Land Monetisation

Context

• To expedite the monetisation plans for government-owned land assets across the country, the National Land Monetisation Corporation (NLMC) has decided to rope in international property consultancy firms to help strategize and implement transactions from start to finish.

About

• Land Monetisation means transferring the revenue rights of the asset (could be idle land, infrastructure, PSU) to a private player for a specified period of time.
• The government gets in return payment from the private entity, a share of the revenue generated from the asset, a promise of steady investment into the asset, and the title rights to the monetized asset.
• Monetisation is done to unlock the potential of unused or underused assets by involving institutional investors or private players and to generate resources or capital for future asset creation, such as using the money generated from monetisation to create new infrastructure projects.
• Land monetisation can be done through a Real Estate Investment Trust (REIT), a company that owns and operates a land asset and sometimes, funds income-producing real estate.
• Assets of the government can also be monetised through the Public Private Partnerships (PPP) model.

Benefits of Land Monetisation

• The monetisation process aims to capture the real estate value of public land lying idle in monetary terms to improve or strengthen the finances of government bodies and local authorities. 
• The monetisation of several lakh acres of the land pool with various central government agencies is expected to give a fillip to the Rs 111-trillion National Infrastructure Pipeline (NIP) in five years through FY25 and Gati Shakti connectivity projects, as well as the housing sector.
• The 13th Finance Commission of India also underlined the importance of monetisation of land which has the potential for generating additional revenues from under-utilized prime lands of Public Sector Undertakings, Port Trusts, Airports, Railways, municipal corporations, etc.
• There is an estimate of the extent of land held by various government agencies in excess of 5 lakh hectares, of which, over 160,000 hectares are held across various airports, seaports, and railways.
• It allows certain State/ Centre funded projects to be created and financed from otherwise defunct assets or under-utilized land parcels.
  • For instance, to maximize its revenues, the Airports Authority of India (AAI) plans to partially monetize around 7591 acres of vacant land owned near eight major airports. The land could be utilized for commercial purposes, including hospitality business and warehousing. 

Challenges faced in Land Monetization

• Meeting disinvestment targets: The success of NLMC will depend on the government’s ability to meet its disinvestment targets. The government has not been able to meet its targets in the past, which could affect the performance of the NLMC.
• Complex legal and regulatory framework: The legal and regulatory framework for land ownership, land use, and land development is often complex and varies by region, making it difficult for CPSEs to navigate the process of monetising their land.
• Mapping the vacant lands: The estimation of surplus land may be a contentious issue in the absence of a clear land title, ongoing litigation, and encroachments.
• Lack of fast Dispute Resolution Mechanism: More than 60% of the litigation in India is land-related and these disputes need to be resolved in a time-bound manner for timely land monetisation. 
• Ensuring adequate investment: Private players must invest adequately in the asset to ensure its growth and sustainability. The government needs to ensure that the private players are fulfilling their investment commitments.
• Use of PPPs: The use of PPPs as a monetisation model can pose challenges, as seen in the case of the Railways’ PPP initiative, which did not see much interest from private players.
• Market conditions: The value of land is dependent on market conditions, which can be volatile, and subject to fluctuations. Moreover, the vast difference between the state gazette valuation and market rate valuation can create problems.

Way Forward

• Improve the disinvestment process: The government needs to streamline its disinvestment process and meet its disinvestment targets to generate more revenue. This can be achieved by providing certainty to investors, and by setting realistic targets for disinvestment.
• Digitization of land records: It will bring transparency to the land records maintenance system, digitize maps and surveys, update all settlement records, and minimize the scope of land disputes.
• Ensure transparency and fairness: The selection of private players should be through a competitive bidding process to avoid the creation of a monopoly or duopoly in operating surplus government land.
• Do it in phases: Multi-phased land monetization creates value for developers and investors and increases market appetite. This will make the land more attractive to potential buyers, resulting in higher value and better returns.
• Partner with the government: Partnering with the government in a PPP model to help cover the holding costs of the land and streamline project clearances. This will speed up the process and make it more efficient.
• Create a dispute resolution mechanism to address any disputes that may arise between the government and private players over revenue sharing or other issues related to the monetisation of assets.
• Conduct market research and valuation to ensure that the government is getting a fair price for the assets being monetised and is not undervaluing its assets or giving away too much revenue share to private players.

Source: The Hindu