Land Acquisition Act (LARR 2013)

 After a hiatus of about 120 years, Government of India has finally brought in a new bill in Real Estate sector:

“The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013” (LARR)

This bill has a lot of changes, improvements & additions over the existing Land Acquisition Act of 1894. And as the name suggests, LARR primarily caters to the issues of rehabilitation & resettlement on top of land acquisition norms. To understand the bill clearly, let’s first see what the older Act was all about.

Land Acquisition Act, 1984

The Act of 1894 was focused on the providing compensation to the owners of acquired land for any of the following Public purposes:

• Village/town development
• Habitation for landless people
• Education development by either state or authorities like society/co-operative societies
• Development of a government corporation

Issues with Act of 1894

This Act had provision of acquiring the land only by the government or government-allied agencies. There was large scale critic of this Act and a demand to bring in new law due to several issues. Some of them are:

• The Land Acquisition Act of 1894 did not speak about the rehabilitation and resettlement of the displaced landowners
• The compensation paid to the landowners was not appropriate in some cases and over-valued in others
• Many a times, the ‘Public purpose’ was questioned to be genuinely public
• There was no provision in favor of landlord if the acquired land was not used for the purpose for which it was acquired or resold after appreciation in the value
• There were issues while acquiring land for PPP (BOT) projects by Private agencies

To do away with these and several other issues, LARR was formulated and approved in the Parliament in September 2013. Let’s have a simplified overview of LARR.

Land Acquisition, Rehabilitation & Resettlement Act (LARR 2013)

LARR is an enhancement and revision of the Land Acquisition Act of 1894. Like the older Act, LARR also lays protocols for compensation in lieu of the acquired land for Public purpose projects. The definition of Public purpose projects has been modified though. According to LARR, now the land can be acquired for following purposes:

• Development of villages/habitation area for landless/displaced people
• Development of government hospitals & infrastructure facilities like educational institutions, hotels except the private undertakings
• Development of government owned/affiliated tourism, sports club, space programs, cold storages, processing units and manufacturing units
• Purpose of national defense & security
• Other government administered projects for the development of region

Salient features of LARR

• Provisions for Rehabilitation & Resettlement of displaced land owners of acquired lands apart from the compensation awarded
• A one-time subsistence allowance equal of Rs. 36,000; construction of a new house in urban land if the house of the owner is lost
• Award of livelihood job, transportation costs and a series of other compensation benefits over the land valuation
• Minimum 80% landlords’ consent for the acquiring area by Private firms & 70% in case of PPP projects
• Clause of safeguarding the climatic aspects by monetary compensation in case the land acquired belongs to a cultivable belt of multi-cropped or single-cropped region
• Compensation to the tune of 400% of market value in rural areas to 200% in urban regions
• Assessment study of Social Impact & notification of acquisition intention by the developer
• Provision of paying the landlord, a sum equivalent to 40% of the land price appreciation, if the land remains unused and sold after 5 years of date of acquisition
• Fixing the timelines and enforcing more strict guidelines of acquisition
• Formation of governing committees at 3 levels: Centre, State & Project Level

Issues with Act of 2013

Many activists, industrialists & people advocating vote in favor of manufacturing sector have raised following concerns against R&R:

• R&R will halt the growth of Indian economy by discouraging the infrastructure projects by PPP projects
• The new Act will give undue power and advantage to agricultural sector and will result in cartelization against industrialization
• Ambitious projects like DMIC, East-West-North-South Road Corridor etc., which require large scale land acquisition will come to a standstill
• This Act is just to generate a vote bank from farmers living in the rural India
• FDI in Real Estate will be deflected to neighboring nations who provide cheaper and hassle-free acquisitions for Infrastructural projects
• Land prices will decline as sellers will not be able to find buyers

Our Views

After a lot of discussions and brain-storming over the above mentioned Act, we at RealT Horizon have come to following conclusions:

• LARR provides unmatched compensation benefits, monetary & non-monetary, to the landowners. So much so that rather than opposing the acquisitions, landowners will now look forward to one so as to make easy fortunes for rest of their lives. Ideally this should not be the case as this will also hamper the Nation’s productivity.
• From the point of view of Manufacturing Sector, there could not be a worse Act for them. As explained above, this sector will experience the most severe blow by this Act. The project costs can increase from 9% to 110% in some cases.
• But one has to agree that in the existing scenario, there is no way out that landowners can raise their concerns of land acquisitions. Developers and Government have already exploited the owners for a very long time and with the advent of this bill, at least this will come to an end.

As per our philosophy of looking at the Real Estate from a new angle we believe that this bill was necessary, but with some lenient clauses. R&R will way too much affect industrialization, which is the prime need of the hour for the nation.

------ Thanks for reading RealT Horizon :) ------

Bhiwadi – the next Gurgaon?

A lot of buzz is made around Bhiwadi as being an investor’s paradise. We thought of looking at it and share our views on the same. Here we go! We first heard about Bhiwadi from a close friend, a transport fleet owner. He proposed Bhiwadi as one of the best places to invest, about a year back. Let’s see what has been the price trend in property in last one year.

Source: www.makaan.com

The above chart depicts the trend of real estate prices for last 12 months in Bhiwadi. It shows a handsome growth of 13.72% YoY in the prices. So prima fascia our friend’s suggestion looks appropriate. Let’s now dig deeper in its details.

What is going positive for Bhiwadi?

There are several things working in favour of Bhiwadi at the moment. Some of which we could make out are:

Current Price Range	One thing to note from the above analysis by www.makaan.com is the price range, which lies comfortably between Rs. 2,200/sq.ft & Rs. 2,800/sq.ft. At this price range, it is extremely affordable and convenient for a small & medium investor to make the investment & one can expect a decent to good returns in the short term as we explained in our last post.
Strategic Geo-location	Bhiwadi is located at a small offset from NH-8, one of India’s most important National Highways. It connects New Delhi & Mumbai, the most important trade hubs in India. This location paves way for an enormous industrial growth in the region. Bhiwadi is making full out of this opportunity.
Proximity to NCR	Bhiwadi is located in Alwar district, Rajasthan at a distance of 50 kms from NCR (National Capital Region), Delhi. This proximity makes it an ideal home destination for the working middle class of NCR & Delhi.
Support by RIICO	Rajasthan Industrial Investment Corporation (RIICO) is taking every possible step to harness the growth potential that Bhiwadi is showing. New industries & corporations are being invited and SEZs are being developed in and around Bhiwadi to boost the economic growth of the region. It is a fast emerging Tier II city in Rajasthan.
Decline of Dharuheda	Dharuheda, another major industrial hub located in Haryana is just 10 minute drive from Bhiwadi. The non-cooperation by Haryana government in the development of Dharuheda is giving opportunity to Bhiwadi for development. Industries are now moving to Bhiwadi from Dharuheda where the land prices have already soared to more than 200% of that in Bhiwadi.
Positive Sentiments & Word-of-mouth Publicity	This is one aspect that is helping Bhiwadi the most in the current scenario. On every discussion forum, news articles, investors’ guides etc., Bhiwadi is getting only praises. Also the brokers and the investors favor investment in the town over any other place. This is one region that new investors are rushing to grab their piece of land in Bhiwadi.

Source: Indiatimes

Can Bhiwadi become the next Gurgaon?

If we look at the growth story of Gurgaon, it has emerged from rags to riches in a period of 15 years. The sole reason behind its success is industrial & real estate development. From what we can see in Bhiwadi, it looks like that it is also running on the same track as Gurgaon. The industries are growing like weeds and the town also lies on a node of upcoming mega development project DMIC by Government of India.

The only threat that we can see in front of Bhiwadi is the Master Plan of Gurgaon, which intends to smoothly take away the advantage from Bhiwadi. Also the now-quiet lion - Dharuheda can be a cause of trouble for Bhiwadi.

But looking through a bird’s eye view, Bhiwadi is on its way to next Gurgaon, in next 10 years & one can easily expect a property growth rate of around 15-20% per annum for next 5 years in Bhiwadi.

A NEWS article showing the potential of Bhiwadi to become a World-class city

Closing Thoughts: Bhiwadi offers an excellent investment opportunity for small investors and if you are looking forward to double your money in few years’ time, get your tickets done for Bhiwadi!

                              

                                  ------ Thanks for reading RealT Horizon :) Happy Investing ------

High Priced or Low Priced: Which one should I go for?

Many often, we come across this dilemma when we wish to make an investment, not only in Real Estate, but even while investing in Equities and Bonds. Let us try to decipher this confusion.

Define a Time Horizon

The first thing you should do is to decide is the time window you are looking at while making the investment. The decision of high/low valued assets will follow your time horizon. We typically define the windows as follows:

1-5 years: Short-term Investment

5+ years: Long-term Investment

Everything has a Limited Upside

This is one fact that you should imbibe in your thoughts if you want to be a successful investor in any asset class, real estate included. You cannot count indefinitely on the increasing prices and trust that they will keep on increasing forever. There will be a stage when the price movement will virtually halt and the growth rate will shrink manifolds.

The Decision!

Once you have decided your time frame and imbibed our above advice in your wits, it’s time to take the decision. Check the analysis done below:

Here we are taking an assumption that the upside for High Priced property is 10 years & for low priced, it is 7 years. This is justified because generally the high priced property is more sustainable as compared to the low priced property.

	Initial Investment	Initial / Long Term Growth Rate (%)	Short Term (1-5 years)	Short Term Returns	Long Term (5+ years)	Long Term Returns	CAGR
Low Priced	$ 100,000	13 / 8	$ 163,047	63.05%	$ 190,178	90.18%	7.40%
High Priced	$ 1,000,000	8 / 8	$ 1,360,489	36.05%	$ 1,999,005	99.90%	8.00%

As is apparent from the above analysis, the Low Priced Property yields more returns in short term and comparatively lesser returns in the long term as compared to the High Priced Property.

With this illustration, this discussion comes to a conclusion:

Low Priced  :	Short Term
High Priced :	Long Term

Disclaimer: The above analysis holds good for most of the cases, but not all. Hence it is advisable to take an informed decision before making any investment.

------ Thanks for reading RealT Horizon J Happy Investing ------