Ajay Maken hints at Model Act for real estate sector

Year 2008 has some good news in store for private developers and middle-income homebuyers. For, minister of state for urban development Ajay Maken has recently started the process of providing land to private developers in Delhi with 40% floor space index (FSI) for developing low-cost housing. “With this move, private developers can use excess land for developing low-cost housing for every middleclass person who earlier wanted to buy a home but could not do so due to the lower affordability factor. We would look at gradually implementing similar such initiatives in various other metros as,” Maken told FE.

In today’s real estate scenario, it becomes important to implement a “model Bill” rather a “model Act” which can promote transparency from a level of a private developer to a level of an end-consumer. We are working towards this and would soon set up a regulatory body. This however, will not have any impact on the transactions prices or land prices,” he added. There is the much-touted scarcity of availability of surplus land for development of residential projects but the number of malls are coming up (or rather land being easily cleared for mall development) is much faster.

To this, Maken said, "This totally depends on the developers: whether they should develop a residential property or a mall. In fact, given the situation, private developers should themselves come forward to develop low-cost housing projects in Delhi followed with other metroes as well." He said one of the major achievements in the real estate sector has been infusion of funds by private equity players.

“This trend should continue so that while on one hand the investments will keep pouring, private developers will see themselves getting involved in low-cost housing for the middle-class as well with 40% FSI which we would be implementing across cities in the near future.”

...to provide FSI for low-cost housing

Lower interest rates, land availability and creation of excess supply would be the panacea to cheap and affordable housing, reckon industry experts. While discussing key challenges and opportunities faced by the real estate sector at The FE Round Table Conference on the real estate sector titled Sustainable or Bubble? at The Hilton in Mumbai, select industry expressed their views before the chief guest, minister of state for urban development Ajay Maken. Multiple processes and clearances was also seen as a hindrance to developing real estate projects. When real estate companies seek permission to develop a residential building in India, they have to pass through 52 levels of clearance and regulation. The panelists expressed the need for a regulatory body to oversee the growth in the industry and the minister too mentioned the "creation of a Model Act" to enhance the transparency in this key sector. Maken said developing a regulatory body would bring in more surplus of land, as developers will form more joint ventures for property development.

Niranjan Hiranandani managing director of Hiranandani Constructions talked about the paucity of action taken by the policymakers to alleviate the situation. And Rashesh Shah, chairman and CEO of Edelweiss Capital pointed out that the 11% rate charged by housing companies was probably the highest in the world when it comes to the differential between inflation and rates charged. The central bank, panelists concurred, was probably overreacting to the risk factor. Anuj Puri, country head and chairman of Jones Lang LaSalle Meghraj said, “Ïn the real estate market, the real risk factor is the land fact as 80% of the cost is the land cost and 20% cost includes cost of construction and other transaction costs. Hence, land acquisition is the most risk factor in the real estate sector.”

Anurag Govind, Parsavnarth Developers’ COO (west) shrugged off the threat of a slump in the market and mentioned the need for developers to have a well spread operational base to beat any correction that takes place.