The Urban Land (Ceiling and Regulation) Act - Finally Repealed!

The Urban Land (Ceiling and Regulation) Act - Finally Repealed!

Poonam Bhana

December 10, 2007

The Maharashtra Assembly, last week, repealed the Urban Land (Ceiling and Regulation) Act (ULCRA) that was introduced in 1976 with the intention of preventing concentration of land in the hands of few and ensuring that lower/middle income groups have access to housing facilities in cities.

The abolition of the Act will:

Make the Maharashtra Government eligible to receive Rs. 110,000 million under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) - The Centre, which repealed the Act in 1999 put a pre-condition to the state governments to repeal the State ULCRA before being eligible for funding under JNNURM. The funds will be used to develop infrastructure and real estate in Mumbai.

• Free up land for development - The Maharashtra government has acquired over 30,000 acres (about 3000-8000 acres located in Mumbai) under ULCRA. This could lead to additional housing development for lower/middle income groups.
• Stabilise (if not lower) land prices - Prices will be affected in areas where land becomes available. However, it will take about 3-5 years before about 4000 acres becomes available in Mumbai. In the short-term, the Act will have some psychological impact and prices will remain stable.
• Faster approval of projects - Developers will be able to commence projects faster by saving about 3 months (earlier required for ULC clearance). They will also save funds spent for the clearance amounting to about Rs 100 per sq foot.
• Simplify land acquisition

ULCRA

The Act covered Mumbai, Thane, Pune, Nasik, Solapur, Nagpur, Kolhapur and Sangli. It restricted private ownership of land in these regions to the ceiling limit while any excess land was acquired by the State Government. This made private players reluctant to develop their land banks and they continued to use them for industrial purposes to avoid implications of the ULCRA.

The repealed Act stipulated the following city-wise ceilings:

Category	Ceiling sq. meters	Cities/Population
A	500	Mumbai, Delhi, Kolkata, Chennai
B	1000	City population > 1 million
C	1500	0.3 million < City population > 1 million
D	2000	0.2 million < City population > 0.3 million

The Maharashtra government has failed to meet the objectives of the Act, and allowed influential builders to obtain land that was released for development. The Act distorted the land market by creating artificial shortage of land, and restricted growth of private developers and increased growth of slums.

Beneficiaries

Several players holding large tracts of land in Mumbai will benefit from the abolition of the ULCRA. These include Godrej, Wadia Trust, Hiranandani, Birla, Ajmera Builders, Wadhwa Group etc.

Also, Maharashtra State bodies like MSRDC (Maharashtra State Road Development Corporation), MHADA (Maharashtra Housing and Area Development Authority) and MMRDA (Maharashtra Metropolitan Region Development Authority) will be able to start projects with fresh money from JNNURM.

Issues

• Clarity on whether the abolition of the Act will be prospective or retrospective.
• Possible reservation for housing development for lower/middle income groups
• Vacant land penalty, on surplus land if unused by developers for housing development for lower/middle income groups, to remain
• Lack of clarity on the quantum of land that will become available. Currently, a lot of this land is either locked in legal battles, lies in Forest/Coastal Region/No development zones or is illegally encroached upon.

Overall, we expect the abolition of the ULCRA to be positive in the long-term. Compared to Mumbai, other cities will benefit faster, while in Mumbai, the suburbs will benefit faster than down town areas as most of the land in Mumbai will be freed up in the east central suburban areas. This should help stabilise the rapidly escalating real estate prices in the medium term. The short term impact might be limited, as it is not clear how much land will become available, and how long it will take to develop this. However, the impending increase in supply will make speculators cautious and should help (even if only slightly) reduce housing prices.

For the real estate and business communities, those with large tracts of land will obviously benefit in the short run. In the long term, the entire industry will benefit as the removal of ULCRA will reduce the hassles (and costs) of getting building permissions.

This is a much overdue step, and now we are hopeful of further reform in the real estate sector - particularly the repeal of a similarly outdated "Rent Control Act", which has hampered supply of new housing stock in large cities, especially Mumbai.