Budget 2013 Must Introduce A Single Window System

Mohit Ralhan, Managing Partner, Indus Balaji shares with us his expectations from the Union Budget 2013 with respect to the real estate sector

1) Cost Of Borrowing: Domestic interest rates have a direct impact on the real estate sector. High real and nominal rates are stifling borrowing, both from developers and end consumers. Therefore there are expectations regarding recommendations for lowering the base rates and lending rates. The RBI could for instance use tools like repo rates, CRR and SLR to achieve this goal.

Also, to address the issue of affordable housing, the scope of interest rate subsidy of loans could be widened and deepened to target lower and middle income groups. There is also a demand for liberalisation of finance which bolsters the existing forms of finance. For instance, widening the scope of External Commercial Borrowings could be considered.

2) Industry Status: Real Estate contributes about 5% to India’s GDP. By granting industry status to the sector, the efficiency and rationalisation of processes would take place. Additionally, borrowing terms like interest rates and collateral requirements would become more favorable as a whole. Affordable housing can be granted an infrastructure status as a sub-sector. This would in turn reduce clearances required from state governments.

3) Land Titles: Owing to the lack of clarity in record keeping, there is a need for regularisation and digitisation of land records. This would increase investor confidence.

4) Special Residential Zone (SRZ): Just like SEZs, SRZs could be used to incentivise the development of real estate and also to cater to affordable housing.

5) Infrastructure Spending: By channelising infra spending, the government could encourage the population in central metros to radiate outwards into sub-urban and peripheral areas. This would also help in mitigating the high property prices in the central areas.

6) Unlock Approval Pipelines: For getting a single project approved, one has to take about 57 permissions, which could take up to 2 years. Therefore there is huge demand for a single window clearance system.

7) Spurring Investor Interest (REIT): REIT, as a financial instrument with underlying real estate assets, should be encouraged to make the markets more liquid and efficient. It would also support the government’s goal of financial inclusion by allowing small investors to participate in the market.

8) Enactment of Real Estate Regulatory Bill: This draft bill is pending since 2009. Establishment of a regulatory authority is a must for organising the sector. A state-level authority could also be established for local supervision.

9) Input Costs: In the last 2 years, these costs have risen by 50%. Inflation, higher development charges, licenses and charges for change of land use are responsible for this price rise. Measures must thus be taken to subsidise construction materials and rationalise fees particularly for lower income group housing.

10) Land Acquisition, Rehabilitation and Resettlement Bill: The passing of the Land Bill, which has been deferred due to the budget session, must be addressed effectively.

11) Real Estate Brokerage Market: The government regulation and licensing of this market is a must, considering the dismal customer opinion of real estate agents. Moreover, policies that are geared towards increasing foreign investment in this segment would uplift the service standards and promote healthy competition, thereby addressing customer needs.