Rohit Saxena used to spend weekends huddled in a makeshift tent on the side of a dusty road in one of New Delhi’s fastest growing suburbs, darting into the baking sun to hand passing cars brochures for residential developments.
The heat and jostling with rival brokers in the software hub of Noida, east of New Delhi, was worth the reward, said Saxena, who closed 10 deals per weekend and in his best month earned 29 times India’s per-capita annual national income. The tents are now abandoned after courts ruled in favor of farmers protesting the acquisition of their land for development, scaring away buyers already saddled with higher borrowing costs.
The biggest building boom in India is mired in legal uncertainty as to who owns the land around new up-market apartments overlooking Greg Norman-designed golf courses and in townships near the nation’s first Formula One racing track. Across India, land acquisitions have been marred by protests, stalling about $80 billion of steel projects and a highway from New Delhi to the city of Agra, home to the Taj Mahal.
“Land is becoming a sticky issue,” said Dharmakirti Joshi, a Mumbai-based economist at Crisil Ltd., the local unit of Standard & Poor’s. “The issue is a critical component of the overall investment climate. I believe it will get sorted out, but if it doesn’t it will have repercussions.”
The area around New Delhi, the nation’s capital, is the country’s largest market in terms of development volume for new homes, according to Jones Lang LaSalle India. The projected delivery of apartments over the next three years in the suburbs of Gurgaon, Noida and Greater Noida stands at 439 million square feet (40.8 million square meters), 60 percent higher than in Mumbai, according to P.E. Analytics Pvt., a real estate research firm. That’s enough to house 340,000 families.
The suburbs are products of India’s seven years of surging economic growth, with gated communities for the burgeoning middle class swallowing up farmland that had been there for hundreds of years. The National Capital Region -- as New Delhi and its satellite towns are known -- is home to companies including Google Inc. (GOOG) and Accenture Plc.
A four-story height restriction in most parts of New Delhi has made land for new projects expensive and hard to find, driving people to more affordable areas to the south and east of the capital. Average prices in New Delhi’s environs have gained 12 percent since mid-2009, compared with as much as 40 percent across Indian cities, according to Jones Lang.
“If the original land owners are paid compensation as per market rates, developers’ costs will rise, which will impact buyers,” said Santhosh Kumar, chief executive officer of operations at Jones Lang. “Affordability will be lost.”
Homes in that belt range from about $20,000 to $4 million, said Jones Lang’s Kumar. In contrast, colonial-style bungalows along central Delhi’s tree-lined avenues, home to politicians and billionaires including ArcelorMittal Chief Executive Officer Lakshmi Mittal and K.P. Singh, owner of India’s largest property developer, can cost as much as $76 million.
In May, police clashed with villagers demanding greater compensation for land on which a new highway from New Delhi to Agra is being built. India's cabinet yesterday approved a new land bill that seeks to boost compensation to farmers as the government tries to defuse growing resentment in the countryside. The bill will be introduced in parliament for lawmakers’ approval in the current session ending Sept. 8, Rural Development Minister Jairam Ramesh said in New Delhi yesterday.
Proposed mills by Luxembourg-based ArcelorMittal, the world’s biggest steel producer, and Posco, South Korea’s biggest steelmaker, have been delayed by six years because of failure to secure land and mining rights.
The spat over land on the outskirts of New Delhi deepened when India’s highest court quashed the acquisition of some farm land in a village after farmers claimed they were shortchanged in forced sales to the government, which had promised to use some of the land for industrial purposes and pledged jobs to the former residents. Instead, the government sold the land to developers.
The court in July directed the return of land to the villagers and farmers, who lived in basic houses with naked brick walls, growing wheat, mustard and lentils.
Builders say their contracts with the government are valid and it’s a problem for authorities to fix. The government is now in talks with the farmer groups to increase compensation.
Broker Saxena, who is marketing builder Supertech Group Ltd.’s Cape Town project in one of the disputed areas, said prices have stagnated at about 3,196 rupees per square foot because of the dispute. He had expected prices to climb 8 percent.
Saxena said his best month was in March 2010 when he earned 1.05 million rupees ($22,932), about half the per-capita income of the U.S. last year and 29 times the 35,917 rupee average per- capita income in India. With commissions now stalling, Saxena is having to make do with his fixed salary of 30,000 rupees a month.
“People are very wary now, so no new sales are happening,” said Samir Jasuja, chief executive officer of P.E. Analytics in Gurgaon. “Sales have come to a standstill because the customer doesn’t know what he is buying, whether the land belongs to the developer or not. There is confusion in almost all the growth areas of Noida.”
About half of the 124 million square feet of homes expected to be delivered by 2013 in Greater Noida will be affected by these land problems, he estimates.
“Sales in the disputed areas have completely stopped so that’s going to push the demand back to more established areas,” said Gurgaon-based Anshul Jain, chief executive officer at DTZ International Property Advisers Pvt.
The 3C Co., a developer that builds offices and apartments mostly in the eastern suburb of Noida, is selling apartments for 4,800 rupees a square foot at one of its developments. That’s a 71 percent increase from its launch price in 2009, said Brijesh Bhanote, director for sales and marketing.
Developers and property buyers are already struggling with surging funding costs. India’s central bank has raised interest rates 11 times since March 2010 in an attempt to tame surging inflation, making home loans and funds developers need to borrow more expensive.
The scale of projects and sale of about 75,000 homes worth $10 billion in Greater Noida, a township 12 miles (19 kilometers) east of Noida, may influence a financial compromise between the farmers and the government, Aashish Agarwal, a Mumbai-based analyst at CLSA Asia Pacific Markets, wrote in a note to clients on July 22. Still, there’s the risk of delays and the occurrence of similar protests and rulings in other areas, he said.
The protests “have shaken the developer community because if you don’t get good title land from the government, who do you go to?” said Geetamber Anand, vice president of the Confederation of Real Estate Developers Associations of India and managing director of Noida-based developer ATS Infrastructure Ltd.
India’s economy is forecast to grow at 7.7 percent this year, and its young population, low mortgage penetration, rapid urbanization and a trend toward nuclear-family homes will boost demand for homes in the world’s fastest-growing major economy after China, according to a report by UBS AG in May. The country, with an estimated housing shortage of 24.7 million units, needs 10 million homes in urban areas alone, according to UBS.
B.N. Mishra, a businessman who runs a software company, bought an apartment for 2.2 million rupees at the disputed site in Greater Noida in 2009. He is waiting for resolution between farmers and the government so he can move into his new home.
“It has been a huge roller coaster ride,” he said. “You don’t know where to go. If there is no solution, I’ll have to continue with renting or buy a house that is ready.”
Jaypee Group, which is developing about 10,000 acres of land primarily in Noida and Greater Noida, says the tussles won’t derail its projects, including India’s first Formula One track and an 18-hole Greg Norman golf course.
“The Formula One track is on schedule; the first race will happen on Oct. 30,” Vibhor Gupta, deputy general manager of marketing at Jaypee Group said in an interview. “Formula One is going to put Noida and Greater Noida firmly on the international map. There’s nothing bigger than that.”
To contact the editors responsible for this story: Andreea Papuc at email@example.com