Realty prices may come down by up to 20% if corruption is reined in: HDFC chief Deepak Parekh
Dec 27, 2013
Source : The Economic Times

 

MUMBAI: Rooting out corruption could help lower home prices by as much as 20%, said Deepak Parekh, chairman of Housing Development Finance Corp, India's biggest mortgage lender, putting the blame for graft in the system on errant bureaucrats and faulty policies.

"Corruption is rampant in the sector. There is multiplicity of approvals and at each approval stage if you have to pay, the ultimate product is going to be more expensive. As buyers, we are paying for it," Parekh said in an interview to ET.

Parekh's plain speaking comes in the backdrop of the unexpected electoral success of the one-year-old Aam Aadmi Party led by anti-corruption activist Arvind Kejriwal, expected to be sworn in as chief minister of Delhi later this week. The momentum that has built up behind the anti-graft movement led by Anna Hazare two years ago also forced Parliament to pass the anti-graft Lokpal Bill.

Kejriwal had brought into focus the nexus between politics and real estate among the various instances of corruption that he highlighted. "We have to cleanse the system," said Parekh, who advises the government on policy matters and has been a critic of the Congress-led United Progressive Alliance government's paralysis on this front.

The government introduced a bill in Parliament in August to regulate the sector.

"Yes, there is corruption and that is the reason we are pushing for single-window clearances and online approvals," said Girija Vyas, union minister for housing and urban poverty alleviation. "The real estate regulatory bill will also bring transparency into the sector and protect consumers' and all stakeholders' interests."

The Real Estate (Regulation and Development) Bill 2013 has been referred to a House standing committee and Vyas expects it to be cleared in the next session of Parliament. Parekh said several policy gaps needed to be plugged in order to stem corruption.

"The urban land ceiling act has been scrapped, but you still need ULC (urban land ceiling) approval when you want to develop a building. There is no ULC, but there is still a ULC department because you need to get a no-objection certificate. Existing court cases are not heard in court as the judges don't want to hear ULC cases as the Act is scrapped but still land is blocked. So, faulty land policies need to be rectified," he said.

He emphasised the need for a real estate regulator in order to ensure better coordination among various government bodies and a cohesive approach.

"Some regulatory body should be in place so that people should be worried that if they do anything wrong, they can be penalised or blacklisted. Today, there is no such fear for anyone," he said.

Parekh also advocated incentives for affordable housing projects in order to encourage more builders to undertake such developments and increase supply. He advised realty developers to learn from previous cycles and reduce their profit margins to attract buyers back to the market.

In order to increase the supply of housing stock, Parekh suggested options such as increasing the floor space index, infrastructure development, building new cities and rectifying faulty land policies.

In the last five years, home prices have soared 50-150% across India's cities, making homes unaffordable to many amid a slowing economy and high interest rates. But with home sales falling, debt levels of builders have risen alarmingly - the top eight listed firms have a cumulative debt of around Rs 40,000 crore - and forced finance minister P Chidambaram and the central bank to issue warning advisories to bankers and the industry. Property research firm Liases Foras said unsold inventory had touched 711 million sq ft at the end of September, up from 670 million sq ft at the end of June and that developers will need more than three years to clear this stockpile.

According to the recent World Bank Doing Business report for 2014, India ranks at 182, almost at the bottom, in terms of dealing with construction-linked permissions. In Mumbai, the country's most expensive property market, a total of 48 approvals are needed for any residential project and developers have been voicing their concerns over corruption for a long time. Developers echoed Parekh's sentiment.

"Why do we need to go to various departments for several no-objection certificates? Why can't this be done at a single point? That's the solution as it will reduce human contact and corruption," said Lalit Kumar Jain, chairman of the Confederation of Real Estate Developers' Associations of India (Credai) lobby group.

In an earlier interview to ET, Jain had pointed out that the Real Estate Regulatory Bill, if passed and implemented well, could clean up the system. "If it really has an impact on the approval system, reducing the time taken for approvals and the corruption attached, it can reduce the sale price of properties by at least 25%."

Across the country, developers typically need to get more than 40 approvals, interacting with more than 150 officials at various stages.

"Any delay at any stage gives rise to 'greasing of palms' as the developer is always anxious to finish his project in time and avoid delays," Jain had said.

"Fifteen years ago, it used to take six months for all approvals. But now it takes us two-three years!" said Niranjan Hiranandani, managing director of Hiranandani group, one of Mumbai's most prominent builders. "This essentially means additional financial burden."

Vikas Oberoi of Oberoi Realty said, "I don't see why prices should not become more rational if approvals are streamlined."

 

 

 

 

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