Red tape worries keep builders away from cheap housing plan

Red tape worries keep builders away from cheap housing plan
The Economic Times, September 9, 2009, Page 9

Sanjeev Choudhary NEW DELHI

MOST real estate developers have been focusing on building affordable houses after property prices slumped, but none of them has made use of a central government scheme that offers subsidy to developers of small-sized dwellings, citing redtapism and lack of clarity in the scheme.

Almost six months ago, the ministry of housing and urban poverty alleviation announced the scheme which allows state governments and private developers to build houses for the lower-income segment and avail of a central grant.

This grant could be either Rs 50,000 per housing unit or 25% of the cost of all civic services proposed in a housing project. But projects must have a minimum of 200 houses, which could range in size from 300 sqft to 1,200 sqft of super built-up area.

An official at the ministry of housing and urban poverty alleviation says Uttar Pradesh and Maharashtra governments have separately sent proposals under the scheme to construct about 18,000 houses in total, but developers have not come forward so far. “Under the scheme, funds will be channelled to developers through state governments, which is what realty companies don’t want as they fear red-tapism. They want the central government to disburse funds directly,” said the official requesting anonymity.

The government had introduced the scheme with the view that it would help developers, saddled with unused land in a realty slump, to build more homes at an affordable rate. But developers seem doubtful about the execution of projects under the scheme.

Said Kumar Gera, chairman of Punebased Gera Developers and chairman of real estate industry lobby CREDAI, “Developers may not be willing to deal with so much of bureaucracy for such a small incentive.” He also questioned the economic viability of such projects saying land still remained costly.

The houses built under the scheme are to be allotted by the state governments through a draw of lottery and will have a ceiling on sale price. The state governments are supposed to propose a price, which is to be approved by the Centre. “Price cap is not a bad idea, but this has been left open to all state governments. We need a clearer formula on the pricing for us to work out the viability of any project,” said Sunil Malhotra, vice-president (finance) at Delhibased developer Omaxe.

India has a massive shortage of residential units and the government hopes to solve the problem by incentivising developers to increase housing supply.