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Rediff.com  » Business » 'Govt should bring reforms in realty sector'

'Govt should bring reforms in realty sector'

May 21, 2010 10:56 IST

While the realty sector continues to face regulatory and monetary risks, it lacks transparency and marks with time overruns. In an interview with Business Standard, the newly appointed president of Maharashtra Chamber of Housing Industry Sunil Mantri spoke on various issues

What's the present state of the realty sector?
The realty sector is growing at 20-25 per cent at the national level. Mumbai has slightly better edge with a growth of 30 per cent. Although there has been an increase in the supply side it is very marginal compared to the growth in Mumbai and other parts of India.

However, the sector continues to be controlled by the government. Floor Space Index regulations, environment clearances, building permits, conversion of land from agriculture to residential and connectivity are totally controlled by the government. Environment clearance takes 6-12 months. The government will have to simplify these procedures and also create satellite areas. Till the supply side is increased prices will not fall.

To bring the prices under control and make it affordable to each and everyone, the government has to keep only one single-point agenda of increasing the supply in a big way and bring the reforms. In airlines and mobile services, the immense increase in supply volumes contributed substantially and ultimately benifitted the consumers.

Still the builders and developers have done little to bring changes. Whats your take on this?
I admit the sector lacks transparency. There are delays and time overruns in completion of projects. There is scarcity of trained and skilled manpower. However, the situation is changing slowly. Builders and developers are already declaring carpet area in brochures for the knowledge of the customers. The cash component has been eliminated as payment by cheque has become the order of the day. Slowly but steadily corporate culture is picking up.

How has the sector positioned itself to raise funds?
Funding continues to be a huge challenge for this sector. Banks are reluctant to provide funds to developers. This delays the progress of the construction.

After the economic slowdown in 2007, investment from private equity players has eroded drastically. PE investors expect very high returns. This is impacting the growth of the sector in a big way.

Banks should provide funds to the sector by following escrow mechanism which is usually done in international markets so that huge funds are available for the construction to take off. For the affordable segment, government should reintroduce 80 IB whereby tax concession to the developers are given for construction of affordable houses.

Government can also think of collecting a development premium by giving extra FSI which will exclusively be used for infrastructure development.

Mumbai enjoys special place though it has its own problems. Can you please throw some light on this aspect?
In case of Mumbai, there is always huge housing shortage and influx of people in metropolis further increased demand. The government should sell the transfer of development right aggressively as this would mean that TDR will be available at an affordable price. The government can also think of giving extra FSI. Building permission plans be sanctioned within three days with minimal conditions against 58 conditions which the realty player has to meet.

Builders and developers are opposed to the government's proposal for a regulator for the sector. Whats your views?
The government has received over 5,000 suggestions and objections to its proposal to put in place a regulator for the realty sector. In my opinion, the introduction of a regulator will bring chaos to the sector as the builders and developers are already overregulated. The government can suggest states to bring in legislation on the lines of the Maharashtra Ownership Flats Act which regulates the relationship between the developer and customer. Under the MOFA provisions, all documents between the developer and the seller needs to be registered. MOFA envisages protection of interest of the customers substantially.

Moreover, land trading in India is free commodity. Even the government auctions the land and therefore sale prices of flats cannot be regulated.

Sanjay Jog
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