Experts take on FDI in agri land if it goes through

The gist of the proposal permitting FDI in agricultural land is as follows:

An Indian owned and controlled company can purchase agricultural land for construction, development provided all applicable laws, rules and regulations being enforced are duly complied with. This simply means any joint venture with a foreign partner can buy agricultural land as long as ownership and control vests with the Indian partner.

Anuj Puri, Chairman and country head – India, Jones Lang LaSalle says: "How do you expand the series, the only way you will be able to do it is to be able to go out and buy land which is on the periphery of the series, which today is classified as agricultural and the Reserve Bank of India has not allowed the banks to go out and fund the developers to buy land. So, one of the ways that you can go out and allow the Indian developers to buy land is through allowing private equity from overseas to come in as a minority stake into the Indian development company and then both of them together go out and buy agricultural land and to undertake development."

According to Anshuman Magazine, CMD, CBRE: "Most of the capital developers need when they acquire land because once they acquire the land which is the most expensive part unlike in the mature market where the land component of development is hardly 15-20 percent. India is completely the reverse where the construction part is 15-20 percent and land is the most expensive. So, if the investors do come in for the developers it really brings in the capital when they have to acquire land so that's the biggest positive of this. For consumers of course hopefully if the supply comes in they will get more products in the market."

But what about all those joint ventures in which the foreign investors will hold a majority stake and control operations. Such companies can also buy agricultural land but with riders. Sources say the cabinet note states something along the lines of this: A company owned or controlled by non resistant entities can enter into a memorandum of understanding (MOU) and an agreement to buy with the owner of the agricultural land. Such a company can buy the land by way of sale deed only after the existing owner has obtained the change of land dues from agricultural to specified non-agricultural use. We also understand Kamal Nath is in favour of allowing such companies to pay in advance for the agricultural land. He called for this in a letter to the commerce minister as recently January 28. However, sources do suggest that Anand Sharma may oppose this recommendation.

Puri believes this is a very good way to say we are not going to allow agricultural land trading or acquisition to happen but the intent if it can be demonstrated to the seller who is an agriculturist and has an agricultural land in his possession and with the money and the intent that agriculturist can go and change the land usage and then consummate the full deal.

Magazine adds, this will also on the one end reduce the cost of capital for the developers because right now they borrow at very high cost and if they can get equity to buy land, the cost of overall development will also come down. So, hopefully in the end the consumer may benefit because if cost of development comes in hopefully part of that would be passed on to the consumer and on the supply side, if this increases supply of real estate that itself will also help keep the prices competitive.