Its a collission that has waiting to happen, For years now, representatives of real estate sector have been putting out their wishlist during budget session, asking for industry status and single window clearance, among other things, and hoping that, they will get their due.
Now with their demands having been ignored yet again in the budget, they have decided to take stronger action. On March 29, 112 city presidents and 22 state presidents met in Pune for national conclave, organised by Confederation of Real Estate Developers Association of India (CREDAI) representing 8,800 developers across India. They subsequently sent a representation to the Prime Minister – an SOS, to use their term – seeking and appointment to discuss the need for speedy reforms. If there is still no response, despite aggressive followup, then the Governing council of CREDAI plans to meet in Mumbai on may 12, 2012, to decide the further course of action. For the first time in history of real estate in this country, they are talking of going on strike.
“Despite the fact that the sector contributes close to 7% working out to a whopping Rs 14,000 Crores – we are facing suffocation due to various administrative delays on various counts. All our appeals for speedy are falling on deaf ears.” says Lalit Kumar Jain, National President CREDAI. Jain also points out that the real estate sector is both capital and labor intensive; it supports more than 200 other industries like steel, cement and other construction material.
” Thus the reforms will have a cascading effect landing to a doubling of the GDP, employment for a crore of people, apart from proving a million white collar jobs.’ he declares. Jain believes that the single biggest change that is required is that of mindsets, and points out that if the Prime Minister accepts the issue involved, it will create awareness among government authorities at all levels.
The letter to PM refers to a host of issues that are impacting the growth of the real estate sector- roadblocks that are raising home prices for end users and ultimately going against the government’s own agenda of Housing for All.
This include delays in approvals of real estate projects, taking upwards of real estate projects taking upwards of 18 months and escalating housing costs substantially; compulsory reservation of 20% land/FAR for EWS and LIG in every private sector development projects, Budget provisions like GAAR which may lead to corruption and other issues such as the ‘narrow approach of Real Estate Regulatory Bill, Impractical SEZ and IT park regulations and artificial escalation of Cement Cartel prices.’
Off all these, the most important requirement is that of single window clearance; with 48 departments in the state and 22 departments in the corporation deciding the fate of each project, the delays involved are cstly and time consuming. Quicker approvals would mean quicker cash flow for developers, less corruption, a direct reduction in sales price, benefiting consumers and removal of stigma associated with delays.” he says. He also points out that land reforms must also take priority in order to cope with the “chaos of urban infrastructure”.
Higher FAR and clear land titles are vital. Jain also speaks of South America and South East Asia, among other places, which have dealt with similar issues and found solutions, if India doesn’t learn from them, it will have to pay a huge cost in future.
Developers from Mumbai who have also been agitated about these and other issue, are fully supportive of CREDAI’s action. “The real estate industry is currently passing through a very difficult phase due to various issues such as high input cost, high interest cost, liquidity crunch, delay in project sanction,” says Mayur Shah, MD of Marathon Group. These issues have resulted in pushing project costs further high. Hence the industry overall is looking for immediate reforms from the center by introducing an e-based standardized single window clearance system. The delay in approvals increase the cost at least by 40% and that ultimately it is the end consumer who end up paying a very high prices. He also observes that immediate fast track approvals rules such as registered architects approving building plans in 15days and excluding environment clearance for construction and housing projects with green building guidelines will go a long way towards easing the process.
The main change that the realtors are looking for in the industry is approals with single window approvals in a time bound period. Currently the approvals take around three years adding to extra costs, which ultimately the consumer has to pay. This type of system hampers affordable housing projects.
CREDAI has indeed given a great deal of thought to the kind of reforms that are required. Enumerating these at a recent meeting after the national conclave, Jain pointed out that four fundamental sets of reforms were needed – in administration, land, taxation and finance.
Administrative reforms including Development and Building Plan approval process, Land reforms, Tax reforms and Banking Reforms will be the key for the development of the sector,” the letter to the PM notes. It also refers to reforms like an e-based standardised single window approval process, stringent guidelines for the Environment Ministry, definition of height zones for the Civil Aviation Ministry, removal of FAR and bringing land reform measures, rationalisation of taxes in the real estate sector, and clearing of restrictive banking provisions along with grant of infrastructure status to real estate.
Sceptics may say that if the real estate sector seems to be getting the short end of the stick from the government, it is because of its own actions in the past. Over the decades, developers have not exactly been known for clean dealings, and it is because of this that policy-makers seem to view this sector with such suspicion.
The fact is, however, that in the last few years, there has been a fundamental shift in the way industry leaders think; there is still a long way to go, and of course, there are black sheep, but developers are making some attempts to clean up their act. One of the first things that Jain did, for example, when he took over as National President of CREDAI last March, was to launch Mission Transparency, in order to promote ethical business practices and create credibility for the sector. Maharashtra Chamber of Housing Industry (MCHI) has also launched its Code of Conduct and Consumer Grievance Cell. Why is it so imperative for the government to boost the real estate industry? That’s because, as Jain points out, the current housing shortage works out to 27 million, and by 2025, shelter will be a matter of huge concern for nearly 50 crore people. “Unless all these problems are solved, you can forget about affordable housing,” Jain declares.
He adds: “Obviously, the government alone will not be able to meet the gigantic challenge and it will be imperative for it to involve private sector initiatives on a large scale.”
Instead, according to the developers, policy makers seem to be doing everything to cripple the industry. What is the point, then, they ask, of the government constantly talking of affordable housing – and doing little to actually make it happen?