Abhishek Kiran GuptaHead – Research & Real Estate Intelligence Service20th April, 2011

Indian Real Estate and Housing – Analyzing the need for a Regulator

Evolving national consensus on State level

issues

2

Presentation Flow

• India Urbanization Story

• Affordable housing segment and government initiatives

• Current state of regulations

• Proposed regulatory mechanism

• Benefits of a Regulator

• Role of the Collective

• Thoughts to ponder?

3

India Urbanization StoryPressure on city infrastructure; need for affordable housing

• High density of population per sq km

•Lack of housing options

• Informal settlements, slums,

impractical low cost housing

• Need is not just regulatory reform; but

emphasis on processes, improving

infrastructure services and making land

accessible.

Real estate development to conform to the income pyramid of the country

1,021,825

309,950

134,729

79,335

50,085

32,692

18,851

Rich

Higher-Middle Income

Middle Income

Lower-Middle Income - I

Lower-Middle Income - II

Bottom of Pyramid - I

Bottom of Pyramid - II

2.42 million

35.38 million

48.43 million

48.85 million

55.94 million

27.46 million

16.67 million

(Per household income in INR) (Number of Households)

4

Affordable HousingDemand Supply Gap; government initiatives

• 26 mn homes shortfall by 2012

• Housing sector falls short in supplying the demanded product

• Extensive regulations make land a costly commodity; thereby increasing the supply shortfall

• Government has initiated JNNURM to facilitate land reforms and provide low-cost housing

• Urgent need for institutional reform; need to unlock land value for the community; market transparency

Bare minimumBasicAmenities

EWSLIG, MIGCategory

Not exceeding 40% of grossmonthly income

Not exceeding 30% of grossmonthly income

EMI/Rent tomonthly income ratio

Not more than 5 time grossannual income of household

Not more than 4 time grossannual income of household

Cost

City peripheries or ExurbsWithin city limitsLocation

300-600 sq ft on carpet areabasis

Not exceeding 1200 sq ft oncarpet area basis

Size of Dwelling Unit

Low Cost HousingAffordable HousingParameters

Bare minimumBasicAmenities

EWSLIG, MIGCategory

Not exceeding 40% of grossmonthly income

Not exceeding 30% of grossmonthly income

EMI/Rent tomonthly income ratio

Not more than 5 time grossannual income of household

Not more than 4 time grossannual income of household

Cost

City peripheries or ExurbsWithin city limitsLocation

300-600 sq ft on carpet areabasis

Not exceeding 1200 sq ft oncarpet area basis

Size of Dwelling Unit

Low Cost HousingAffordable HousingParameters

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Current state of Regulations

• Multiplicity of state laws

• Land and urban planning is a state subject

• Local development bodies and housing boards

• No regulatory mechanism for developer/brokers licencing & registration or individual consumer

protection

• Nearly 50+ approvals lead to delays of upto 2 years

• No alternate dispute resolution or redress mechanism for the sector except the legal system

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Proposed Regulatory MechanismRE Model Act; Other Model Acts under discussion

• Control and promote construction, sale, transfer and management of colonies, residential buildings, apartments and other similar properties.

• Greater emphasis on transparency, expeditious dispensation of justice in case of a dispute

• Accountability of the builders/developers towards project execution and delivery.

• Establishing a Regulator; appellate Tribunal

• Compulsory registration and licencing for projects and developers

•Penalty imposition in case of default related to delivery, specifications• Model Rent Control Legislation• Model Apartment Ownership • Model Property Regulation• Model Urban and Regional Planning and Development• Model Legislation regarding Housing Cooperatives• Model Chapter on Property tax for inclusion in the State Municipal laws

These Acts have been circulated by the Ministry of Urban Development to the various States for discussions. In addition, states availing funds under JNNURM have already repealed the Urban Land Ceiling Act and Rent Control Act as part of mandatory land reforms under JNNURM

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Benefits of a RegulatorIs it the cure?

• No single window regulator in the USA

• Land being a state subject, role of a regulator cannot be all encompassing

• Stakeholders feel it will promote vigilance, improve transparency

• Developers feel it does not address single window clearance demand which actually delays projects from their end

• Consumers will have access to an alternate redress mechanism

• Unfounded fears of consumer protectionism; license raj era return

• Will it lead to price control, promote affordable housing ? Not likely.

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Role of the CollectiveState, Centre, Regulator, Judiciary, Developers, Consumers

• Government legislations to provide protection shield to consumers

• Active legislation to promote land reforms

• Amend existing FDI norms for affordable housing

• Streamlining the approval process

• FSI differential within the city

• Judicial activism for consumer protection till regulator is in place

• Place RE Act on Concurrent List to ensure states’ compliance

• Bring brokers, architects under Regulator ambit

• Developers to focus on affordable housing to tap latent demand

• Provide infrastructure status to affordable housing to promote the concept

• Bring state development bodies under the Regulator

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Thoughts to ponder?Regulator, Reforms, Consumer benefit

• Does the regulator seek to create state level regulatory bodies for monitoring at state level?• Even if the Act is put on the Concurrent List, how do states propose to implement it?• How will states remove irregularities between the Model Act provisions and their own state

regulations?• Will the regulator prove to be effective or create just another level of approvals in the already

lengthy approval process?• Consumer interests are paramount, but how will the regulator control state nodal bodies

involved in urban development?• Will the regulator lead to creation of actual affordable housing by removing artificial price

appreciation or will it have the opposite effect?

Thank you

Copyright © Jones Lang LaSalle 2011