Affordable urban housing
A study estimates that for every direct job created in the housing industry, eight jobs are created indirectly as Indian real estate sector is on a high growth trajectory, writes Saikat Neogi.
Investments in real estate have a multiplier effect on income and employment. A HUDCO-IIM Ahmedabad study estimates that every rupee invested in this sector adds 78 paisa to the state's GDE.
The study estimates that for every direct job created in the housing industry, eight jobs are created indirectly as Indian real estate sector is on a high growth trajectory. And according to global consultancy firm, Merrill Lynch, the sector will grow from $12 billion in 2005 to $90 billion by 2015.
Much of the growth will come from the housing market. Despite the good news that the average home ownership age has come down from 45 years in the 1980s to 32 years now, India's realty sector is still dominated by the unorganised and fly-by-night players. Very few corporates and large players have a national presence.
It is well known that rising middle class salaries, easy access to finance and affordable interest rates have given a boost to the industry but restrictive legislations and non-transparent transactions have nullified some of these gains India's real estate sector is governed by over 100 and mostly archaic laws, some even dating back to the 19th century.
These barriers extract an exorbitant cost: a McKinsey study calculates that removing land market barriers can contribute an addi- tional one per cent to India's GDP growth rate. Confirming the trend, a World Bank study estimates that an average housing project in India takes anything up to six years to complete as against 15-18 months in China. India also charges one of the highest levels of stamp duty in the world.
In most states, it ranges from 10 to 15 per cent, though Delhi has brought it down to a low 6 per cent recently for certain categories of home buyer High stamp duties have lead to unregistered - and all cash-property transactions and transfers through the Power of Attorney, entailing considerable financial loss to the exchequer. The National Housing and Habitat Policy of 1998 recommended a stamp duty rate of 2-3 per cent across the country but it is nowhere near implementation. The Urban Land (Ceiling & Regulation) Act 1976 hinders availability of land for housing projects.
The Centre in 1999 repealed the Act, but it still remains in force in states like Andhra Pradesh, Assam, Bihar, Maharashtra, Jharkhand and West Bengal. Similarly, a creaky land title monitoring system often results in ordinary people being duped. The revenue records are not documents of titles, and ownership is established only by the sequence of earlier transfers.
This has led to enormous litigations, with the All India Bar Association estimating that about 40 per centof all litigations filed in lower courts and state high courts put together are related to land ownership or property related disputes. Under the Rent Control Act, many tenants still pay the same rent that they used to pay decades ago. This has not only discouraged fresh investment in housing for rental purpose, but has also led to a deterioration in the physical condition of many houses, with landlords reluctant to invest in repairs. Municipal property tax collection is stagnating as it is based on the rent and the number of litigations between landlords and tenants has been piling in various courts across the country.
The need for comprehensive legal reforms is going to be taken up by the proposed National Housing and Urban Habitat Policy 2006. It envisages that by 2021 every homeless Indian would have a house of his own. Many analysts feel that along with legal reforms, the sector also needs to get the status of an infrastructural industry, which attracts lower taxes and gets low cost funds.
All this would help the Indian real estate sector realise its real potential even though it will be overoptimistic to assume that universal housing is within our reach.
There will be a shortage of 24.71 million houses by the end of 2007. And in the next10 to 15 years, 80 to 90 million houses will have to be constructed in India. Office space requirement is slated to triple to at least 60 to 80 million square feet by 2010. 600 new shopping malls are expected to be in place by 2010, as compared to 1999 when India's first mall opened.
The Indian realty sector is expected to expand from $12 billion in 2005 to $90 billion by 2015. m In 2005 the government permitted 100% FDI in housing and townships. Around $7 to $10 billion FDI in real estate sector is expected in the next three years. a 7396 of the housing loans disbursed by housing finance companies are for Rs 3 lakh and above. Only 0.2% are for less than Rs 50,000. Home loans account for 11% of total outstanding credit of scheduled com mercial banks in March 2005, up from just 2.4% in March 1990.