New Delhi: With housing projects facing huge delays and cost over-runs, Deepak Parekh, Chairman, HDFC has suggested an online single-window clearance system, which can also tackle the menace of 'speed money' associated with multiplicity of approvals in this sector.
Parekh, Chairman of housing finance major HDFC, said that various approvals for housing projects take as long as 18-24 months, particularly in some big cities, and the construction gets delayed even if developers wish to do it immediately.
"Meanwhile, the developer needs to service the loan taken for acquiring the land, without receiving corresponding cash flows. Further, because of the multiplicity of approvals, speed money is demanded, often at every stage of approval. The end result is that all these time and cost overruns are eventually borne by the home buyer," he said.
Delays in approvals from various regulatory and administrative authorities have been a major issue plaguing the real estate sector and the industry players have been asking the government for a long time to streamline these processes.
Real estate industry body CREDAI Chairman Lalit Jain said that "about 40-48 approvals, depending on the city, are required to start a project and these clearances take nearly three years on an average".
"The cost of a project goes up by 40 percent in metros and by 25 percent in non-metros because of such delays, as appreciation in land costs, as also the cost of corruption, add to the overall cost of the project," he said.
The CREDAI Chairman further said that home prices can be cut down by 20-30 percent if the approval time is reduced to 30 days, "which is entirely possible".
Parekh said: "The solution to these issues lies in putting in place an on-line, single window clearance mechanism for affordable housing projects."
Stressing on the need to make housing more affordable for Indians, he said in his annual letter to shareholders of HDFC that "my back-of-the-envelope estimation is that transparency and timely approvals can reduce costs for the end consumer by almost 20 percent".
While expressing hope that the new government would work for one of the foremost aspirations of Indians -- being a homeowner, Parekh said land is a state subject, but a directive from the Centre to ensure that all states move towards e-governance would go a long way.
"These are only administrative related issues. There is no need for legislative changes, so implementation is easily doable. A few states have already demonstrated that red tape can be cut as far as granting of building approvals are concerned," he said.
"In India, unfortunately housing has still not been accorded the importance it deserves. Now is an opportunity to change this," Parekh said.
The HDFC Chairman also said that there is a need to ponder over some questions, including why the common man was being "out-priced" from the housing market and why does the developers need approvals from 40-50 regulatory or quasi-regulatory bodies for a residential building.
He added: "Developers are often criticised for not relenting on the exorbitant pricing on residential homes. Part of the problem lies in how developers fund the purchase of land."
He listed issues like regulatory prohibition on banks and housing finance companies from funding land purchase by private developers.
"Developers have to then resort to high cost funds from non-banking financial institutions, private equity and even from the informal sector, often paying interest rates ranging from 18-22 percent per annum," Parekh said.
Observing that the state of its cities will determine India's future, he said that the "vision of creating 100 new cities with smart connectivity is laudable, but we also have to remember that focus is equally needed on making our existing cities more livable".
He added however that "urbanisation is a double-edged sword - it can help raise the standard of living of millions, yet inaction could plunge cities into further chaos and mayhem. Good leadership is about prioritisation and securing India's urban future should be one of them".
