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LATEST NEWS UPDATES | Difficult problem, difficult solutions by Ritu Kant Ojha

Difficult problem, difficult solutions by Ritu Kant Ojha

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published Published on Jul 9, 2011   modified Modified on Jul 9, 2011

This is a unique situation. For governments, development authorities, lenders and borrowers alike. On Wednesday, a Supreme Court (SC) Bench headed by Justice GS Singhvi upheld a verdict of the Allahabad High Court that quashed acquisition of 176 hectares of land from farmers in Greater Noida stating that the authorities were “sub-serving” private builders in the name of public interest.

Land purchased from the government was always considered ‘clean’. This verdict, however, has questioned the way land is acquired and the manner in which land use is changed. The rules of the real estate business has been changed forever.

What the Act says

According to the Land Acquisition Act, 1894 (Sections 4 to 9) the government has to notify the land it wants to acquire, invite public response and hold a public meeting. The compensation needs to be paid thereafter and “every declaration shall be published in the Official Gazette and in two newspapers circulating in the locality...invite public hearing and hear objections...and such declaration shall state the purpose for which it is needed...the declaration shall be conclusive evidence that the land is needed for a public purpose or for a Company...”.

In this case, the Greater Noida Development Authority (GNIDA) is accused of denying a public hearing and for acquiring the land by invoking an “emergency” clause ostensibly for industrial development. SC dismissed the petitions filed by the Uttar Pradesh government, GNIDA and the three builders - Amrapali, Mahagun and Supertech - and said that the state was the biggest land grabber depriving farmers of their livelihood.

The financial impact

Experts believe that the area affected does not involve huge financial losses, be it for the developer or the customer. “It is not an insurmountable issue. Most of the customers have paid just 10 per cent as booking amount. The builders involved are in a position to handle this. Had it been a developed property, the impact would have been much harder on both the parties”, said Pankaj Bajaj, Managing Director, Eldeco.

Manoj Gaur, chairman Confederation of Real Estate Developers’ Associations of India (CREDAI), NCR, said, “The government’s acquisition policy has been challenged, and it is the developers who are being penalised for something they are not involved in.” Two of the six developers are carrying a clarification on their respective websites. Mahagun India said: “Mahagun India further likes to clarify that before the honourable High Court of Allahabad in this matter, Mahagun India Pvt. Ltd. (MIPL) was not a party. The matter involves a dispute between government, government agencies & land holders. MIPL is a bona fide genuine bidder for the allocated land for which the company has initiated legal diligence.” Shiv Priya, executive director, Amrapali said that the SC order has resulted in a Rs 100 crore loss, but the customers will not be impacted because 3,500 of them have already been re-located to other projects and some have been refunded their booking amount.

Impact on nearby areas

“After this court order, we will acquire all future land keeping in mind the market price and hence will have to pay higher land prices. The sale prices will increase and consumers will be impacted severely,” GNIDA CEO Rama Raman told PTI on Friday. The developers believe that the entire issue will have a huge impact on consumer sentiments. “For short term there will be nervousness. Some more farmers from other areas may go to court. If this happens, the supply will get restricted and the prices of ready- to-move units will go up”, says Bajaj. Expressing similar sentiments, Rajesh Goel, MD, RG Group said, “We have suddenly seen an upswing in the demand by 10-15 per cent and thus prices have also risen by 5 per cent making the demand supply gap narrow down.”

The experts however advise consumers to take it easy. “It is a time of confusion and whatever price builders in other areas quote is based on speculation. It is better to wait and let some time pass rather than locking oneself to a higher rate,” suggests Mumbai-based financial expert, Suresh Sadagopan.

Impact on funding

The developers in India were already reeling under lack of funds, both from domestic as well as foreign private equity investors. The industry players believe that such news would hit the sector hard, in terms of the sentiments as well as actual fund flows. Sachin Sandhir, managing director and country head-India, Royal Institution of Chartered Surveyors says, “There isn’t much funding coming into the real estate sector. Now whatever funding comes would come with strict terms and conditions. The delivery of the projects were not happening. This will further add pain to the sector.”

Responsibility of GNIDA

“Land bought from government is considered cleanest. If we are even facing problems in that then we need to rethink the entire strategy of land purchase”, says Getamber Anand, managing director, ATS group, echoing the sentiment of the developers. In order to limit their losses, the GNIDA should compensate either by providing alternate land or by refunding the land cost charged from them, said RR Singh, director general, NAREDCO, an industry body. “This is a fault of the policy and not developers. Land registry system requires huge reforms. How the value of land is arrived at is very ad-hoc”, says Sandhir.

Impact on borrowers

“When a borrower signs on a home loan document, s/he is bound to repay the loan irrespective of the fact whether the title is clear or not. There is no protection for consumers in such cases”, says Adhil Shetty, CEO of Bankbazaar. Financial experts suggest that booking a house on barren land is a bad idea. “Over 55 to 60 per cent of the home loans in India are for under-construction properties. This is an enormous risk for the entire financial system”, says Harsh Roongta, CEO, Apnapaisa. Sources in the banking sector indicate that big lenders like HDFC are unlikely to fund projects in this region. SBI on Friday said it will not finance projects involved in any land dispute. Extension of loans for such projects would come down drastically, sources indicate.

The impact on the affected area may be limited, but nevertheless it is a wake up call for all stakeholders to address the issue of land titles seriously.

The Indian Express, 9 July, 2011, http://www.indianexpress.com/news/Difficult-problem--difficult-solutions/814984/


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