HT :  Affordable urban housing : Oct 8 , 2007

Affordable urban housing
 India's archaic laws and policy barriers come at an enormous cost. A
McKinsey study estimates that removing land market obstructions can
contribute an extra one per cent to India's GDP growth rate
 Saikat Neogi



I NVESTMENTS IN real estate have a multiplier effect on income and
employment. A HUDCO-IIM Ahmedabad study estimates that every rupee invested
in this sector adds 78 paisa to the state's GDP. The study estimates that
for every direct job created in the housing industry, eight jobs are created
indirectly.
Indian real estate sector is on a high growth trajectory And .
according to global consultancy firm, Merrill Lynch, the sector will grow
from $12 billion in 2005 to $90 billion by 2015. Much of the growth will
come from the housing market.
Despite the good news that the average home ownership age ha come down from
45 years in the 1980s to 32 years now, India's realty sector is still
dominated by the unorganized and fly-by-night players. Very few corporates
and large players have a national presence.
It is well known that rising middle class salaries, easy access to finance
and affordable interest rates have given a boost to the industry but
restrictive legislations and non-transparent transactions have nullified
some of these gains. India's real estate sector is governed by over 100 and
mostly archaic laws, some even dating back to the 19th century. These
barriers extract an exorbitant cost: a McKinsey study calculates that
removing land market barriers can contribute an addi tional one per cent to
India's GDP growth rate.
Confirming the trend, a World Bank study estimates that an average housing
project in India takes anything up to six years to complete as against 15-18
months in China.
India also charges one of the highest levels of stamp duty in the world. In
most states it ranges from 10 to 15 per cent, though Delhi has brought it
down to a low 6 per cent recently for certain categories of home buyers.
High stamp duties have lead to unregistered - and all cash - property
transactions and transfers through the Power of Attorney, entailing
considerable financial loss to the exchequer. The National Housing and
Habitat Policy of 1998 recommended a stamp duty rate of 2-3 per cent across
the country but it is nowhere near implementation.
The Urban Land (Ceiling & Regula tion) Act 1976 hinders availability of land
for housing projects. The Centre in 1999 repealed the Act, but it still
remains in force in states like Andhra Pradesh, Assam, Bihar, Maharashtra,
Jharkhand and West Bengal. Similarly, a creaky land title monitoring system
often results in ordinary people being duped. The revenue records are not
documents of titles, and ownership is established only by the sequence of
earlier transfers. This has led to enormous litigations, with the All India
Bar Association estimating that about 40 per cent of all litigations filed
in lower courts and state high courts put together are related to land
ownership or property related disputes.
Under the Rent Control Act, many tenants still pay the same rent that they
used to pay decades ago. This has not only discouraged fresh investment in
housing for rental purpose, but has also led to a deterioration in the
physical condition of many houses, with landlords reluctant to invest in
repairs. Municipal property tax collection is stagnating as it is based on
the rent and the number of litigations between landlords and tenants has
been piling in various courts across the country .
The need for comprehensive legal reforms is going to be taken up by the
proposed National Housing and Urban Habitat Policy 2006. It envisages that
by 2021 every homeless Indian would have a house of his own. Many analysts
feel that along with legal reforms, the sector also needs to get the status
of an infrastructural industry, which attracts lower taxes and gets low cost
funds. All this would help the Indian real estate sector realize its real
potential even though it will be overoptimistic to assume that universal
housing is within our reach.
saikat.neogi@hindustantimes.com REALTY BYTES ¦ There will be a shortage of
24.71 million houses by the end of 2007. And in the next 10 to 15 years, 80
to 90 million houses will have to be constructed in India. ¦ Office space
requirement is slated to triple to at least 60 to 80 million square feet by
2010. ¦ 600 new shopping malls are expected to be in place by 2010, as
compared to 1999 when India's first mall opened. ¦ The Indian realty sector
is expected to expand from $12 billion in 2005 to $90 billion by 2015.
¦ In 2005 the government permitted 100% FDI in hous ing and townships.
Around $7 to $10 billion FDI in real estate sector is expected in the next
three years. ¦ 73% of the housing loans disbursed by housing finance
companies are for Rs 3 lakh and above. Only 0.2% are for less than Rs
50,000. ¦ Home loans account for 11% of total outstanding credit of
scheduled commercial banks in March 2005, up from just 2.4% in March 1990.
Sources: Planning Commission, Merrill Lynch, Deutsche Bank, Ficci, Jones
Lang Lasalle



Publication : HT; Section : Resarch; Pg : 9; Date : 8/10/07
URL :
http://epaper.hindustantimes.com/artMailDisp.aspx?article=08_10_2007_009_001&typ=0&pub=264