The Times of India (Times Property), Pune - December, 2007

The ULC repeal will help rationalise prices, but further proactive measures are needed to achieve the goal of affordable housing, says Padma Ramakrishnan

Three decades after the Urban Land Ceiling and Regulation Act [ULC] came into being, it has finally been repealed. The housing industry, which had been asking for this for a long while now, is rejoicing. The State government has, through this move, helped release huge tracts of land, which would result in increased supply and reduction in prices.

  Though a belated move, end users, particularly middle and lower middle class home buyers will stand to benefit. “The move will be good for the housing industry, developers and end users,” says Kumar Gera, MD Gera Developments and Chairman, Confederation of Real Estate Developers Association of India.

 “A major hurdle has gone. It’s the first step forward, but we have miles to go,” adds Lalit Kumar Jain, Chairman, Kumar Builders, and President, Promoters and Builders Association of Pune [PBAP]. Currently, land prices and infrastructure are the major challenges. Going forward, the government has to be proactive to promote housing for all.

On an optimistic note, developers like Sanjay Mirchandani, CEO, Mirchandani Group and Hemant Naiknavare, Director, Naiknavare & Associates believe the step would go a long way in helping the state regain its numero uno position. It would help in boosting foreign investment flows, infrastructure development and middle-class housing, they say. The strength of Pune is a combination of demand from the IT, manufacturing and education sector. “The scrapping of ULC will help keep a sustained delivery mechanism, which will help the prices to remain stable. The last two years have seen prices go up by 100%, which is undesirable,” states Naiknavare.

FDI, which was looking to come in a big way to Maharashtra and cities like Pune, Nashik and Kolhapur, was holding back because of the ULC. The move would also help the government in terms of increased stamp duty, as builders would now prefer to buy lands and get the conveyance, rather than getting into development agreements with land owners.

ULCRA was passed in 1976 with a view to preventing concentration of urban land in the hands of a few persons and speculation and profiteering therein and for bringing about an equitable distribution of land in urban agglomerations to subserve the common good. However the Act was a classic piece of socialistic monstrosity seeking to control supply and thereby the price of land and thus failed miserably to achieve the objective it was meant to do so.

   Advocate Ahmad Abdi says any restriction needs to be removed. “The repeal of the Act is a welcome step that will bring in more development and allow market forces to prevail and determine the prices. There will be fair competition. However, I would suggest that a regulator be appointed for the industry, which would keep it in check and prevent unhealthy practices,” he says.

All the pending litigations would now come to an end. This would accelerate the pace of development, which would be a positive development for the residential and office market, which was the very objective of the repeal, states Sanjay Dutt, Deputy Managing director, Cushman & Wakefield. He further explains that the timing is perfect, at a time when we have private equity, national developers looking at Maharashtra, and cities like Pune, Nagpur, Aurangabad. Capital and developers hungry to develop, now have land, the very basis for development. There would now be no more hurdles on land, which will create a better investment climate in the state, and introduce transparency and rationalise the escalating values of real estate.

Developers would not have to wait long to buy land, sell and realise value. They would be able to recover their capital investments faster, and thus bring down their interest costs in borrowing. It would also help land owners realise the full potential value of their property, where earlier there was the stigma attached to properties that came under ULC.

Commenting on the price dynamics, the Promoters and Builders Association of Pune in a statement says more supply will come in following the repeal but without the Development Plan [DP] or master plan being passed for Pune, the availability of land would not necessarily have the desired impact. Developers would need a clear direction from the government on utilisation of land that will be released; that will come only after the DP has been passed. The government needs to also work on improving infrastructure as the housing industry is dependent on it. Only these would help in the objective of providing affordable housing.

The repeal of the ULC will not impact prices of housing units immediately and any impact seen will be about 12-18 months down the line. This is because the additional supply that will be created through the repeal of ULC will have to be purchased, which would take three to four months, after which it would need to go through the planning and approval process which would be a further eight to 12 months. Also, there are other factors that need to be considered, in arriving at future prices including inflation, interest rates, governmental legislation etc that can impact the price of homes.

The land stock that is currently being developed for housing has been purchased prior to the repeal of the Act and as such, the selling prices would factor the purchase price of the land at the erstwhile levels ie in the days of land scarcity. We will therefore not see any reduction in rates of apartments in the immediate future, says Lalit Kumar Jain.

   “We need to wait and watch for the new guidelines and its too early to celebrate,” feels Sanjay Deshpande, MD, Sanjeevani Developers. There could also be dangers of big groups buying lands and creating monopolies, all of which need to be addressed, he says.

The long-term solution is to go in for volumes, which will help everybody flourish, say developers. Anuj Puri, Chairman & Country Head, Jones Lang Lasalle Meghraj says the real estate’s contribution to the national GDP so far has been about 11%; with the scrapping of ULCRA in Maharashtra, this figure will increase substantially.