Indian Realty Sector can perform better, indicates study

Real estate India has a multiplier effect on income and employment. As indicated by a HUDCO-IIM Ahmedabad study, every rupee invested in this sector adds 78 paisa to the state’s GDE.
For one direct job created in the housing industry, eight jobs are created indirectly as Indian real estate sector as a spillover.

The main money-spinner is the housing market in India.
Global consultancy firm, Merrill Lynch has estimated that the sector
will grow from $12 billion in 2005 to $90 billion by 2015. Attributing
the sloppiness in the Indian real estate sector that keeps it from realizing
its real potential, a McKinsey study has come out with the finding that
removing land market barriers can actually contribute an additional one
per cent to India’s GDP growth rate.

Though real estate in India has most
of the things going for it, the average home ownership age has certainly
come down drastically, India’s realty sector is plagued by unorganized
and fly-by-night players. Corporates and large players do not have a
national presence.

These barriers impose exorbitant cost. World Bank study
estimates that an average housing project in India takes 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 is
in the range of 10 to 15 per cent, though Delhi has recently brought
it down to a low 6 percent. To circumvent high stamp duties, unregistered
– and all cash-property transactions and transfers through Power of
Attorney are rampant, bringing significant financial loss to the exchequer.

The Urban Land (Ceiling & Regulation) Act, 1976 which hampers availability of land for housing projects, still remains in force in states like Andhra Pradesh, Assam, Bihar, Maharashtra, Jharkhand and West Bengal. A land title monitoring system is also functional but often leads to cases where the party gets duped. Ownership is established only by the sequence of earlier transfers.

All India Bar Association estimates that about 40 percent of all litigations
filed in lower courts and state high courts are related to land ownership
or property related disputes in India. Municipal property tax collection
is languishing as it is based on the rent.

Seeking protection under the
Rent Control Act, many tenants still pay the same rent that they used
to pay decades ago. Landlords do not like to invest money in repairs. The
proposed National Housing and Urban Habitat Policy 2006 envisages that
by 2021 every homeless Indian would have a house of his own.

Many analysts
are of the view that apart from comprehensive legal reforms, the sector
also needs to be recognised as an infrastructural industry, which attracts
lower taxes and gets low cost funds. To cover the predicted shortage
of 24.71 million houses by the end of 2007, in the next10 to 15 years,
80 to 90 million houses will have to be constructed in India.

Office
space requirement in India may become threefold to at least 60 to 80
million square feet by 2010. 600 new shopping malls are expected to be
in place by 2010. The Indian realty sector is expected to be worth $90
billion by 2015 m. It is expected to receive $7 to $10 billion FDI in real
estate sector.