft Land Acquisition Bill unveiled on Friday, they realise that acquiring land will no longer be the same. Their land costs will shoot up sharply and acquiring land will become difficult. Worst, industry fears that people may try to artificially inflate land prices.
The draft Land Acquisition Bill seeks to enhance compensation for landowners by six times in rural areas and two times in urban areas, provides annuity-based payment for 20 years. ‘‘Land is an input. If you increase its price by 6 times, how can the output be competitive," said Navin Raheja, chairman, Assocham Real Estate Council.
Surender Kapur, chairman of Sona Group feels if the bill is passed in its current form, it could hamper industrialisation at a time when India is at a 'take off' stage. ‘‘While 'farmers' need to get a fair value, to say that they should get six times the average price in the area in the last three years is ridiculous,’’ he said.
‘‘This only means that we will throttle the supply side and fuel inflation, something no government can afford. It will make new projects unviable and give unfair advantage to existing players with surplus land,’’ he said. In automobiles, the trend is to have vendor parks next to a car plant; vendors will find it difficult to acquire land on their own.
The worst-hit would be the real estate industry, where land accounts for 30-40 per cent of project costs. Higher land costs will increase home prices by 30 per cent, estimates Raheja. ‘‘Who’s going to pay? Real estate has become expensive, and only a limited number of people can afford to buy,’’ he said. A spike in interest rates has hit home sales while a squeeze in lending has forced builders to find other sources of funds.
The Land Acquisition Bill says that land owners will get six times the average sale price for similar land in the village or vicinity in the last three years, ascertained from 50 per cent of sale deeds in the last three years, where higher price has been paid or whichever is higher. Industry fears that speculators can use this to inflate land prices by registering a land parcel at a higher price, which will become a benchmark.
‘‘If someone is privy to a government scheme (master plan for a town), they could buy land and register it at higher price. In India, everyone is a speculator. An investor could buy an acre of land for Rs 1 crore, and register it for Rs 3 crore. When an industry goes to acquire land, it will have to pay six times the price or Rs 18 crore,’’ Raheja warned.
‘‘The new Land Bill will have serious implications for the real estate industry, which is going through tough times. Instead of balancing the interests, it appears too lopsided in favour of farmers. It will become difficult for industry to acquire land, if you look at the appreciation clause,’’ said Sumes Dewan, partner at law firm Fox Mandal Little.
As part of the resettlement and rehabilitation (R&R) package, if any land is sold within 10 years of the date of acquisition, 20 per cent of the appreciated value shall be shared with the original owner whose land has been acquired. ‘‘This will push up the cost of acquisition. Many of my clients are very worried,’’ said Dewan.
The Bill has also derailed land deals which were in the works. Isreal-based Fishman Group, which is investing in a 600-acre project near Jaipur, had sealed the price for acquisition. With the new bill, the whole costing will go for haywire, and it will also have to look at R&R. The Bill could also change the way land is acquired in India.
Foreign companies can’t direcly buy agricultural land. So, land is bought by local developers or consolidators, who facilitate the change in land use (from agriculture to residential or industrial), and sell the same or form a joint venture. The new land bill will require the consolidator (the first purchaser) to develop the land. ‘‘The government has not given it much thought nor taken any feedback from the industry,’’ said Dewan.
Higher land costs will push infrastructure and power costs, which will have to borne by end-users. Assume the prevailing price of land in a rural area is Rs 30 lakh per acre. If the government goes to buy land to set up a power project or a sub-station, it will have to pay 6 times the price or Rs 1.80 crore per acre. The industry has to ammortise the cost over the life of a project, and this will get passed onto consumers as higher tariff.
