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Bring incentives for real estate first: Realtors tell finance minister

Acting on Chidambaram's advice asking realtors to download unsold stock at discounted prices, Credai has offered him a counter advice; first bring special incentives to boost purchase of houses.

, ET Bureau|
Updated: Aug 22, 2012, 07.06 PM IST
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Pune: Acting on the union finance minister's advice asking realtors to download unsold stock at discounted prices, Credai, the apex body of real estate developers in the country, has offered him a counter advice; first bring special incentives to boost purchase of houses. The minister, P Chidambaram, had earlier asked chiefs of state government-owned banks to pressurise real estate developers to lower property prices and get the economy moving.

Credai national president Lalit Kumar Jain said, "We are happy that at last the government has realized that real estate kick-starts economic development." He is also the chairman and managing director of Pune-based Kumar Urban Development Ltd. "We ourselves have asked member developers to start selling even at rock bottom prices as early as three month ago. Nobody would like to block his capital by sitting on unsold stock that too in a very high interest regime. On the one hand, banks are discouraged to lend to real estate developers while on the other cost of funds from non-banking sources is prohibitively high," he said.

Credai has been lobbying with the government to push for reforms in the real estate sector, which Mr Jain maintains has become a victim of official apathy and indecision. In March this year, 19 state chiefs and 122 city chiefs of Credai met in Pune to protest government apathy, which includes administrative delays, contradictory approval requirements and liquidity crunch due to lack of infrastructure status to real estate.

He said that in wake of this apathy, real estate industry always had to face high interest regime. Banks and finance companies are still wary of financing Real Estate sector as RBI always keeps it in the negative list. For the past two years, liquidity in general and access to bank credits in particular has been restricted due to variety of risks. Therefore, unlike any other sector of economy, real estate sector has also found it difficult to tap bank resources, bank credits, he stated. "It is ironic that while home loans area top priority, the home developers are not," Mr Jain regretted.

Developers across the country face administrative delays in getting government approvals for their projects, leading to cost escalations. The recent expose of various land scams and subsequent arrests of government officials, including IAS cadre, have led to further delays as officials try to avoid signing files for as long as they can. In many cities, occupied projects do not get completion certificates for up to 3-4 years, Mr Jain had earlier told ET.

He said it takes three years for a project to become saleable from the time it is submitted for approval. A project requires approvals, certification and no-objection clearance from at least 48 government departments, and this number reaches 90 in some states and cities. Some approvals are overlapping and some are contradictory, which creates a lot of hurdles and leaves room for corruption, he had said.

The other key factors that add to the high cost of realty are the ever increasing local municipal taxes, ready-reckoner rates for deciding stamp duty, cess and even VAT. For instance in Mumbai, the financial and real estate capital, burden on developers has risen on account of fungible area. Cost of labour has gone up by as high as 60% over the past two years.

"Credai, therefore, appeals to Mr Chidambaram to look at ways to bring down the cost of construction while taking steps to encourage buyers to have houses of their own," Mr Jain said. "As things stand, it is unrealistic to expect developers to cut down prices of even of some of the unsold stock as they had already incurred the high cost and it does not make business sense for us to go out of pocket," he added.

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