New Delhi: Maharashtra has scrapped its three-decade-old law that artificially kept land from becoming available for development, prompting real estate experts to predict that large tracts of prime land will become available in places such as Mumbai, which has India’s most expensive real estate.
Even though it isn’t likely to have an immediate impact on land availability or put an end to rental and sale prices that have soared in recent years, the repeal of the Urban Land Ceiling Act by the state’s legislature was applauded by developers and investors.
The Bombay Stock Exchange’s realty index rose 1.54% on Thursday even as the benchmark Sensex only rose 0.34%.
Maharashtra was one of the few stragglers among Indian states that had not repealed the Act. Communist-ruled states Kerala and West Bengal are among the last hold-outs while Andhra Pradesh, which has also not repealed the Act, has relaxed most of the restrictions under the Act.
Some experts also suggested the state’s move could be a precursor to the repeal of the Rent Control Act in Maharashtra, another pre-condition for states to be eligible for funds from the Rs50,000 crore corpus of the Jawaharlal Nehru National Urban Renewal Mission.
However, V.K. Phatak, former chief town planner at Mumbai Metropolitan Regional Development Authority, says that the repeal of the Rent Control Act might be not as easy, given various “political considerations”.
Rent controls artifically keep rents low, which, in turn, means many landlords don’t reinvest in properties. Mumbai, for example, is replete with such seemingly dilapidated buildings.
Pranay Vakil, chairman Knight Frank India, a real estate consultancy firm, put the amount of land that will be freed and come into the market across Maharashtra to be between 15,000 and 17,000 acres (6,000-6,800ha) over the next three to five years.
Maharashtra chief minister Vilasrao Deshmukh had previously suggested that the Act’s repeal could free up some 1,234 acres of land available for development in Mumbai alone. Pune, Nashik and Nagpur will also benefit from the move.
The immediate impact of the repeal of the Act would be felt in land prices rather than residential and commercial buildings, predicts Kumar Gera, chairman of the Confederation of Real Estate Associations of India, the apex body of real estate developers in the country. “The land prices will feel the impact in two to three weeks,” he claims.
Prices of real estate in Mumbai are skyrocketing because of short supply of land. Rentals in the city have risen 55% in the last one year and are now higher than in London, New York and Tokyo, said a recent CB Richard Ellis survey.
“However, that does not mean lower prices for the end users,” says Anuj Puri, chairman Jones Lang Lasalle Meghraj, a real estate advisory firm. “Since most of the land is in private hands, it is not likely to come into the market all at once as the developers would not want to create a glut. We expect just enough land to be released into the market to meet 5% of the demand each year,” said Puri
Adi Godrej, chairman of Godrej Group, one of the largest land owners in Mumbai, welcomed the move, but declined to say whether this would alter the group’s realty plans. The Godrej family owns 700 acres around the Vikhroli suburb that has been embroiled in disputes with the state.
Rahul Chandran in New Delhi contributed to this story.