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ULCRA Repealed: Our View - Views on News from Equitymaster
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  • Nov 30, 2007

    ULCRA Repealed: Our View

    The Urban Land (Ceiling & Regulation) Act (ULCRA), 1976 came into force in February 1976. Initially, the states of Andhra Pradesh, Haryana, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Orissa, Punjab, Tripura, Uttar Pradesh and West Bengal adopted the Act. Thereafter, it was adopted by six more states namely Assam, Bihar, Madhya Pradesh, Manipur, Meghalaya and Rajasthan.

    However, after review of the matter in totality, the ULCRA was repealed through an ordinance in November 1999, which was followed by Urban Land (Ceiling & Regulation) Repeal Act, 1999 in replacement of the ordinance. The Repeal Act is currently in force in the states of Haryana, Punjab, Uttar Pradesh, Gujarat, Karnataka, Madhya Pradesh, Rajasthan, Orissa and all the Union Territories. The Urban Land (Ceiling & Regulation) Act, 1976 is still in force in the States of Andhra Pradesh Assam, Bihar, Maharashtra and West Bengal.

    However, yesterday, in the winter session of the assembly, the Maharashtra government has repealed the Act. In this article we take a look at who will be the beneficiaries of this development

    ULCRA 1976
    ULCRA was passed during emergency in 1976. The main intention of the ULCRA 1976 was to provide for a ceiling (upper limit) on vacant land in urban areas. This was meant to acquire excess land (over the ceiling limit) and regulate the construction of buildings on such land with a view to preventing the concentration of urban land in the hands of a few persons.

    As per ULCRA, no individual could own more than 500 square metres of vacant space in Mumbai or upto 2,000 square metres in smaller towns. The range was 500, 1000, 1500 and 2000 square metres for category A, B, C and D cities. However, the individual was allowed to own the land if used for certain purposes approved by the Government. The government acquired any land owned in excess of the above limit by following a specific method of calculation, which was based on the income the acquired land was able to generate.

    Limiting the amount of vacant land in the hands of the rich and creating houses for the poor was largely a political move. What needs to be understood is that the prime reason for builders not making houses for the urban poor is the ULCRA itself. When land is scarce, a builder will find a huge demand in the highest consumer segment. There will be no need to reach out to the smaller consumers. But the demand for the expensive constructions is always finite. If enough land is available, the builders will be forced to cater to the lower consumer segment.

    ULCRA Repeal and the way forward
    The repeal of the ULCRA will release 18,000 acres (7,284 hectares) of vacant land in Mumbai alone. In Maharashtra about 30,000 acres (12,140) will be released. Does that mean all the 30,000 acres will be straight away available for development? The answer is no. This is because, of the 30,000 acres of land 24,000 acres are disputed properties and the litigations are in progress. However, now with this repeal of ULCRA we could well see a sharp rise in settlement of these disputed properties and more and more land will be free for development.

    Does it also mean that the prices will start declining from today itself? The answer gain is no. This is because the entire area will not be developed overnight. However, it is envisaged that the prices in the northern suburbs may witness cooling off.

    However, this decline is prices will also have a flip side to it. The decline is prices will be mainly due to huge supply coming up in the next two to three years. As far as the demand is concerned, with Mumbai already battling huge influx of people from the lesser-developed states, we expect the demand for housing to remain firm.

    The main beneficiary of this development will be the real estate business, which is already booming. As regards the real estate developers we believe that HDIL, Akruti Nirman and Orbit Corporation will benefit as these companies have their main presence in Mumbai Metropolitan Region (MMR). However, additional availability of land will also help big players like DLF and Unitech to enhance their presence in the city.

    Of the 17 states that had enacted the ULCRA, now only four states are yet to repeal it. They should do so at the earliest to because this will create a climate for construction of affordable housing across India.



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