With Less Red Tape, Housing Will Become More Affordable
Indian real estate developers often claim that the regulatory process is the single- biggest barrier to affordability of housing. According to estimates of developers like Niranjan Hiranandani, the cost of receiving approvals can be up to 35 per cent of the cost of housing, and the process can take up to three to five years.
In fact, in the World Bank’s Ease of Doing Business Index, India’s position in dealing with construction permits is 184 among 189 countries.
In Mumbai and Delhi, on an average, it takes 147 and 231 days, respectively, to receive construction permits, while in Singapore and Hong Kong, it is 26 and 72 days, respectively. While in Mumbai and Delhi, the cost incurred when applying for construction permits is 25.3 and 26.6 per cent, respectively, it is 0.3 in Singapore and 0.7 per cent in Hong Kong. Yet, the quality of buildings is much better in Singapore and Hong Kong when compared with Delhi and Mumbai.
The government, however, plans to give quick approvals to real estate developers, following Hong Kong’s successful model. Real estate developers expect the sector to see a revival if the government implements these proposals.
According to the plan, construction permits will be issued in 60 days. Once implemented, these changes would reduce the cost of building residential projects and would benefit both developers and home buyers. At present, developers need around 50 approvals from both central and state governments, and municipal corporations, which will now come down to a maximum of eight.
Urban policy experts and environmental economists have long maintained that no global city has environmental regulations which are as stringent as the ones in Indian cities. The Ministry of Civil Aviation will also help municipalities to decide how restrictive building height regulations should be in different areas, with colour-coded zonal maps.
According to some studies in the US, accelerating the process even by three months will lower costs by 5.7 per cent. Many administrative reforms, according to the World Bank, are not expensive, and often do not require any major change in regulations.
In Hong Kong, however, housing is still very expensive, partly because it is a land scarce country. It is also partly because of greater government involvement in housing and because the city state’s record in registering property and trading across borders is not good.
Environmental regulations tend to make the process even more time consuming because projects are often delayed because of litigation. But, the environment ministry has decided to cut down the norms builders are expected to comply with, from 30 to 6-8. Urban policy experts and environmental economists have long maintained that no global city has environmental regulations which are as stringent as in Indian cities like Mumbai. The civil aviation ministry will also help municipalities to decide how restrictive building height regulations should be in different areas, with color coded zonal maps.
A large fraction of the population in India’s large cities live in slums partly because the regulatory process is very expensive. A house will not be part of the formal economy if it does not comply with regulation stipulated by the government. This prevents people with low income levels to own assets, and in many cases, they do have a strong preference for owning real estate assets. Presently, they are not able to fully benefit from owning property. If private corporations or real estate developers were in a similar situation, their growth would have been severely restricted. Moreover, when the regulatory process is expensive, more buildings are likely to have structural problems or even collapse, leading to the death of many people. This is especially true of countries like India and other low income countries like Nigeria.
The Indian government wants to accelerate the process by giving construction permits in 6 months and this is a huge improvement because some studies in the United States indicate that even accelerating the process by 3 months will lower costs by 5.7 per cent. So, accelerating the process by many years will lower the cost substantially. Many administrative reforms, according to World Bank, are not expensive, and often do not require any major change in regulations. This is so, throughout the world, and India is no exception.
Construction norms also tend to be regressive because they are not progressively revised. So, even when technology progresses and when there are better methods of construction, builders are forced to do things inefficiently, to abide by regulations. Moreover, when the regulatory process is complex, long and ridden with ambiguity, corruption is more likely. Many policy analysts and developers maintain that the regulatory process is enough to break the back of any honest builder. This, again, raise the cost of housing, making it beyond the reach of most people.
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