India's richest state, Maharashtra, has scrapped a law that controls urban land holdings, potentially freeing up large tracts of prime real estate in the financial hub of Mumbai and sending shares of property firms sharply higher.
A government spokesman said the assembly of Maharashtra on Thursday repealed the Urban Land (Ceiling & Regulation) Act, which developers said could free up to 25,000 hectares of land and attract foreign builders.
Mumbai has emerged as the world's second-most expensive market for office space after London's West End and the third-fastest growing such market, global real estate brokerage CB Richard Ellis said last week.
"It was an age-old regulation and had to be scrapped, though I don't think it will have any impact on the prices in places like Nariman Point," said Vikram Mehta, associate director at Coldwell Banker, a unit of U.S. real estate brokerage Realogy Corp.
Rentals in places like Nariman Point, a business district in south Mumbai, have jumped 55 percent from a year earlier to $189.51 per square foot a year, CB Richard Ellis said.
Analysts and property developers said the law, which has been in place for three decades, had hampered construction of homes and offices and contributed to soaring property prices.
"Physically, it will free up a lot of land for development. Our estimate is that it could free up 15,000-17,000 acres (6,100-6,900 hectares)," said Pranay Vakil, chairman of real estate consultancy Knight Frank.
But he said with some of the land caught up in legal disputes, supply would take time to reach the market.
Shares of real estate firms rose on the news, with Housing Development & Infrastructure Ltd ending up 5.1 percent. The BSE real estate index gained 1.2 percent, while the main share index closed up 0.3 percent.
Some analysts said the move would primarily help companies which had land to sell but could not previously because of the restrictions, and potential buyers may not gain much as property prices were already high.
Critics of the land ceiling law said freeing up land will make way for commercial redevelopment and crucial infrastructure.
"And in terms of the housing market, it will open some opportunities for the lower middle class, as prices should come down in suburbs after the free land is released," Mehta said.
Thousands of hectares of land would also be available for development in Maharashtra's other crowded cities, such as Pune and Nagpur, where there is a high demand for houses and office space.
"I think it's a step in the right direction as it will ease the shortage. Not only domestic builders but international builders can also come now," said Pradip Chopra, an official of the Confederation of Real Estate Developers's Association of India.
Foreign real estate firms have been eyeing the Indian market and Dubai's Emaar Properties, the largest Arab real estate developer by market value, has a 40 percent stake in India's Emaar MGF, which is planning an IPO.
In January, Morgan Stanley Real Estate said it paid $152 million for an undisclosed stake in Indian real estate developer Oberoi Constructions Ltd.
Supporters of the law, particularly the communists, said the move will help builders, not the common man.
"Property prices are no more dependent on the market. In fact, there's a cartel operating and the prices will be what it wants them to be," said Chandrashekhar Prabhu, a former president of Maharashtra Housing & Area Development Authority, who expects property prices to shoot up.
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