Implementation of the Land Acquisition, Rehabilitation and Resettlement (LARR) Act creates a direct impact upon the affordability of the project and cost of construction. V Suresh, Director, HIRCO Project Companies in conversation with Veena Kurup reviews the impact of LARR Act on realty sector.
The much discussed Land Acquisition, Rehabilitation and Resettlement (LARR) Act came into force on January 1, 2014. How will this implementation affect the realty industry and can this lead to a cost escalation in the construction of residential projects?
The implementation of new Land Acquisition, Rehabilitation and Resettlement (LARR) Act will impact the realty industry negatively and also on the sector’s growth pace. The enforcement of this Act would escalate the cost of land acquisition to four times more than the present value in rural areas, and double in urban areas. Additionally, the prolonged time required for getting all the clearances for land acquisition will further escalate the costs. According to a recent study conducted by CII in the western region, it would range from a minimum of about 48 months to maximum time duration of 60 months to get all the clearances as per the processes identified under the Act. This can be considered as one amongst the prime hurdles that the real estate builders will have to face in the coming years for new projects where large land assembly process is on now. Only after land assembly is done can the builder apply for various statutory approvals and No-Objection Certificate (NOC) – amounting to 50 to 70 clearance points, before commencing the project construction.
What impact will the Act have on ‘Affordable Housing’ segments?
Any process for large land assembly under the new Land Acquisition Act and prolonged period of getting approvals prior to construction will always have a negative impact on the affordable housing segment. The prime reason behind its negative impact is because the issue creates a direct impact upon the affordability of the cost of construction and affordability of the project.
The impact is like a chain reaction, i.e. more the project is delayed the higher will be the cost of construction and financing costs. This will ultimately affect the delivery of ‘affordable’ or ‘budget’ housing. Hence, reducing the time period would need the clearance and approval process to be compressed. A proactive approach needs to be adopted by the governments at all levels of center, state and local, in sync with regulatory agencies, in tackling these grave concerns.