An attempt to gain a firmer grip on realty

NEERAJ SHARMA

RAKESH AGARWAL

Acquisition of land could become more onerous and time-consuming for private developers.

The regulatory regime in the real estate sector has for long attracted criticism related to the land acquisition process, transparency of the developer community during the project development cycle, and the marketing and sales process among others.

Government authorities and organisations such as CREDAI and NAREDCO have been working on reforms through regulatory changes. The introduction of two Bills in Parliament — the Real Estate (Regulation and Development) Bill, 2013 (RE-Bill) and the Land Acquisition, Rehabilitation and Resettlement Bill, 2011 (LARR) — is a step in the right direction. While focusing on various aspects of real estate, the common objective of the proposed legislations is transparency and protection of all stakeholders.

RE-Bill introduces new layers of regulation such as mandatory registration of projects with the prescribed authority. This authority has procedures in addition to those under existing regulatory authorities, without demarcating the respective spheres. Further, a developer should inform the buyer about the time schedule for connecting the proposed project with various municipal services. The Bill attempts to clarify ambiguous terms such as carpet area, super area and so on, to help buyers make an informed decision.

LARR — which replaces the century-old Land Acquisition Act, 1894 — proposes a unified legislation for land acquisition and adequate rehabilitation mechanisms for those affected. While ensuring that people losing land are adequately compensated, it will also safeguard the land acquirer against unwarranted claims.

A key challenge is to obtain consent of at least 80 per cent of the project-affected families, which includes farm labour, tenants, sharecroppers and those working on the land for three years prior to acquisition and whose primary source of livelihood may be affected. With this requirement, land acquisition would become more onerous and time-consuming for private developers. Moreover, the developers have to provide compensation, rehabilitation and resettlement for the landowners and affected families whenever the land purchased exceeds the prescribed limit. The compensation policy calls for payment of four times the market value of land in rural areas and double in urban areas. This will substantially increase the project cost as land cost constitutes a sizeable component of the total project cost, which will ultimately be passed to consumers.

In addition, the acquisition process involves undertaking a Social Impact Assessment (SIA) study, for which no minimum threshold is prescribed and applies even for minor acquisitions. This would delay developers looking for smaller parcels of land for small- to mid-size projects. The SIA will be evaluated by multi-disciplinary expert groups, and the absence of unified parameters can result in inconsistent assessments by different groups. There is also no time-frame for the completion of SIA.

The positive elements in the Bills include greater transparency and uniformity, which might attract more global players and give buyers reasons to cheer.

Although there are some practical challenges in the implementation of these regulations, they will hopefully be resolved in the interest of stakeholders (customers, bankers, investors, government authorities and developers).

In a country where the real estate sector is already proving to be a key driver of economic growth, with potential to contribute significantly to the GDP, the Government should take a pragmatic approach and a balanced view of the much-needed reforms.

(The authors are chartered accountants)