MUMBAI, May 29, 2012: Taking the menace and curse of black money in real estate head-on CREDAI today called for an all round reforms and ending the ‘License Raj’ that still governs the developer community across the country.
The recent “White Paper on Black Money’ presented by Union Finance Minister Mr Pranab Mukherjee is a good attempt at focusing the nation’s attention on the issue, but it unfortunately picks on the real estate and deals with just a couple of issues like the Stamp Duty as though that is the only cause of the problem, said Mr. Lalit Kumar Jain, National President – CREDAI (Confederation of Real Estate Developers’ Associations of India).
In a presentation to the media on black money, Mr Jain lamented: “The real estate developer community has become a favourite punching bag for many whenever they talk about the national curse. Like Mart Twain said about weather, everybody talks about black money, but nobody does anything about it.”
“We too hate the system that labels us as crooks, cheats and breeders of black money,” he said and called for realizing the fact that the various bottlenecks at government level at Centre and in several States are equally responsible for this menace.
The economic reforms initiated by Prime Minister Manmohan Singh as the Finance Minister over 20 years ago have seen the end of the Licence Raj, but the real estate sector is still governed by controls and increased controls, Mr Jain regretted.
The developer community and CREDAI have been pointing out that there are over 40 clearances that a developer is supposed to get which leads to human interaction with over 150 officials at various stages. Any delay at any stage obviously gives rise to “greasing of palms” as the developer is always anxious to finish his project in time and avoid delays.
“As you all know, real estate is a highly capital intensive industry and any delays would only add to the interest burden for developer who scrupulously tries to avoid it since the increased costs would lead to cut in is margins and rise in the cost for the customer,” Mr Jain explained.
Focusing on other issues that lead to the blame game, Mr. Jain took explained that land transactions, corruption related approvals and license process, power in the hands of officials and threats to stop work, the political system and above all the taxation system.
A McKinsey report to the Government of India on cost of approval had clearly pointed out that the costs incurred on account f various approvals could constitute anything up to 40% of the sale value. Such is the enormity of the problem of approvals.
FM has admitted that the real estate sector in India constitutes about 11 per cent of the GDP and said: “a large number of transactions in the real estate sector are not reported on account of very high levels of property transaction taxes, commonly in the form of stamp duty.”
The Minister said: “Investment in property is a common means of parking unaccounted money and a large number of transactions in real estate are not reported or are under-reported. This is mainly on account of very high levels of property transaction taxes, commonly in the form of stamp duty. High transaction taxes in property are one of the biggest impediments to the development of an efficient property market.
Having narrated all these, the Finance Minister ducks by saying: “The role of the central government in reforms of the real estate sector is generally limited and advisory in nature.”
Then the Minister felt: “There may also be a case for integration of local urban authorities in a nationwide digital database and sharing of data and information with state and central agencies.”
It is not simple as the White Paper put it, Mr. Jain, said: “We are victims of the system, not the Beneficiaries! We hate this system which makes us look ugly. We curse every person who exploits us to give us a legitimate permission which we deserve instantly and without any illegitimate demand.”
Restricted land use and continued pressure on land availability is also one of the root causes of high costs of inputs and the resultant sale price, he said.
“Like any prudent businessman, we are also here to make profits, otherwise it simply does not make sense for to be in the business,” he said.
CREDAI is in the forefront suggesting single window system for project clearances to cut down time and chance for corruption and has presented a comprehensive reforms plan to the Union Urban development Minister Mr. Kamal Nath at a CREDAI conclave at Singapore in July last year.
CREDAI suggested reforms in four key areas that impact the real estate - Administrative Land, Tax and Banking. There has been a lot of talk on this, but no action.
Experience in several countries has clearly demonstrated that real estate reforms have resulted in increased availability of housing stock that made prices stable, where as in India the serious issue of affordable housing has been reduced to a joke. Even Government board built houses beyond reach of the Common man.
There is no clarity on land policy and there is absolutely no control over cost of funding and other inputs.
With rapid urbanization, the nation witnessing an ever increasing demand-supply mismatch and we developers are being blamed for an ‘artificial shortage’ of homes
It does not require brains to realize that shortage of any product leads to price hike and Real Estate is no exception.
In this context, CREDAI has suggested Special Housing Zones on lines of SEZ, but sadly there has been no movement on this. We strongly feel that the extension of facilities that are given to SEZ to even real estate could easily help in making affordable housing a reality.
As we allow the development in the outskirts of the existing cities, the government also needs to concentrate on infrastructure development which is lacking now, he said.
“Every rupee invested in real estate sector, contributes to addition of 78 paise to GDP,” Mr. Jain said and added: “We the developer community are ready to play our role and we sincerely appeal to the governments to play the role of facilitator and not prevented