Maha cabinet cuts red-tape in Mumbai region land purchases; but home buyers need not celebrate

Realtors can salivate. Tens of thousands of hectares of land may soon be unlocked in the Mumbai Metropolitan Region, thanks to a decision taken by the state cabinet on Wednesday (16 June) to streamline the clearance of agricultural lands for developmental activities.

But home buyers need not salivate. Their homes are unlikely to get any cheaper, though the rate of appreciation might taper off.

The state cabinet’s decision means land owners in Maharashtra will no longer need the district collector’s permission to sell agricultural land for non-agricultural purposes as the state cabinet scrapped the system of seeking permission for changing the status of agricultural land to “Non-Agriculture” for land already earmarked in the development plan (DP) for residential and industrial purposes.

In other words,the entire process of acquiring NA status has been brought under one roof, the town planning authority, instead of the collector. Once theland owners have secured the permission of the municipality for their non-agricultural plans, the owner just needs to intimate the collector in 30 days, following which revenue officials will recover a one-time land conversion tax and non-agricultural cess. Earlier, builders were expected to pay upwards of Rs 5 lakh per acre as kickbacks for this change of use.

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The move is aimed at boosting housing and infrastructure since NA clearance for any property takes around 12 months owing to the huge backlog of applications with all collectors and the involvement of multiple departments and which result in project delays and cost escalations.

Currently, people have to go over seven different stages to obtain NA permissions from the district authorities concerned. This procedure is not only time-consuming but also encourages corruption. Now that one stage of the process is done away with, developers breathe a bit easier.

" Obtaining the collector’s nod, which was earlier mandatory, resulted in a lot of time lag and added a huge bribery cost to the price of land. For instance, if a developer had to pay Rs 200 per sq ft for land, the actual cost of land would only be Rs 20 while the remaining would be ‘corruption charges," said an industry official who did not want to be identified.

Underhand payments make it difficult for developers to secure bank funding while purchasing land, pushing them into the arms of private equity players or secondary sources of money, where interests rates are often as high as 25-30 percent.

Developers have often claimed that approval costs constitute 40 percent of the total cost of construction and, if this process can be curtailed, costs would come down significantly.

“The government’s move of doing away with the district collector’s nod is a major victory for developers in the state who will now have to pay less than half the cost for procuring land and this benefit will ultimately benefit the home buyer,” said Pankaj Kapoor, MD of real estate consultancy firm Liases Foras.

This decision will also help land owners who have their agricultural lands at the edge of large cities and towns which are getting rapidly urbanised. So in essence Thane, Navi Mumbai, Kalyan-Dombivli, Ulhasnagar, Vasai-Virar, Nalasopara, Ambernath, Kulgaon-Badlapur, Panvel and Raigad could not only see more supplies in the residential space but price increases in these areas will also be capped.

A press release issued by the Chief Minister’s office said that land holders who are keen to convert their agriculture lands to non-agriculture only have to inform the municipal and revenue authorities by a written application. Besides, a data bank will be created at all district levels for compiling the necessary documents in order to give the relevant permissions in a decentralised manner. So each department will now demand all documents separately from the applicants.

Says Samanthak Das, Director, Research, at Knight Frank India, " The move is a definite positive for real estate players because less government intervention implies a lower transaction cost. Any government intervention in land deals has a rate attached to it. So even if one step is eliminated, the transaction cost for the builder will come down which should be ideally passed on to home buyers."

Das, however, does not expect an immediate price drop in the far-flung areas of Panvel and Thane because of other existing fixed costs. “But now that more supply will be easily released, the future growth of prices will be pushed down. So if you were expecting a 10 percent capital appreciation in Panvel, that expectation will now be truncated to 6-7 percent, but it will not impact current prices.

Anuj Nagpal,MD, investment solutions,DTZ, also has a similar view. “Most of the agricultural land that falls under the residential zone is only in the far-flung suburbs of Mumbai. But the builders are unlikely to pass on the benefits of this to end-consumers and more likely to pocket the gains themselves. However, they may also cut prices in the medium term to push up sales. For Mumbaikars, this news offers little solace,” he told Firstbiz.

However, there are concerns that unrestricted change of land use permissions could result in land grabbing tactics by corporates and realtors.

“The act of doing away with the district collector’s nod is just to prevent redundancy and improve systemic efficiencies. If a land portion is already designated in the development plan for residential use, there is no point in duplicating approvals and delaying the process,” explains Kapoor.

While the time taken to seek approvals will surely be reduced, one cannot term the government’s move as laying down the red carpet for builders in the state. Bribery is not going to die out given the new clauses in the centre’s Lan Acquisition Act of 2013.

In its current form, the land bill specifies the compensation one has to pay- two times the market rate for land close to urban areas, and four times elsewhere. As _Firstbiz_ said earlier, “This is not sensible for it is this clause that interferes completely with market mechanisms in land pricing. Fixing any price always leads to corruption and funny deals.”

But given that the provisions of the Act will be applicable in cases of land acquisition of 50 acres in urban areas or 100 acres in rural areas, most residential, commercial and retail projects will be immune to them as they occupy smaller land parcels.

Says Lalit Kumar Jain, Chairman of the developers’ lobby, Confederation of Real Estate Developers’ Association of India: “The uncertainty in acquiring land will deter developers, especially those developing huge townships. But the land bill as such will not impact private developers because a builder acquiring 100 acres of land is very uncommon.”