Looking towards a structured and reformed market
The realty sector in India continues to remain unorganised, fragmented and governed by antiquated laws. Both stakeholders and government have recognised the need for reform in order to create a more competitive, dynamic and sustainable property market. But to bring about a change in reforms is as difficult an economic exercise as it is a political undertaking.
Across the property lifecycle, (which we have classified into the stages of Greenfield / estate management; planning and procurement; new construction; occupation and use; and demolition and remediation) while certain level of reforms have been implemented, there continue to exist some challenges that affect the overall performance of the realty sector.
From an economic perspective, the question of land is linked to critical issues of agricultural productivity, industrial use, infrastructure development, employment, housing etc. Each of these aspects is crucial for enhancing national security by ensuring consistent economic growth. Even from a social standpoint, land ownership has an equally important function, as distribution of land impacts the quality of social life within a community.
Greenfield / estate management is the first and one of the most crucial elements in the development process. It therefore becomes imperative, to strike a balance between the economic and social functions of land. Increasing people’s access to land and creating a more equitable redistribution are important for India, particularly in view of its high and ever-increasing person-to-land ratio.
As land is a state subject, state governance is not always in-sync with central laws, making the process of acquisition complicated and time consuming. Loopholes in land tenure legislation have facilitated evasion of some provisions in land ceiling reforms.
Guidelines currently in the consultation stage hope to achieve a consensus on how to improve access to land and natural resources in the face of challenges posed by population, urbanisation, natural disasters and climate change. Incorporating these guidelines in Indian policies can lend towards the implementation of an effective land tenure system.
Another issue prevalent is the absence of ‘title certificates’ and a proper land record management system. Given these factors, buyers usually have to go through cumbersome processes to establish a ‘chain of title’. Other countries too have faced challenges in relation to land records management, which have been overcome with introduction of systems of conclusive titles.
The ‘Torrens System’ applicable in Australia can serve as a reference point. It propagates the establishment of a central registry, whereby all transfers of land are recorded in the register and maintained by the government. Similar systems have also been adopted in Canada, Malaysia, New Zealand and UK. Taking a lead in this direction, the Delhi government is looking to move away from ‘deed registration’ towards a ‘title registration system’.
The Indian government, in order to usher in a system of conclusive titles in 2008, decided to merge two existing centrally-sponsored schemes of Computerization of Land Records and Strengthening of Revenue Administration and Updating of Land Records, to be replaced by a modified centrally-sponsored scheme – National Land Records Modernization Programme. However, for this system to work effectively it is essential that original survey for cadastral mapping be undertaken, to facilitate the adoption of modern techniques for record management.
The building process from conception to new construction has been a fragmented effort between owners, design consultants, and contractors, giving rise to budget overruns, delays, inadequate quality control and standards. With dynamic market conditions in the realty sector, when it comes to estimating building construction costs, even experienced professionals can be hard-pressed to provide accurate assessments.
The ‘new rules of measurement’ from RICS provide a standard set of measurement rules that are understandable by all stakeholders involved in construction projects, including employers; thereby aiding communication between project/design teams and employers. Additionally, the rules assist quantity surveyor/cost managers in providing effective and accurate cost advice to employers and project/design teams.
Additionally, to overcome procurement issues, some local governments have also reformed processes for dealing with construction permits. Computerization and greater administrative efficiency have accelerated approvals for building permit applications by 25 days on average. Bengaluru, Gurgaon and Hyderabad have introduced effective single-window systems for building permit applications.
In fact, Bengaluru is one of the best performers in this regard, ranking 72nd out of 181 economies globally. Even under JNNURM, revision of building by-laws to streamline approval processes have been categorised, however since this is an optional reform its implementation has not been that widespread.
Lack of standard contract documents is also increasingly seen as a major hindrance in implementation and execution of projects. Contract procedures for procurement are highly cumbersome and costly for both project owners and contractors. As per some estimates, cost of procurement comprises 16% of total construction costs for certain projects. After adding supervising and monitoring expenses of about 6%, total cost of procuring, supervising and monitoring works out to ~22% of the cost of asset created.
To counter this trend, internationally there has been a shift towards adoption of standard contract forms like FIDIC. In India, however issues prevail in interpretation of contracts due to ambiguities in contract definitions. Additionally, changes in costs and legislation affect adoption and applicability of these forms locally. Even in cases where these contractual agreements have been adopted, they have not been rigorously followed, while these continue to be heavily loaded in favour of owners/clients.
For building activity, National Building Code (2005) provides a comprehensive list of guidelines for administrative regulations, development control rules and general building requirements, fire safety requirements, stipulations on use of materials, structural design and construction and building. In India, each municipality and urban development authority has its own building code, which is mandatory for all construction within their jurisdiction. All these local codes are variants of the NBC.
However, building regulations need to be revised and reviewed periodically to ensure safety and performance parameters. This is highlighted by the National Building Code of Canada, where as further knowledge is gathered on building performance, requirements of the code are up-dated to reflect acquired understanding based on scientific verification. In India, the NBC has only been revised thrice since its first implementation in 1970. Therefore, a more proactive approach based on performance audits needs to be undertaken to ensure optimal efficiency in built environment.
One such aspect that needs revision is the FSR, which is exceptionally low, as compared to other Asian countries such as Thailand, Singapore, and Malaysia, where it is benchmarked between 5 and 50 FSR. For Indian real estate market to compete on a global platform, an upward revision needs to be considered. However, increasing FSR puts additional load on existing infrastructure and therefore any increase should ideally be accompanied by adequate infrastructural development.
With initiation of occupation and use, condition of real property bears directly upon concerns around security, health and safety of the structure and occupants. Building maintenance until recently was neglected, with little attention on innovation and ‘free thinking’ in the delivery of its service. However, facilities management is essential to sustaining the built environment.
To this end RICS guidance note on ‘building maintenance: strategy, planning and procurement’, addresses the need for and formulation of a maintenance strategy and policy. This helps address issues relating to identification and prioritisation of current and uncompleted maintenance work of properties along with various methods of funding maintenance works and deals with procurement and selection of contractors and the ‘form of contract’ to be utilised in facilities management processes.
Such practices help increase energy efficiency of structures. Globally there is increasing awareness and importance of sustainability factors in the building and construction arena. With approximately 40% of global energy consumption being accounted for by the built environment, several initiatives are being undertaken for structures to be more environmentally neutral. The UK leads this practice, with new housing regulations in 2007 being agreed upon, which stipulate all new homes to be ‘zero-emission’ from 2016.
Recently, California became the first state in the US to have a mandatory green building code which will come into effect in 2011. In India, while the Energy Conservation Building Code (ECBC) sets minimum efficiency standards for design and construction of buildings, green building laws and codes established are voluntary. Considering the level of development and construction activity that India is expected to undertaken in the near future it is imperative that ‘energy efficiency’ play a key role in our market.
This should lead towards the mandatory and pan India enforcement of ECBC. The ECO-III Project run by USAID, has been assisting the Bureau of Energy Efficiency in implementation of ECBC through awareness and training programs and development of tip sheets for capacity building and speedy dissemination of information and knowledge related to energy codes amongst practicing architects, building designers, energy auditors/consultants, municipalities etc.
Considering some of the bottlenecks that exist in the Indian realty market which is characterised by fraudulent and non transparent practices, indicate towards the establishment of a single-window clearance system that could help shape and regulate the market. Such a system would take into account aspects of structural safety while regulating activities of builders and protecting interests of end-users. The main value proposition for having a single window is to increase efficiency through time and cost savings. A simplified singular system with one specific central body responsible for record management and processing can expedite clearances and help bring in much need transparency in the system.