Hot property

The repeal of the Urban Land Ceiling Act in Maharashtra will benefit the real estate lobby and do nothing for affordable housing.

In Mumbai, slums

The repeal of the Urban Land (Ceiling and Regulation) Act (ULCRA) by the Maharashtra legislature on November 29 was like serving a feast for ravenous hordes. The possibility of 17,000 acres (1 acre = 0.4 hectare) of land suddenly becoming available for development in Mumbai alone sent the stocks of some real estate companies soaring to as much as between 2 and 10 per cent. The other cities in the State Pune, Nagpur, Nashik, Aurangabad, Thane, Ulhasnagar, Kolhapur and Sangli will see a release of about 40,000 acres totally. The fact that all this land will not be available for construction or that it will not become available immediately did not dampen the spirits of the property market.

The discussion over ULCRA has been on since 1999, and over the past two Assembly sessions the State legislature had inched closer to passing it, having debated its repeal actively. Unsurprisingly, it took the winter session of the legislature only two days of debate to pass the Bill that would repeal the 31-year-old Act.

The stock market, frequently an accurate guide of the mood of Mumbai, had been tuned into the legislative proceedings and investors had shown an interest in real estate companies. The stock of Godrej Industries, for instance, which is now a serious player in the realty market, rose steadily by 38 per cent in the past one month. The 5,000 acres that the company lays claim to in the north Mumbai suburb of Vikhroli may soon be up for development. Even new entrants into the real estate field are expected to cash in after the repeal of ULCRA.

Why did Maharashtra repeal ULCRA 31 years after adopting it? Apparently, the most pressing reason was access to funds. Maharashtra has about 90 major infrastructure projects on the anvil and one source of funds for them could be the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) of the Central government. This urban modernisation plan envisages a total investment of over $20 billion over a period of about six years, but access to these funds would be possible only if the State repealed ULCRA.

There was not much opposition to the repeal in the winter session of the State legislature in Nagpur. If the ruling Congress-Nationalist Congress Party combine was anxious to push through the resolution because of the lure of funding, the Bharatiya Janata Party (BJP) voted for the repeal ostensibly because it was part of its national agenda for housing. Only the Left parties and the Shiv Sena came together in an unplanned partnership to oppose the repeal. The Shiv Senas objection was apparently to the repeal being pro-rich and anti-Maharashtrian (new infrastructure and projects bring in outsiders who have more money power than the local people).

As always, there were reports of money changing hands in exchange for favours. Perhaps a test of this will be the extent of new affordable housing created between now and 2009, which is when Maharashtra goes to the polls.

Was the government correct in repealing ULCRA? To answer this it is necessary to look at what ULCRA hoped to achieve. The Act provided for the imposition of a ceiling on vacant land in urban areas. It aimed at preventing the concentration of urban land in the hands of a few so as to stop land being used for speculation and gain, and ensuring its equitable distribution.

The ceiling varied according to a grading system. In A class cities such as Mumbai and Delhi it was 500 square metres. Landowners having land in excess of this area had to hand them over to the government in exchange for compensation. The government was supposed to use the land for affordable social housing.

The law was a good example of egalitarian thinking, but, sadly, it was not pursued actively. Put into practice, the Act soon came to represent corruption and litigation. Landowners who could not use the legal loopholes in the Act either went to court or used bribery to keep their land. Thus, from the point of view of landowners and builders, the repeal seems to be a good thing.

Absolutely not, says Chandrashekhar Prabhu, architect and housing activist, in defence of the Act. The former head of the Maharashtra Housing and Area Development Authority (MHADA), he described the repeal as a self-contradictory act. The Act cannot be faulted because providing middle-class housing was its philosophy. First, the government doesnt implement the Act, then it says it is not implementable, therefore repeal it.

Both its supporters and dissenters agree that ULCRA was problematic because of too many loopholes. For example, Sections 20 and 21 of the Act, which allowed the State to give discretionary exemptions, were a boon to landowners. The exemptions could be given for such a diverse variety of reasons that almost all landowners claimed them. With the State choosing not to examine each case thoroughly, ULCRA came to be seen as an instrument of self-defeat.

Those who supported the Act say ambiguities in it ought to have been removed and an amended ULCRA put in place. In fact, Prabhu says a special law should have been created for Mumbai, given the fact that the city cannot grow 360 degrees, being restricted by the sea on all sides.

Despite the criticism there is proof that ULCRA was a workable Act. The government is said to have acquired 2,176 acres under ULCRA in Mumbai since 1976. Leader of the Opposition Ramdas Kadam says it should have acquired at least 30,000 acres and used it for low cost housing.

What is known is that the Mumbai Metropolitan Region Development Authority (MMRDA) got between 200 and 400 acres under ULCRA and used it for middle-class housing. Further proof that ULCRA could create affordable housing is the Nagari Nivara Parishad in Goregaon, Mumbais northern suburb. This sprawling complex, built on 62 acres acquired under ULCRA, houses 6,000 lowincome-group families.

The housing complex is the result of sustained pressure by Janata Dal (S) leaders P.B. Samant and Mrinal Gore. Samant filed a public interest petition in August in 2006 to prevent the repeal of ULCRA. In its reply affidavit, the government promised to acquire 17,000 acres of land under ULCRA in two years. In the next hearing of the case the implementation of this promise is going to be contested hotly because the same 17,000 acres is now up in the open market for development.

Prabhu points to the governments half-hearted attitude to ULCRA: only 9 per cent of the land that officially came under ULCRA was actually acquired in the 31 years that the Act was in force. Loathe to giving up their land, owners tried everything from using the loopholes in the law to bribery and law suits. The government apparently played along, exempting 28 per cent of the land and not bothering to acquire 63 per cent of what was eligible under ULCRA.

Nagari Nivara Parishad,

Prabhu said that in an effort to bridge the gap between profit and social responsibility he proposed a plan in 2001-02. At that time he was a member of an ULCRA committee on housing under the then Housing Minister, Rohidas Patil. Prabhu said his plan would have found favour with builders, the government and the middle and poor classes.

Said Prabhu: I offered to talk to all the landowners. There were about 300 of them. We had a series of meetings and finally arrived at a magic formula by which they would give up about 25 to 30 per cent of their land and in exchange would be able to develop the rest of the land as they pleased. At that time there were 17,000 acres under ULCRA in Mumbai and the agreement would have meant that about 4,000 acres would be available for poor- and middle-class housing. We even got the owners to sign a memorandum and that letter is still with the government. After that I dont know what happened.

When the 17,000 acres do go on the market it remains to be seen whether or not property development will be allowed on all this land or whether new development control rules, the Coastal Regulation Zone Act and other laws forbid it. Irrespective of the uncertainty, developers are expected to go all out to purchase the land by outbidding one another. To recover the costs, they are likely to build premium housing or commercial complexes on the land, thereby killing the argument that the repeal of ULCRA will open up land to house the poor and the middle classes.

The argument that oversupply will bring down prices is dismissed as a pipedream. While this may be so in the immediate future, the sheer force of market demand will ensure a rise in land prices. Take the case of the mill lands in central Mumbai. The oversupply argument was used there to justify the release of the land for use for the middle classes. However, far from being an area where lower middle class workers lived, it now boasts luxury apartments.

The true face of real estate in Mumbai is perhaps reflected in the shocking Rs.46,800 a square foot that Reliance paid for a plot in the Bandra-Kurla Complex.

The repeal of ULCRA means that the State is now eligible for funds from the JNNURM. Under its rules, there is no cap on the size of the project to be developed. Furthermore, the allotment of funds would be on the basis of the urban population of the State as a proportion of the total urban population in the country. With a population density of about 27,209 people per square kilometre (Census 2001), Mumbai is clearly at the top of the list.

The State needs about Rs.40,000 crore over the next 10 years for the transformation of Mumbai into a world class city. About a quarter of this amount was sought from the Centre. According to informed sources, the Centre made it clear that these funds would be available only if ULCRA was repealed.

Had the law remained, the State would have stood to lose a great deal in terms of stalled projects such as the Bandra-Worli and Worli-Nariman Point sea link costing Rs.4,200 crore, the Mumbai Trans Harbour Link (Rs.3,500 crore), the Mumbai Metro Project (estimated at Rs.20,000 crore), and the Mumbai Urban Transport Project (MUTP)-II (Rs.3,600 crore).

According to informed sources, it is abundantly clear that the primary reason for repealing the law is to pave the way for these massive projects intended to make Mumbai an Asian financial hub. The governments aspirations seem to lie more in marketing the city than in ensuring affordable housing for the majority of the people.

The JNNURM directs that all development shall be carried out with the consent of local bodies and that the higher objectives of poor and middle class housing are fully achieved. It would be naive to hope that these directives make up for the absence of a regulator to monitor the transparency in the use of funds allotted under the Mission.

To deflect criticism that the State was repealing the law only to assist big projects, Chief Minister Vilasrao Deshmukh proposed the Vacant Land Tax Act, which would be levied on landowners if they keep land vacant for more than three years. The tax will be about 1 per cent of the value of the land. Prabhu dismissed this as a sham. He said that in a climate where the price of land increases by about 40 per cent every year, 1 per cent is nothing. The landowner will gladly pay up. It would have been better if the government had said that after three years of lying vacant the land would revert to the government.

The debate over ULCRA has raged for over a decade in Maharashtra. The law was enacted at the Centre in 1976 by the Congress government headed by Indira Gandhi. Part of a package of ongoing land reforms, it came soon after a sister Act that put a ceiling on ownership of agricultural land. Since the Act hit the landed gentry and property dealers, it was received with animosity. It was this group that lobbied hard to repeal the Act.

In 1998, the National Democratic Alliance (NDA) government of Atal Bihari Vajpayee supported the move to repeal the Act (Frontline, August 14, 1998). (The NDA was so pro-repeal that its election manifesto in 2004 listed it as a part of its Housing for All plan.) However, 64 Members of Parliament from the Left parties, the Samajwadi Party and the Janata Dal blocked it by presenting a memorandum to Vajpayee. The MPs said the reasoning behind the repeal that the law failed to achieve its objective was skewed. The MPs argued that repealing the Act would be akin to a bad carpenter blaming his tools.

The memorandum significantly said: We view this decision with serious concern and the adverse effect it would have on low- and middle-income groups.... We hope that you will revise the Act rather than repeal it.

However, in 1999, the Centre repealed the Act believing that a dearth of land was resulting in inflated property prices and that repealing the law would help the housing and infrastructure construction business. Maharashtra, West Bengal and Andhra Pradesh chose not to repeal the law; a choice they could make because land is a State subject.

With its removal, land is no longer a protected commodity. All that has happened after the repeal is that control has shifted from the government to private business. Even in that most capitalist of all countries the United States of America it is the government that takes responsibility for providing land for social housing. How can India afford to shirk this responsibility? asks Prabhu.

In effect, the government has done two things it has absolved itself of the responsibility of providing affordable housing and it has given an open field to property developers and speculators. The repeal of ULCRA is an admittance by the state that it was unable to come up with a workable plan that would encourage builders to construct affordable housing and also make a profit via premium schemes.

The distance between those who need a roof over their heads and those who invest in property just got wider without ULCRA.