Budget 2013: Why infrastructure status will cheer the housing sector
K.R. Balasubramanyam February 14, 2013Realty developers believe infrastructure or industry status for their sector will solve a number of the problems they currently face. Recovering from a prolonged slump in the demand for apartments after 2008, the real estate community is hoping that Finance Minister P. Chidambaram will energise the sector by granting it infrastructure status.
But how will that help them?
For starters, it will lead to simplification of procedures. Currently, the developer of a housing project is required to comply with a long list of regulations. These include getting approval of development plans and building plans, and ensuring compliance with fire, pollution control, electricity, environment, water and telephone norms. In addition the developer has to register with the commercial taxes department, employees state insurance and so on.
A large developer based in the south says construction can begin only after all these clearances are obtained, which often takes as long as three years. Construction itself takes another three years. As a result of the red tape with various official agencies, a project takes about five to six years to complete. This, even while there are millions of families seeking a roof of their own.
If the sector gets infrastructure or industry status , it can apply for single-window clearance in states instead of running to different agencies and wasting precious time as happens now.
In addition, developers may get government help in taking possession of land through the acquisition route. "If the government helps us buy a piece of land from landowners at market prices using acquisition laws, the title will be clear and free of any disputes," says V. Madhu, Managing Director of Provident Housing Limited, a Bangalore-based provider of 'premium affordable' homes in Karnataka and Tamil Nadu.
The other big challenge developers face is access to bank finance. Industry status, developers say, would lead to relaxation of lending norms to the sector, and banks would have a greater willingness to fund housing projects.
Currently, says Sobha Developers Managing Director J.C. Sharma, banks are quite choosy when it comes to lending to projects, and developers have to scout for alternate sources of finance such as private equity or non-banking finance companies.
The construction industry is known to be the next biggest employer after agriculture, and 255 industries, including steel, cement and paint are known to be dependent on it.
A policy push, developers say, will not only lead to healthy growth of the housing sector, it will also speedily address the housing needs of millions of people.