New Delhi: State run National Highways Authority of India (NHAI) plans to enter real estate development to leverage the sharp rise in land prices following the construction of expressways and national highways, according to two senior government officials.

Till now, private developers were reaping benefits of this land price escalation that resulted from the connectivity provided by NHAI.

NHAI will ask state governments to acquire land parcels along with project land, and then either develop it on its own or auction it to raise funds for its ambitious Rs5.97 trillion Bharatmala project, according to the contours of the plan.

This has come in the backdrop of NHAI needing Rs1.5 trillion in the current financial year for highway construction.

“A consultancy firm has been hired to evaluate the idea and prepare a white paper on this under value capture financing under Bharatmala. It has been observed that whenever an expressway or road project is conceived or undertaken, the real estate prices suddenly go up. This time we are trying to capture this on our own, if the state governments agree," said one of the officials quoted above requesting anonymity.

A land parcel of 1-2 square kilometres will be sought along the ring roads, while land area totalling 5-6 square kilometres will be sought along the greenfield expressways.

There will also be a cap on the area where real estate development along the highways or ring roads will be allowed to protect the interests of NHAI and the state governments.

“The white paper will be sent to state governments for consultation before drawing up any concrete plan," said the first government official quoted above.

Land acquisition has become relatively easy, with the amount of compensation given to farmers being increased. In the last four years, the compensation provided has increased from around Rs90 lakh per hectare to Rs2.80 crore per hectare. NHAI acquired 9,500 hectare of land in the last fiscal.

“We will be very careful. We will seek approvals only after the consultation process is over and state governments are on board," said the second government official quoted above, who also did not want to be named.

Under the Bharatmala programme, close to 34,800km of national highways will be developed. Of this, 9,000km will be economic corridors and 800km expressways—with a majority of them being greenfield projects.

Queries emailed to NHAI have remained unanswered.

NHAI has been coming up with innovative methods to fund its ambitious Bharatmala project, as its bonds and InvITs plans have not gained traction with the finance ministry.

A case in point is its first toll-operate-transfer (ToT) agreement with Macquarie Group to manage 648km of national highways. In the largest foreign investment in India’s public infrastructure, the Sydney-based firm will make an upfront payment of Rs9,681.5 crore. NHAI is also working on an equity-funding model for its upcoming expressway and economic corridor projects, auctioning them before they are built.

“It (entering real estate development) is a good idea but with two major challenges. One, NHAI needs to get a mandate to take up non-highway development. The current NHAI mandate does not allow it to acquire and develop land for townships or industrial projects. Second, states need to be brought on board as land is a state subject. State governments will play an important role as they provide the basic infrastructure and legal framework for such projects in case of real estate development," said Vishwas Udgirkar, partner and leader, government infrastructure and utilities, at advisory firm Deloitte India.

During the last fiscal, NHAI awarded 150 road projects totalling 7,400km, which were worth Rs1.2 trillion, an all-time high since its inception in 1995.

NHAI has also put out tenders for 232 projects since November 2017 under Bharatmala. The bids invited are for 11,200km of roads, worth around Rs1,96,000 crore.

Earlier this year, the Economic Survey stated that India will face a $526 billion infrastructure investment gap by 2040

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