Land Monetization Promises & Pitfalls

A mega land monetisation plan through sale of surplus government and PSUs’ land is a part of Modi government’s ambitious National Monetisation Programme (NMP) to generate Rs 6 lakh crore of revenue over FY 2022-25. The success of this programme will depend upon how it leverages the opportunities and how it tackles the challenges.
Vinod Behl

The Land Monetisation Programme presents a huge opportunity. The Railways has about one lakh acres of vacant land. There is 32,000 acres of unused defence land following closure of military farms and abandoned airfields. About 20,000 acres of central salt pan land is also there for monetisation. Then, the CPSEs, mostly closed PSU units, have 5000 acres of land for monetisation purposes.

In order to ensure better monetisation of its land, the National Highway Authority of India (NHAI) is offering strategic land along the highways to tourist places. This land is being offered at concessional rates to the Housing Ministry and other departments for developing affordable housing, warehousing, and hotels. Real estate experts see it as a promising opportunity, spurring the growth of many new potential micro regions.

Air India’s real estate assets, including housing colonies, which were not part of the privatisation plan and were transferred to SPV- Air India Asset Holdings Limited (AIAHL) are also available for monetisation. It includes two major housing colonies, one at Vasant Vihar in Delhi and another at Kalina in Mumbai.

The government has created National Land Monetisation Corporation (NLMC) to unlock the potential by expediting the land monetisation process. This wholly owned government subsidiary has an initial authorised share capital of Rs 5000 crore and paid up share capital of Rs 150 crore. After considerable delay, the Centre has named a joint secretary in the Department of Public Enterprises as interim CEO of this SPV, along with the appointment of nominees to the board of the corporation. It will finalise the guidelines and criteria for selecting professionals from the private sector, specialising in real estate, investment banking, construction, and legal matters. Through NLMC, the government aims to initiate the process of monetising 3479 acres of surplus land identified by 9 PSUs, besides pushing other PSUs and government departments to prepare a list of assets for monetisation. Many PSUs have legacy assets – non-functional units and surplus land. The Railways has a lot of land which can be put to use by way of leasing. Sunil Agarwal, Managing Director, Black Olive Ventures, believes that, individually, it is an uphill task for each government entity or department to monetise its land assets, but NLMC will make the process simpler by pooling all the assets in the form of land and buildings lying idle and putting them up for sale/lease. Over the years, the land monetization model has also evolved. According to Amol Shimpi, Associate Dean - RICS School of Real Estate, Mumbai Campus, in the early 90s and 2000s, there was a trend of land banking. That was the time when Lavasa and Ambey Valley townships with 10000 acres in size came up. Shimpi was involved in the development of Lavasa as a land monetization expert, holding the position of Vice President. “That scale is now almost impossible to achieve. Between 2010 and 2020, the joint venture/joint development model emerged since putting too much money upfront for land acquisition and holding the land for 1-2 years was not easy. The year 2020 onwards, the model of development over government acquired land emerged.” The land monetisation model at Delhi Development Authority (DDA) has also undergone changes over the years. Says Vikas Verma, policy and land use expert and former Director, Planning, DDA, “Land disposition is a challenge for development authorities all over the world. At DDA, we were earlier auctioning land and calling private developers to build, with the Authority exercising certain controls (contours drawings, façades, and checks on development).

Later on, after land auctioning, it was left to the private developer to design, develop, and dispose. Currently, we are trying a bottom-up approach. Under this, experts are called in to analyse the demand in a region and the needs of the stakeholders. Initially, we included only users and stakeholders, but now developers and investors have also been added.” Land monetization experts are of the opinion that there are several challenges before having optimum monetization of land. Vishal Gupta, Partner, Deloitte, says that, in India, a land parcel is always doubtful when it comes to monetising it by developing a project. “One does not know whether land ownership is lease hold or free hold. Also, there is ambiguity over whether the particular land is a free land or is acquired for some specific purposes. By the time one undertakes planning or land structuring, they may find some litigation. This is particularly in the case of railway or airport land or in lands for roads and highways, where the title of the land and its clearances are a major hurdle. There is an issue with land parcels owned by CPSEs,” he informs. Amit Diwan, MD & Country Head, Hines, talks about the land price challenge. Hines is the world’s most diversified developer and investor with 500 million sq ft of space across 1100 completed projects in 250 cities across the world. Says Diwan, “In India, the price of land in proportion to the project is far too high. In Gurgaon, it is 30%; in Delhi and Mumbai’s city centre, it can go up to 50%. There is no way you can do a large project with such a high upfront cost of land, together with the high cost of holding land.” Besides this issue of land pricing, land valuation is also a big challenge. Says Madan Sabnavis, Chief Economist, Bank of Baroda, “The estimation of surplus land may be a contentious issue in the absence of a clear land title, ongoing litigation, and encroachments. Moreover, the vast difference between the state gazette valuation and market rate valuation poses a challenge to land monetization.” Adds Sanjeev Lohia, World Bank Policy and Land Monetization Expert, “Land valuation is key to project development, and for this size, shape, and lease period of land, everything has to be accounted for.” Notwithstanding these challenges, government land throws up immense opportunities for monetisation. For Aman Kapoor, CEO, GMR Airports Land Holdings, involved in the development of Aero City in Delhi, monetization of land just does not simply pertain to selling of land. Monetisation of land, according to him, can be successful in the long run only if the project is successful. “We had a very valuable learning - our investment even after the monetization of land parcel enabled us to have incremental value appreciation for our remaining land. The value of monetization seven years later was 2X. You can monetize land optimally but for that you have to nurture the area after it is developed. You need to manage, maintain, and upgrade it, and then the beneficiaries will be the people who have already invested and those involved with your next development,” he says.

Another mantra for successful land monetization is to do it in phases. Vishal Gupta of Deloitte informs that it is not only good for future land monetization but it even increases the market appetite. Says Amit Diwan of Hines, “Multi-phased monetization of land not only creates value for real estate developers and investors but also for the community.” According to him, partnering with government (PPP model) is another successful way of monetizing land as it takes care of the holding cost of land as well as the long and complex process of project clearances.

Amol Shimpi believes that government land is a good opportunity for investors. “Investors and strategic buyers have a fancy for financially stressed companies and stand-alone assets of sick PSU companies like buildings and land parcels.”

Welspun One Logistics, a part of the $2.7 billion Welspun Group, is actively exploring government land parcels for building Grade A warehousing facilities across key micro markets, especially in North India. Following its tie-up with the Tamil Nadu government, Welspun has recently entered into a MoU with the Haryana government with a development potential of about 5 million sq ft of warehousing space to be built over a period of 3-4 years, at an investment of Rs 1500 crore.

If done properly, speedily, and in an organised manner, monetization of thousands of acres of surplus government land can be a boon for not just the government but also for private developers and investors. Monetization of idle surplus land will push land supply in the market, ending artificially created scarcity, and, in turn, controlling land prices. This will have a sobering effect on the cost of real estate projects, thereby providing the much-needed boost to affordable housing – the flagship ‘Housing for All’ mission of the Modi government.