As benchmark indices like BSE Sensex and NSE Nifty dipped 1 percent, the BSE Realty index tumbled 3.7 percent. Real estate developers are crying foul as the cost of land acquisition is likely to surge. However, the stock market is not punishing every real estate development company.
Share prices of DLF, HDIL, India Bulls Real Estate, Sobha Developers, Unitech and Anant Raj Industries have fallen sharply. On the other hand, shares of Oberoi Realty, DB Realty and Parsvanath are trading flat to positive. Oberoi and DB Realty are known for executing redevelopment projects.
A common thread between these companies is the land bank that they own. The new bill puts a restriction on land banking. While the current land parcels could fetch good value, their inability to acquire new land parcels has hurt sentiment.
According to Standard Chartered Bank, the new bill actually favours large players in the space and makes the cost of land acquisition expensive for small players.
Corporate reactions were sore. Arun Nanda, executive director at Mahindra and Mahindra, believed that the bill was too populist while Anshuman Magazine, managing director (South Asia) of property consultancy CB Richard Ellis, thought the bill looked like a "job done in a hurry".
NC Saxena, member, NAC says, "The whole effort has been made to facilitate market transactions. Industry feels that land is available at a very low cost, if they go to government. That is why they come to government. We are trying to facilitate, promote and encourage private sector dealing directly with farmers and get land from them."
You can watch his reaction in this video:
While the bickering can continue that the industry would never accept rising costs for business, it is also important to acknowledge that the Cabinet approval is a step ahead and paves the way for the Land Acquisition Bill to be introduced in the Parliament.
An approval of this Bill does not actually complete the job.
There are more challenges ahead.
*Investment bank JP Morgan said that the Bill is expected to lower approval timelines and minimise litigation risks. Land is a state subject and every state is supposed to make its own law. This would have to be in harmony with the proposed central law. It is important to let states compete with each other for attracting investment.
* Standard Chartered Bank points out that the definition of 'public purpose' for which the land could be acquired needs to have clarity. There is scope for misuse by powers that be while categorising the land acquisition for public purpose. Under the bill, the government could acquire the land if it is for use for public purpose.
* The other contentious issue is the process of obtaining consent of 80 percent of landowners. Lalit Kumar Jain, national president of the Confederation of Real Estate Developers' Associations of India (Credai), was among the most vocal critics. "If I have to take 80 percent consent, I might as well take 100 percent. Why should I go to the government at all? If this bill is passed as it is, GDP growth is bound to come down to 6 percent or less if we are growing at 8 percent." he said in an interview with the Times of India.