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The price of corruption

Real estate developers claim property prices would be 30-40% cheaper if they did not have to bribe their way through the system

realestate Updated: May 23, 2014 18:21 IST

Do you know that a major chunk of the money that you pay to your developer to purchase an apartment is spent ‘buying’ various approvals from government departments? If one goes by what more than a dozen real estate builders have alleged, corruption in real estate plays a crucial role in property price escalation in Delhi NCR.

More than a dozen real estate developers have alleged that they have had to grease the palms of various government officials at various stages of construction of their projects for approvals. This is also the reason why launching an ‘affordable’ apartment has become virtually impossible.
“If the total construction cost of my group housing project is Rs. 10 crore, the actual cost of the project is about Rs. 6 crore to Rs. 7 crore. This means Rs. 3 crore to Rs. 4 crore has to be earmarked to bribe some government officials. That is added to the cost of the apartment,” says a real estate developer requesting anonymity.

Bringing more transparency into the system would mean no bribes, which would translate to cheaper homes - a Rs. 50 lakh apartment in a group housing project could come down to Rs. 35 lakh, developers claim.

Many of them complain they have to start greasing the palms of "officials" from day one - when they apply to the development authority for land. In some states, they buy land directly from the farmers and then apply to the competent authority for licence and building plan sanction. "Bribe money has to be set aside for the sanctions," alleges another developer.

In some states that follow the system of “tender for land allotment, the tender just happens to be a formality, an eyewash as the land is given to the builder who pays the biggest bribe to the government authorities. If by any chance the tender process is fair, bribes are demanded during grant of approval for layout plans,” the developer adds.

How are bribes taken for grant of approvals? A developer who has big ticket projects in various states, says “Many development authority officials in charge of the approvals don’t move applications. In case you enquire about the delay they advise you to meet an influential person, a politician or his secretary in the capital of the state you are in. It is understood you pay a bribe to the person mentioned for your documents to be cleared.” MN Buch, town planner and former vice chairman Delhi Development Authority, says “It’s a well-known fact that developers have to pay a bribe at every stage to get approvals and this money goes from the officers of a development authority to the chief minister of the state.”

He also has solutions. Make the system of approvals online so that corruption can be stopped, he says. Disagreeing with the developer’s claim that property prices will come down, Butch adds, “The prices will stay where they are because the developers will pocket whatever they will save. The homebuyers will not get any relief.”

Everything comes for a price - from sanctioning of layout plans to getting electricity connections. “I paid a Rs. 1 crore bribe to get electricity connections in my group housing project last year,” says a developer.
It’s the developer-authority nexus, alleges Buch, that is the bane of the realty sector. “The developers pay bribes to get illegal floor area ratio (FAR) and approvals to use more than the area sanctioned to make more money. The officials of the authority make money and the developer gets permission for illegal construction.”

Disagreeing, builders say if they want to go by the law book it will take them years to get approvals so they have no options but to pay bribes.