Control in Corruption would Decrease Realty Prices by 20%

Deepak Parekh, the Chairman of one of Indian’s major mortgage lenders, Housing Development Finance Corp (HDFC) said that mining out corruption would diminish the home prices roughly by 20percent, while reproaching the errant bureaucrats and blemished policies for being the reason of corruption in the system.

Parekh also said that corruption is enveloping in the sector as the process involves comprehensive approvals and for each approvals the builder pays, which he eventually evens it by pricing the property at higher cost, which the buyers has to tolerate.

While speaking regarding the surprising success in the general election by Aam Aadmi Party, led by an anti-corruption activist Arvind Kejriwal who is likely to take oath as chief minister of Delhi; Parekh also commented that the anti-corruption movement by Anna Hazare two years ago forced the Parliament to pass the anti-corruption Lokpal Bill.

While stressing numerous incidences of corruption, Kejriwal also reported about the connection between the politics and real estate. Carping, the paralyzed situation of the United Progressive Alliance (UPA), Parekh said that the process should be cleaned and also suggested the government on the troubles in policies.

He also added that in order to regulate the sector, the real estate regulation bill was introduced by government in August in Parliament.

Insisting for single-window clearance and online approvals in the sector, Girija Vyas, Union Minister for Housing and Urban Poverty Alleviation (HUPA) said that the system is widespread of corruption, which is undeniable. He also stated that the Regulatory Bill will carry transparency and will protect the interests of all stakeholders and consumers.

Vyas also added that the Real Estate (Regulation and Development) Bill 2013 is initiated to a House standing committee and is expected get approval in the next session of Parliament. Adding to this statement, Parekh said that the some of the excuse in the procedures need to be retained, which would help in impeding the corruption.

Vyas also conferred about the Urban Land Ceiling (ULC) Act, which is redundant, but still ULC approval is considered during constructions. He also said that ULC Act does not exist but still ULC Department works and the builders should get no-objection certificate (NOC) from them. And any case that involves ULC, judges doesn’t want to hear; however, still constructions are stopped because of ULC and even now many cases related to ULC exist in the courts. He ended his discussion saying that wrecked policies should be fixed to stop corruption.

He also insisted on the need of a realty controller to organize and poise different government bodies and to present a structured method. Further, he said that the regulatory body should bump up fear in a builder or an individual related to the sector, when thinking of doing anything wrong as they can be rebuked or dodged, but now-a-days no one fears of doing anything. 

Parekh also advised for incentive programs for builders who launch affordable housing projects as it will make them to come-up with more projects of similar kind that will also increase supply. He also inculcates the developers to select some tactics from previous periods and should give least prominence to profit, until they can attract more buyers to the market.

To increase the housing stock resources, Parekh also advocated increasing Floor Space Index (FSI), expansion in infrastructure, setting up new cities, and determining defective policies.

In the past five years, too expensive homes, economic slowdown, and rising interest rates increase home prices above 50-150% in various cities across India, due to which home sales declined, builders become debt-driven, and the anticipated cumulative debt of top eight companies was about Rs.40, 000 crore that enforced the Finance Minister P Chidambaram and Central Bank to announce counseling warnings to bankers and industry. By the end of September 2013, the unsold inventory in the country was about 711 million Sq. Ft against the 670 million Sq. Ft. of the end of June 2013 and to clear this stock developers may need another three years, stated a report of  Liases Foras, a property research firm.

According to the study of World Bank Doing Business for 2014 on dealing with construction-linked clearances showed that India was positioned at 182nd place, which was the lowest. For instance, in Mumbai around 48 approvals are required for any residential projects and developers expressed their views against the corruption involved in it and they propped up Parekh about the same.

Lalit Kumar Jain, Chairman of Confederation of Real Estate Developers Associations of India (CREDAI) questioned about the developers approach to numerous departments for no-objection certificates (NOC) and stated that single-window clearance is the only answer for it and will trim down corruption and human contact.  Before, he expressed that the Real Estate Regulatory Bill will cleanse the system when it is passed and executed.  If the Bill controls the approval system, then it would cut the time taken for approvals as well as the corruption associated with it that will decrease the property costs by as much as 25%.

Jain also said that in the country a developer usually needs to get a minimum of 40 approvals at different stages that entails 150 officers that also causes delay in the completion of the project sometimes.

Adding to the approval system, Niranjan Hiranandani, Managing Director of Hirananadani Group, one of the Mumbai’s major builders said that it used to take only six months to get all the approvals fifteen years ago, but now it takes 2-3 years that on the whole adds financial trouble to the developers.

Vikas Oberoi of Oberoi Realty questioned that why realty prices should not be more normal, if approvals are restructured.