Real Troubles of Real Estate Developers

The Government has noble intentions around the sector, amply displayed by ‘Housing for All by 2022’, Bringing in Transparency (RERA), attracting Investments (REIT), 100 Smart Cities and more, which are appreciable.

However, the Private Real Estate players are not currently in the pink of health, and that’s something the Government needs to think about, seriously and now – not just to fulfill its promises, but to save the Industry from its downfall, protect India’s image as an Investment destination and more importantly to safe-guard homebuyers’ interest.

Here’s a quick snapshot of the problems that plague the Industry today, and what the Government can do to energize the 2nd/ 3rd largest sector in terms of GDP.

1.   Land Acquisition related:

Current Situation: The Builder identifies the land, checks for legal clarity (which is herculean task in itself, with no Agency/ Authority certifying the title) and buys the land by incurring upfront cost. The civic authority has a website to show Land & Revenue records, but won’t say if the site is litigated OR if it’s a grant land. High Courts show list of pending cases, if any on the survey number. The Sub-Registrar files show only the previous Registration history, but not disputes. So, meaningful information based on which decisions can be taken is scattered all over the place and no single agency (or group of agencies) take the responsibility of issuing land title clearance. And RERA insists Land Title should be insured, when Government itself won’t. Builders have to have a large legal team or get multiple legal opinions and still can’t be sure.

Government support required: Show all information including Land titles, Revenue records & litigations on one portal. Bring in title clarity to all lands and certify. Digitize the land records, and don’t bring in retroactive regulations.

2.   Government Approvals:

Current Situation: The Builder needs permission from Government agencies (plan sanctions, Commencement Certificate) before he begins construction. This takes anywhere between 12 and 24 months, practically. During construction & post completion, there are furthermore clearances from multiple Government agencies (City planning authority, Electricity Company, Water & Sewerage Board, Fire Department, Environment Ministry, Pollution Control Board, Airports, etc.,) which further add up to the cost and the time taken to deliver the project. Builders need a separate liaison team to deal with various agencies, as of now.

Government support required: Make an “Online” single-window clearance (like for Passport, Driving license, etc.,) with a reasonable and fixed ‘Turn around Time’ (TAT), with Escalation process built in. And if not cleared within the window, there should be a ‘Deemed Approval’ of the Project. This will bring in the single biggest cheer to the sector, and cut down red-tape drastically.

Whether Stamp duty should come within the GST ambit, may be studied further.

3.   Cost of Construction related:

Current Situation: Both Labour cost and Construction materials are going high. The construction materials pricing sometimes goes up dramatically, and without notice. Cement & Paint are still in the highest GST bracket, even after the recent GST slabs revision on most items. Builders currently borrow at very high rates from Banks/ NBFC’s and other Players, which adds upto the Cost of Capital significantly, especially after RERA allowing only 70% of funds to be available for Construction from Revenue.

Government support required: Makes rules around Input costs – man and material. Bring down tax slabs on Construction materials to achiever lower costs of construction and thus 'Housing for All'. Banks to lend money at lower rates AND/ OR set up a ‘Fund’ for Builders to borrow from, for Project duration.

4.   Sale related:

Current Situation: Builders in many cities have unsold Inventories and the interest cost of this Capital is swelling up. The uncertainties around RERA, Demonetisation & GST have slowed down Sales in the last 12 months or so. These issues if not solved, there will be a mass exodus of Builders from the sector, thereby leading to only a few big Builders around and a ‘Oligopoly market play’.

Government support required: Lower Buyer Home loan interest rates further, and offer better tax breaks, to rejuvenate demand.

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These issues, once sorted, will not only breathe new life into the Industry, but will reduce pricing significantly and will help make ‘Housing Affordable’, another key focus area of the Government.

Request my friends from the Industry to add their points and commentary.