Ease of doing business: Real estate strangled by bureaucracy and corruption.
India | Red Newswire | Source: ET Bureau | Nov 18 2015 04.07 AM IST.
About a month ago, Suraj Parmar, promoter of Mumbai-based Cosmos Group, wrote a 15-page letter and shot himself with a.32 calibre pistol. In his suicide note, Parmar blamed local body officials, politicians and complained about red-tapism and extortion as reasons for his suicide. Mumbai-based builders, who knew very Parmar well, have not been able to come to terms with his death.
“It’s very sad… by no means, Parmar was a weak man. He was very strong… probably amongst the strongest builders in all of Mumbai,” remembers Niranjan Hiranandani, CMD of Hiranandani Group. “It just tells you about the kind of pressure builders take upon themselves. It can break the strongest of men in business,” he adds. Ironically, Parmar’s suicide preceded the World Bank’s Ease of Doing Business (EODB) report by a few weeks, wherein India was ranked at 130 (out of 189 countries). According to the report, it takes 29 days to start a business in India vis-a-vis 127 days in 2004. That number stacks up well, but does not reflect the true state of affairs in the real estate business.
RUNNING PILLAR TO POST
“Getting permissions is still a big problem across the country. There’s delay in getting project approvals and infrastructure clearances,” laments Adi Godrej, chairman of Godrej group. “Rules also keep changing at regular intervals. Higher interest cost, newer regulatory mandates, manpower costs et al are driving up real estate prices across the country,” he explains.
In the EODB report subranking, India is slotted at 183rd spot in terms of getting construction permits and 138th in the ease of property registration. “Real estate laws are mostly state laws and there are lot of legal overlaps here,” says Getamber Anand, president, Confederation of Real Estate Developers’ Association of India (CREDAI). “In most states, real estate builders are required to get 40-70 approvals before starting a project. These approvals take anywhere between 2 and 4 years to come by,” adds Anand, arguing that the whole process of approvals must be made online to reduce corruption and bribery, which is rampant in the business.
Currently, realtors have to seek approvals from National Highways Authority of India, the pollution department, ministry of environment, Airports Authority of India, labour ministry, Central Ground Water Board and Directorate General of Civil Aviation among many other sub-departments. Clearances from the water department, electricity board, coastal regulation zone tribunal, sewage department and fire department are also required before starting a new project. Local bodies’ inspection and frequent changes in local laws brim up the builders’ cup of woes.
A CREDAI report says on an average it takes 2-3 years to start a project after land is acquired; by this time the cost of land rises by 24-30 per cent due to hefty interest payments as bank loans are not available for procuring important raw material in this sector. The added cost ultimately gets passed on to the customer. “Senior officials are now more proactive in their approach. The big problem is at the ground level – at the local department level. At this level, they don’t ask bribes anymore; they simply run an extortion racket here. Bribe rates are as high as Rs 1,000-1,200 a sq ft at this level,” says Hiranandani.
Apart from nagging approvals and time-delays thereof, builders are irked by regulatory mandates like getting plinth certificates at the completion of each floors, hassles in getting occupancy certificates and obtaining ‘nonagricultural land clearance’ for land that is already under the city development plan.
LOOK AT SINGAPORE!
Most builders approve of the Singapore model, where more approvals come in 3-4 months. In India, Uttar Pradesh, Rajasthan, Hyderabad and Haryana have relatively easier construction laws while states like Tamil Nadu, Maharashtra and Karnataka follow a very strict and tedious regimen. “Land acquisition is a big problem across the country. The only way out is to carve out pre-approved construction zones,” says Rubi Arya, executive vice-chairman of Milestone Capital, which invests in real estate sector. “Once the zone of carved out, the local body has to only approve the building plan. And once the building is completed, the local body has to approve the structure.
And if the builder has strayed away from the plan, he has to be penalised,” she adds. Anuj Puri, country head of JLL India, takes this idea to the next level and advocates self-attestation. “The local bodies should have structured bylaws which explicitly state what is expected of builders.
Once local body officials approve the building plan, the onus of adhering to bylaws should be on the builder. If bylaws are not complied with, the project should not get sale clearance and the builder must be punished,” says Puri.
In what may seem like light at the end of a tunnel, states like Maharashtra and West Bengal are working towards easing the approvals process and reducing scope for payment of bribes to lower-level officers. “We’re seeing positive signs in cities like Mumbai. At least, there’s zeropendency of files at the higher levels. There’s a need to bring in more technology to this whole bureaucratic process. Only a paper-less system would end the bribe culture,” believes Vikas Oberoi, CMD of Oberoi Realty.