By: Lalit Kumar Jain, Chairman, CREDAI
Track2Realty Exclusive: With a vision to make India a housing surplus nation from being the housing shortage country, CREDAI has been campaigning to make the business environment congenial for growth. But the realty bill, in its current form and shape, stifles the honest developer and scares away new entrepreneurs from entering the sector.
How can you expect the industry to grow if you discourage it at all stages of business? We, developers have decided to say ‘No’ to corruption and not to bribe any officials. Many may have laughed at us since it is impossible to get things done in the existing system of the necessity to acquire multiple clearances with human interface at each and every step.
On the one hand, banks are discouraged to lend to real estate developers while on the other cost of funds from non-banking sources is prohibitively high. CREDAI has also volunteered to work with the Indian Banks Association on the proposed committee on housing sector which was mooted by the Finance Minister.
The current size of the real estate industry is estimated to be about 180 Billion USD with a CAGR of 18-20 per cent. For the past two years, however, liquidity in general and access to bank credits in particular has been restricted due to a variety of risks. Therefore, just as any other sector of the economy, the real estate sector has also found it difficult to tap bank resources and bank credits.
It estimated that out of the huge investment in the organized real estate industry funding by the commercial banks is negligible. Banks and finance companies are still wary of financing real estate sector as RBI always keeps it in the negative list. It is ironic that while home loans are a top priority, the home developers are not.
We do understand the concerns over prevailing high prices of houses. It is a typical egg-and-chicken scenario. The general sentiments in the market and the economy are preventing buyers to move and developers are unable to bring down the prices because of very high cost of construction.
The other key factors that add to the high cost of realty are the ever increasing local municipal taxes, ready-reckoner rates for deciding stamp duty, cess and even VAT. For instance in Mumbai, the financial and real estate capital, the burden on developers has risen on account of fungible area. The cost of labor has gone up by as high as 60 per cent over the past two years.
CREDAI pleaded for declaring housing as a priority sector at par with infrastructure and suggested that home loans be given at 7 per cent for the low income groups and economically weaker sections. Similarly, the margin money contribution for availing home loans should be reduced to 15 per cent from the prevailing 20 to 30 per cent. We suggested a rollover provision of loans to real estate.
The NPA norms should also be modified to allow this accommodation by the banks, housing finance institutions and financial institutions. We also want removal of the disparity in risk weights. Risk weight assigned to real estate projects should be reduced at par with other industries for the purpose of credit-disbursal by banks.
Most importantly, we need mindset reforms and people at the helm must be willing to take decisions. Senseless procrastination must be done away with. For instance, the environment department has been just sitting on files for inexplicable reason. The department’s stubborn attitude has cost the developer community and ultimately the buyers as the delays have resulted in cost hikes.
With this background, we do hope that the new government that comes to power will look at the real estate industry as a priority sector since we the developer community meet the most important need–after food and clothing-of a human being. We need comprehensive and big ticket reforms and only a strong and decisive government can help save the nation from the current state of stagnation.
