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High compensation = high property prices

High compensation = high property prices
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First Published: Sun, Aug 07 2011. 08 50 PM IST
In response to farmers’ agitation in the last few years over faulty land acquisition and poor compensation—the Tata-Singur fiasco in West Bengal, Posco in Orissa or the recent farmers’ agitation in Noida—the ministry of rural development is planning to replace the archaic Land Acquisition Bill, 1894. It has come up with the draft of the National Land Acquisition and Rehabilitation and Resettlement Bill, 2011 and has placed it in the public domain till 31 August for comments. If passed, it will replace the existing bill.
But does the draft really address the problem of compensation—the main bone of contention—among others? Though the draft has come up with specific provisions, in the absence of standardization in land prices, they may not have much impact on the actual compensation that farmers get. Says Prodipta Sen, vice-president, marketing, retail and corporate affairs, Alpha Gcorp, a Delhi-based real estate firm, “Though the bill is a first step but the government has to bring in various checks and balances for fair valuation of property price. There is no standardisation on estimating the property value.”
Fixing compensation will be difficult...
Price mentioned on sale deed: According to the draft bill, the value of a land being acquired will be either the value mentioned in its previous sale deed or the average price of 50% of the sale deeds registered for similar land in the same village or its vicinity during the preceding three years. The higher value will be given at the time of acquisition.
A sale deed usually mentions the prevalent circle rate, the minimum price at which property can be bought in a particular area, as well as the actual price at which land is sold. Typically, there is a huge difference between the circle rates and the actual price of land since circle rates are not revised quite often. For instance, circle rates in Gurgaon’s DLF Phase IV and V is Rs 65,000 per sq. yd, while the prevailing market rate is around Rs 1.2 lakh per sq. yd.
But the difference is not so huge in rural areas, where awareness among farmers about prevailing market rates is low. “Because the government machinery is not fast enough to regularly revise circle rates in rural and semi-urban areas, chances are that estimation may go wrong,” says Ashutosh Limaye, head research and REIS, Jones Lang LaSalle, India, real estate consultants.
Reaching market value: The draft bill also says, “In case of urban areas, the award amount would be not less than twice that of the market value determined whereas in rural areas it would be not less than six times the original market value.” But the draft Bill is silent on how the government agency will reach the market value of any property.
Since the market values are mentioned on the sale deed, which itself may not be a final measure as discussed above, the whole exercise may not be fruitful. Says Pankaj Bajaj, president, Confederation of Real Estate Developers Association of India (Credai), Delhi-NCR, “Any transactions done at a higher cost in the vicinity in an area may affect the estimation. Market values entered in sale deeds are often not the actual prevailing rates in an area. Remember the recent farmers’ agitation was not about getting the land back but was for the right kind of compensation. Farmers were able to see the mismatch between the rate of compensation and the rate at which the land was priced and apartments were sold.”
Lack of documentation: A more serious issue is non-availability of documents with farmers. Says a Delhi-based developer, who did not want to be named, “Often it is seen that farmers’ land is not registered with any government agency. He holds the land because he has inherited it from his forefathers. There are various kinds of land aggregators and consolidators who try and entice such farmers with cash to sell their land. Easy cash without paperwork lures them into such deals.”
The aggregators then register the land so acquired at a higher price and re-sell it to a private company or even the government at a profit. The benefit in this case doesn’t reach the farmers.
...but it will go up
Though reaching a fair compensation will be a challenge, there are certain fixed factors, proposed by the draft Bill, that will make it better in any case.
The draft Bill proposes that solatium and the value of assets standing on the land should also be added to the overall compensation value. Solatium is a monetary compensation given to alleviate grief and suffering resulting from the loss of property.
The draft Bill proposes the solatium to be 100% of the total compensation, which is higher than the existing solatium in various states. For example, the solatium in case of Noida Extension was around 30% of the total compensation; it will go up to 100% if the Bill comes through.
Also, the Bill has proposed an annuity compensation plan along with the lump sum payment, which will ensure regular income for the farmers for about 20 years. Moreover, farmers will also get a piece of developed land in exchange.
What’s in store for homebuyers?
You as a homebuyer will need out to shell out more when buying a property in such areas. Better compensation for farmers would mean more cost to the government or the builder coming up with a project on the land. Finally, this cost would get passed on to the homebuyers. However, the Bill would work for homebuyers in terms of clear title deeds.
“Since the overall compensation will go up with the implementation of the new Bill, the cost of land will increase. This will put pressure on new acquirers, who will buy land from the government,” says Limaye. Says Sachin Sandhir, managing director, Royal Institution of Chartered Surveyors, India, an independent body on property valuation, “Though in principle the draft Bill is good and addresses the public benefit but on the flip side will lead to an escalation in property rates. How will government agencies reach a market value for the land will be the point of concern?”
However, since it is just a draft and still open to comments, it remains to be seen what shape it takes finally.
devesh@livemint.com
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First Published: Sun, Aug 07 2011. 08 50 PM IST