Curbing graft and building more cities can help in bringing down home prices

In an interview to this newspaper, Deepak Parekh, chairman of HDFC, said curbing graft and scrapping archaic rules will cool down home prices. He is correct. India’s realty sector is a sink of black money, riddled with rules that limit the supply of urban land, creating an artificial scarcity that pushes up prices. But in a business where the builder depends on the government for the basic raw material — land — corruption is inevitable. There are ways to cut it, and that means multiple reforms.

Foremost, India needs to reform political funding to break the nexus between politics and real estate. Projects are often delayed due to rent-seeking in giving permits and clearances. So, state agencies responsible for clearances must be held accountable. Single-window clearance, within a specified time, is in order. For transparency, the reasons for denying approvals must be displayed on a website.

India also needs an independent regulator to oversee the real estate sector. The Real Estate (Regulation and Development) Bill, 2013, meant to curb unfair trade practices, must be enacted.

Builders should not be allowed to collect booking amounts till they get all clearances. Banks should also stop throwing a lifeline to builders, a practice that helps developers to hold on to prices. Remember, India is the only country where property prices did not correct significantly during 2008-09. Banks should pull the trigger post default and find ways to auction properties, to lower prices. A uniform low stamp duty rate across states will also curb under-reporting in property deals.

Home prices have reportedly jumped 50-150% across India’s cities. Parekh has suggested measures like building new cities, incentives for affordable housing projects and raising the floor space index — the ratio of built-up area to plot size — in cities. State governments must rewrite land rules to make land use more efficient. States should also make it simple and cheap for sellers willing to convert their land into whatever use they want to, and stop forced acquisition. It will increase the supply of housing stock and prevent Adarsh-like scams.