“Height is the best way to keep prices affordable,” and “City is humanity’s greatest creation and our best hope for the future”- Edward Glaeser
According to the Merriam- Webster dictionary, the word ‘elusive’ has three shades of meaning – (1) ‘tending to evade grasp or pursuit’; (2) ‘hard to comprehend or define’; (3) ‘hard to isolate or identify’. And all these three shades of elusiveness apply equally to India’s long time but unfulfilled desire to achieve justice in social, economic and political terms for all of us.
This desire has been beautifully encapsulated by Union Finance Minister in his Union Budget 2013-14 speech, which was expressed in aspirational terms and contained his ‘mool mantra’ of “higher growth leading to inclusive and sustainable development”. The speech also contained a lament that despite the potential to grow at 8 percent annually, we have not been able to do so. According to him, recessionary world economy is largely to blame for our slow growth. Nevertheless, he tried to make us believe that despite all odds, we have been able to grow at 5 percent and this effort is sufficient enough to give his government passing marks!
However, what he missed out is that it is not just global economic slowdown but the failures of our own polity in bringing the requisite structural reforms otherwise how does one explain the situation where significant legislations like Goods and Services Tax and Direct Tax Code are still hanging fire? Besides, it eludes comprehension as to why all important bills, which are more relevant for this story, like Real Estate (Regulation and Development) Bill is on the back burner and why Land Acquisition Bill fails to achieve political consensus. So in essence, our Union Finance Minister’s ‘mool mantra’ has all three shades of elusiveness as stated above. And this elusiveness holds even more true for India’s dream of real estate in general and housing for all in particular. This story recounts all the factors, which have been eluding India’s quest towards this dream.
It is largely believed that it was the exponential growth in urban population in Paris, which led to the French Revolution of 1789. The failure of agriculture sector and the absence of sufficient opportunities to live and work in the cities were the prime reasons of the revolution. India has witnessed considerable growth in its urban population since 2001. As per Census 2011, urban population has increased from 285 million in 2001 to 377 million in 2011 due to migration from rural to urban areas, thanks to the growth in job opportunities in the urban centres. With agriculture sector unable to absorb this burgeoning population of 1.2 billion, the only natural way forward remains is rapid industrialisation, which would lead to further spike in urban population. And unless this growth is not accommodated properly in a planned manner there are serious risks of dystopia, let alone other considerations of healthy and humane existence. If this mushrooming aspirational urban population is not given a vent by way of affordable modern housing along with other educational, recreational and health related social and physical infrastructure it will blow apart our urban social fabric.
Besides this pure realpolitik consideration, there is strong connection between real estate and infrastructure development with economic growth as has been explained by Sitsabo Dlamini of School of Construction Management and Engineering, University of Reading, UK in his paper, titled “Relationship of construction sector to economic growth”, in which he stated “… The construction sector deals mainly with the provision of capital infrastructure, which has an impact on economic growth. The delivery of such infrastructure creates significant employment opportunities for the population, which generates further investment in other sectors of the economy through the multiplier effect…”.
So to avail the benefit of this multiplier effect and ‘demographic dividend’, it is critical to develop affordable integrated township and group housing for this escalating population. It can only be achieved if requisite changes are brought in the policy and legal framework pertaining to the sector.
As per National Real Estate Development Council (NAREDCO), urban housing shortage estimated is 18.78 million with 95 percent in LIG and EWS categories. As much of the increase in housing stock continues to be limited to the higher end, the challenge is to get these markets working for the common man.
In this context of severe shortage in housing units, Sanjiv Shankaran’s review of Edward Glaeser’s book on titled ‘Triumph of the City How Urban Spaces Make Us Human’ in Business Today, contains an interesting fact that because of the reluctance of town planners in India to allow cities to grow vertically has led to shortage and pushed up prices. And this fact has given rise to an anomalous situation exemplified by the fact that Mumbai’s real estate is far more expensive than that of a much richer city like Singapore.
As per Mr. Glaeser who is an economist and a professor at Harvard University, “Height is the best way to keep prices affordable”. His book explores as to ‘why have cities been considered the drivers of technological and economic progress?” and answers that “world over, a city is the wellspring of prosperity, attracting a steady flow of migrants from rural areas seeking a better life.” Though Mr. Glaeser’s thesis may be questioned on the reasoning as has been observed in David R.’s review of Glaeser’s book that ‘for one, he does not satisfactorily deal with the problem of urban crime, human psychology (people simply don’t mass aggregate) and urban poverty, which he actually suggests is a sign of urban success.’ Yet it cannot be denied that simply allowing Indian cities to grow vertically, a lot of the evils of haphazard urbanisation may be addressed.
Sanjiv Shankaran’s comment on the highlights the fact that every misguided town planning policy feeds into another and serves to undermine a city’s potential. And it discusses the ruining impact of such reluctance of the planners to allow India’s cities to grow vertically, resulting the ‘commutes of the urban population getting longer as people are pushed farther and farther away in search of affordable housing.’ It is interesting to note that with commutes getting longer, reliable, safe and comfortable public transports are remaining a distant dream. As a result, excess vehicles on the roads are leading to road congestion, increasing air pollution, noise pollution, wastage of productive hours on the roads, inescapable fuel consumption, increased fuel bill, and a current account deficit which is giving sleepless nights to our Finance Minister. It is a hugely avoidable situation!
Mr. Brotin Banerjee, MD & CEO at Tata Housing Development Company Limited, in an interview to Indian Express after Union Budget 2013, stated that certain measures can play very critical role in making housing affordable. One important suggestion and having the element of Glaeser’s insight is the strategic densification of our urban centres. He opined that ‘strategic densification, including relaxing FSI limits, will ensure developers to get decent margins. This will also bring down property rates, and will release more supply. The current focus of state governments has been limited to auctioning land to private players. This has contributed to escalation of land prices which is detrimental to affordable housing. Other measures suggested by him include capital subsidy for PPP initiatives, regulated lower interest rates, discounts in stamp duty and registration, and priority sector credit for home loans up to Rs 25 lakh.
Integrated township development, which includes residential, institutional, educational institution, medical centre, community and shopping complex etc. Is the way forward for aspirational India. If the sector is given industry status then, according to Dun and Bradstreet (D&B) India, which is world’s leading source of global business information, it will enable the industry to have easy access to long term and short term finances at competitive interest rates and reduced collateral values.
It is essential to increase the pace of rental housing activity in the country, mainly in the urban areas. Rental housing can be promoted through appropriate tax and other financial incentives besides bringing in appropriate changes to the regressive rent control laws. The developers could be provided fiscal incentives and concessional credit towards construction for the purpose of leasing out. This along with the legislative backing through the Rent Control Act could ensure optimal utilisation of vacant houses and considerably reduce housing shortage in urban areas. As per Jawaharlal Nehru Urban Renewal Mission (JNNURM), the objective of the reform of Rent Control Act is to bring out amendments in existing provisions for balancing the interests of landlords and tenants. Reform in the rent control laws will go a long way in improving housing situations in urban areas, lessen distortions in the market, and have beneficial impact on urban finances.
The commercial real estate, which is constituted by office and retail segments, expects to be hugely benefitted by the green signal to 100 percent FDI in multi brand retail. If the big international retailers decide to come to India in the wake of changed FDI landscape, they would have to have huge amounts of retailing space backed up by appropriate warehousing, back office operations, transportation and such other logistical network. This all may look huge and may give massive boost to the economy but given the fact that there are serious supply side constraints for such massive real estate activity and the global economic slowdown, it may take some time to gain any traction. To be attractive, such massive retail stores will have to be located at places with huge catchment, appropriate connectivity backed by needed logistical ware. With all that, it seems a farfetched dream of our urban real estate, especially in the top six cities in India. Apart from that, according to the experts, the purchasing power in India is low as compared to other world economies where the economies may be slowing but people have purchasing power. So, in the net analysis, the boost to real estate due to the allowance of 100 percent FDI in multi brand retail and thereby to the economy as a whole is still an elusive dream.
Though it is not intended to cast any doubt as to the intention of our national legislators to bring in appropriate reforms in the real estate sector, yet it defies logic to see that important bills and legal reforms, which have the potential to make the sector a win-win situation for all the stakeholders, are still keep hanging fire. Here I am going to share a few thoughts on important bills and other regulatory measures like Real Estate Regulation Bill, Land Acquisition Bill, Single window clearance facility at the state as well as national level and harmonisation of many differential bye laws applicable to the real estate sector.
The Bill intends to bring in Real Estate Regulatory Authority and is envisaged with the powers to enforce fair practice and accountability norms and fast track dispute resolution mechanism in real estate transactions thereby facilitating a planned and orderly growth of housing sector, encouraging large-scale institutional inflows, including greater venture funding, into the sector.
Presently, due to the absence of such unified sectoral authority, the sector is plagued with many ills like issues of the consumers relating to non-delivery of houses, blocking of funds with builders, revenue loss to the state and procedural hassles for the developers. Once legislated, the Bill has the potential to make the real estate business an easier business but continues to be deferred. Now the builders have opposed the Bill as they believe that in the current for, it is a one-sided piece of proposed legislation as it favours only the property buyers. The various industry bodies including CREDAI and NAREDCO have demanded that all stakeholders in the development of real estate should be brought under the ambit of this Bill including government agencies which give clearance to this project. As per media reports, at present, inter-ministerial consultations are going on after which cabinet clearance will be sought. So it can be said that its passage continues to elude.
This Bill continues to elude political consensus and thus continues to be mired in the morass of our fragmented political discourse as different stakeholders have different views on critical provisions. In view of Mr. N.C. Saxena, the member of the National Advisory Council, the Bill in its present form is anti farmer and anti poor as the bureaucracy and civil society has been given too much space regarding the implementation of the Bill through various committees constituted there under. As a result, land acquisition alone will become such an issue that its objective to achieve of quick, equitable and litigation free land acquisition will be simply defeated.
As per Jawaharlal Nehru Urban Renewal Mission (JNNURM) there is urgent need to bring amendments in existing provisions for balancing the interests of landlords and tenants. Reform in the rent control laws, especially of provisions relating to absence of market linked rents, easier repossession and dealing with the Inheritable nature of tenancy rights will go a long way in improving housing situations in urban areas, lessen distortions in the market, and have beneficial impact on urban finances.
According to experts, a realtor needs to deal with approximately 40 departments and typically, it takes about 2 to 5 years for final approvals before any. This delays project implementation and jacks up project cost. All these will be addressed through the mechanism of Single Window Clearance. It continues to elude all logics, as the ministries of housing and urban poverty alleviation and environment have recently been at loggerheads with environment ministry, seeking to give this need to have a single window of clearance a promoter ministry vs. regulatory ministry debate. If the single window clearance system is brought in according to the experts in the field, it will lead to realistic price discovery, land allotment and granting approvals in a time-bound manner.
For housing projects falling within and outside municipal limits, there is a maze of differential laws and bye laws which needs to be negotiated as it is a horrifying regulatory scenario for the fair minded developers. Since there is a difference between building bylaws being followed in areas under municipal bodies and the urban estates created under urban development authorities, there is a lot of confusion and it must be addressed with greater sense of urgency. However this sense of urgency simply keeps eluding by our ruling elites, who are completely enjoying the benefits of this regulatory confusion.
Though India Ratings & Research (Ind-Ra), a part of Fitch Group company, has revised ts outlook for real estate sector from ‘negative to stable’ for 2013, instead of ‘negative’ in 2012, yet the task of the policymakers and legislators is huge as the key demands from the budget by the sector, pertaining to tax incentives for affordable housing, rationalisation of taxes, promotion of greater fund flows and bringing in more transparency, have remained largely unfulfilled due to the tight fiscal situation in which India currently finds itself.
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