Major changes which can transform Indian real estate towards growth
Real estate sector’s role is crucial in any economy and is a barometer of its health. In India, It's the second-largest direct employment generator when agriculture and incorporates a larger number impact because it affects over 250 auxiliary sectors.
The sector however has not realised even a fraction of its potential as it has been pulled back by the in-famous opaqueness and notoriously litigious nature, one of the key reasons for not being able to attract the required institutional capital. The recent reforms like the Real Estate Regulation Act (RERA) and demonetisation show the government’s commitment in transforming it into an organised sector. However, these alone will not be sufficient in improving the ‘ease of doing business’ in improving the ‘ease of doing business’ in the sector. I believe the next wave of growth shall be from following targeted reforms.
Ease of land acquisition and digitisation of ownership records:
Non-availability of contiguous land due to fragmented ownership pattern post independence era, incorrect /unavailable data records on land ownership, unclear land titles make the whole process of land acquisition cumbersome and litigious.
To address land fragmentation, an effective policy on land pooling should be implemented under which small holders have to be adequately incentivised to come together and sell the aggregate land parcels for joint development by the government and private parties.
The significant game changer reform will be digitisation and dematerialisation of land records where a lot can be replicated from India’s own experience with the dematerialisation of financial securities. This calls for collection and maintenance of land data including surveys/ re-surveys to clear the disputed title records and regular updation on a single digital platform. A central authority should be created for successful co-ordination amongst the states. Digitisation can pave the way to attract title insurance companies. Title insurance is widely accepted globally by financial institutions, it is non-existent in India due to lack of transparency.
Additionally, formation of a centralised repository of land records can enable all transactions to happen online bringing in transparency and credibility to the sector.
Standardisation of construction norms and documentation:
Land being a state subject, all States and local bodies have separate norms on zoning policies, FSI, set back area, TDR, Slum Rehabilitation etc. These levels of complexity and variations have led to discretion of interpretation ushering corruption leading to project delays and cost overruns. Some of the instances are
a) Difference in fire safety norms across cities.
b) Occupancy certificate as a proof of completion v/s an additional requirement of completion certificate.
c) Agreement to sale v/s dual agreements — one on sale for transferring undivided share of land and a construction agreement
d) Executing property registration just at the time of possession v/s at the early stage.
For sustainable development, formulating uniform construction norms and documentation wherever possible can help. We have a central policy guiding institution under the aegis of the National Building Code of India (NBC). But in absence of statutory powers their guidelines have only remained on paper with the states framing their own.
De-layering and simplifying the approval process:
The industry at present has to deal with not less than 40 complex ‘No Objection Certificates’ before obtaining construction permits from local bodies, state governments and the central government. Lack of transparency in the approval process prevents access of financial credit at an early stage of project development.
Creating a single window online clearance platform where all approvals across departments can be managed in a coordinated manner is the need of the hour.
Rationalisation of tax structure:
Real estate is notoriously known for tax evasion. Rationalisation of various costs will encourage tax compliance and registration. Moreover, the data on registration on new sale, resale, and transacted values should be accessible online like it is being done in countries like the US.
Additionally, the entire tax structure can be simplified by introducing one tax at uniform rate across the states to enhance transparency.
Setting up a dedicated real estate ministry rather than focussing only on housing:
Given the size, significance and contribution to the economy, there is a strong case for setting up a dedicated ministry covering all segments of real estate in India. The present framework where the Centre only provides broad guidelines without any legislative authority does not provide it enough teeth and leaves the states with full discretion to implement norms that are inconsistent and misaligned with national guidelines, like seen in the case of RERA.
I believe a committee of all the state urban development ministers (chief ministers in most cases) should be formed to work under the Central ministry, similar to the process followed in GST, to collectively formulate policies that are consistent at a national level.