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In recent times, the clamour to grant infrastructure status to the real estate sector has been on the rise. Once the government accords industry or infrastructure status to the sector, it will lead to a simplification of procedures and speedier approvals for projects.
, A developer of a project is required to comply with a long list of regulations. These include getting approval of development plans and building plans, and ensuring compliance with fire, pollution control, electricity, environment, water and so on.
approval process
As per World Bank’s statistics on Dealing with Construction Permits, a developer in India has to procure 34 different approvals before a residential project can get off the ground. This is a massive procedural burden when compared with developed economies, where not more than 15-16 approvals are needed. In fact, it is high even by emerging markets standards — in Brazil it only takes 17 permits, in South Africa 13 and in China 28. There is a need to define at what stage of approval the developer can start marketing his project to consumers.
As per CREDAI-Jones Lang Lasalle Real Estate Transparency Survey 2011, getting regulatory approval for the construction process takes two to two-and-a-half years in India. The financing cost increases as well — and is passed on to the buyer.
Fast approval of all such clearances would become a distinct possibility if the sector is granted industry status. It would ensure that projects can get a single-window clearance for regulatory requirements instead of getting them independently from various agencies, wasting time. Industry status would also lead to relaxation of lending norms to the sector.
Access to capital is the biggest need for many developers today as banks are reluctant to offer a credit line to many projects currently under development. Such constraints force developers to borrow from non-banking institutions at exorbitant rates of interest. It is not uncommon for builders to borrow at 18-24 per cent.
This aggravates their cash flow and makes it onerous for them to service those debts. Industry status will facilitate real estate loans at a lower rate, boosting the confidence of the sector.
Beneficial effects
Given the contribution of the real estate sector to the health of the overall economy, the demand for grant of industry status is justified. The industry is known to contribute approximately 6 per cent to our GDP and is known to be the next biggest employer after agriculture. A host of ancillary industries such as steel, cement, paint, brick, building materials, consumer durables and so on are known to be dependent on it.
A study by credit rating agency ICRA shows that the construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the Indian economy.
A unit increase in expenditure in the real estate sector can generate a fivefold increase in income.
In view of the contribution of the real estate sector, the sooner it is granted industry status the better it will be for the health of our economy.
The author is Vice-Chairman, Lotus Greens Developers.
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