National Conclave on Stimulating Housing Sector Reforms
November 19, 2001, New Delhi

Theme Presentation by Mr. Niranjan Hiranandani, Chairman, Housing & Urban Development Committee, FICCI

Honourable Minister for Urban Development and Poverty Alleviation, Shri Ananth Kumar, Honourable Minister of State, Mr. Bandaru Dattatreya, Mr. V. Suresh, Chairman, HUDCO, Mr. Deepak Parekh, Chairman, HDFC, and friends, 50 years of independence has made "Roti and Kapada" available to a large section of the Indian population. However, there has been unanimous acceptance that we need to see that "Makan" is provided for one and all. National Housing and Habitat Policy, 1998 has decreed that we need nothing less than "A Housing Revolution" to achieve this objective.

The Government at the Central level have set in motion various policies and measures to achieve these objectives. The first and most important of them is that the scrapping of the Urban Land (Ceiling & Regulation) Act followed by the amendment of National Housing Bank Act to provide for easy foreclosure. These two measures along with changes in the Credit Policy of Reserve Bank of India, prescribing priority to the Housing Industry and the last three Union Finance Budgets have provided much needed incentives to the consumers seeking houses.

Today we stand at the thresh-hold of the new Millennium and with great humility we suggest that there should be "Affordable Shelter for All" before the end of the decade.

I do believe that with the leadership of our Respected Prime Minister, Shri Atal Bihari Vajpayee, our beloved Minister Mr. Ananth Kumar, and Mr. Bandaru Dattatreya, Government of India can set a tone and direction to make this possible. There is no doubt that this is a difficult proposition, but certainly not an impossible one.

The first in series of measures is to improve resource flows to the actual consumer. A strong beginning has been made which has resulted in housing finance institutions, banks and other financial institutions offering more loans for purchase of houses at lower rate of interest. Four years ago the rates of interest for housing loan was in the range of 16 to 17 percent, and today it is available at around 13 percent.

The Housing Finance Agencies should provide more funds to the house purchaser on longer period loans (say 30 years) on higher percentage of the total price of the tenement (say upto 80%) and to do away with requirement of additional guarantee and security apart from the security of the house itself.

The Government of India has to bring about immediate changes in the regulations prescribed in the National Housing Bank Act, in order to make speedy foreclosure so as to give more confidence to financial institutions for funding house purchases.

The major field where funds are not forthcoming are in terms of project financing to the Developers. Due to recession between 1996 and 1999 when prices of properties fell almost 40 to 50 per cent, there has been general reluctance of financial institutions to lend money to real estate developers.

It is our endeavour in FICCI today to work out means by which there is more transparency of operations of the developers, encouraging rating of projects, prescribing a code of conduct between the developers and consumers and insisting of better quality houses with adequate guarantees of quality provided to the consumers.

We have an important session which will be chaired by Mr. V. Suresh, Chairman, HUDCO to set terms in this regard. Mr. V. Suresh, Chairman HUDCO, with whom I have the good fortune to sit on the Board of Directors, has provided leadership, both on the infrastructure side and housing for the poor, both in the rural and urban areas. I think there are few people who have done so much for the housing industry as he has done and his contribution will be unique to make this objective a success.

Mr. Deepak Parekh, Chairman, HDFC, is the father in housing finance industry, which has shown consistent growth of more than 35 per cent per annum in funding within this sector. I do believe that his insight into what needs to be done will make a huge contribution to what we can do to further the availability of funds in this regard.

Government has given fiscal benefits to the developers and flat / house purchasers in the last three Budgets. However, many of these have been hedged by conditions, which have prevented their usefulness from percolating to the developers. For example, Section 80 IA is only upto 2003 and will benefit only those projects which have commenced before March 2001. As our Honourable Minister and others are aware, a housing project has a long gestation period and unless such benefits are available to the developers for a period of 10 years, it will not be possible for 'Affordable Housing' to be constructed.

The Governments both at the Central and State level have been concentrating on housing to be constructed on ownership basis. We have to now focus on providing "Affordable Rental Housing". The world over, the majority of population live in rented houses. It is imperative for the Government to decide and give necessary benefits to individuals and corporates to construct "Rental Housing Tenements."

The Model Rent Act also need to be implemented. We have to provide rationalisation in the rates of Taxes and relief in terms of municipal taxes, stamp duty etc. to provide encouragement to house owners to construct houses on Rent. Our wish list would require that the State Governments should also co-operate in this matter. Large number of states have not have followed scrapping of Urban Land (Ceiling and Regulation) Act, including the so called progressive state like Maharashtra. This has prevented the benefits of liberalisation to reach to the middle class and poorer sections of the society. The National Housing and Habitat Policy has prescribed that the Stamp Duty rate should range between 2 to 3 per cent. However, most of the states are still at 8 per cent and higher. This prevents developers from investing in lands for development. Developers are discouraged from recording the true rates of transactions. This results in unaccounted money to be operated in real estate transactions and give a bad name to the Real Estate business.

The house purchasers have been permitted relief upto 1,50,000 on interest on their constructions loans. This needs to be increased to Rs.2,50,000 per annum. Further the principal amount of repayment of the loan should qualify for similar benefits under Section 88 as is in the case of investments in Provident Fund.

The income Tax Act also prescribes preemptive right to purchase property which was introduced in 1986 (i.e. 15 year ago). The section has out lived its purpose and is antithesis of liberalisation and reforms. Many properties purchased by the Central Government have not been sold though large funds are blocked and substantial costs incurred in holding the auctions. Further not many properties are transacted in the present market scenario, nor have there been any acquisitions. In view of this, Section 269 of the Income Tax Act should be scrapped immediately.

The long term capital gain tax on sale and purchase of shares at the stock market is at the rate of 10%. However in the case of property the long term capital gain tax is at 20%. Besides, the holder of property needs to wait for three years to take advantage of this benefit against one year for those holding shares.

Interest free or concessional loans given by employer in excess of Rs. 20,000/- is taxed as perquisite to the salaried employee. This discourages an individual to borrow from employers who subsidise loans to their employees in order to get a better house. This has been introduced by the Finance Bill 2001 and should be dropped in case of housing loans.

While the Central Government has moved forward, the State Governments and Local Authorities should also keep pace. The persons who sanction plans and give approvals are known to follow dilatory practices and the processes breed corruption and delay projects, which consequentially increase costs to the house buyer. Architects should be permitted to sanction building plans and in case there are infringements of the buildings constructed, severe penalties and punishments should be mandated. The State Governments and local authorities will be advised to lay down suitable norms and enforce accountability in respect of approval of plans and monitor the same in order to ensure that the system is made user friendly. A single window approach for sanction of Building Plans should be followed.

Foreign Direct Investment has been provided for real estate investments through the FIPB route. It is our belief that if FDI is made through automatic route for investments upto 51 per cent with a 3 to 5 years lock in period, for property development of 10 acres and more, a large number of smaller projects can be funded and the necessary growth in housing sector be achieved.

The Honourable Minister has suggested an advisory board of professionals to advise the Government on various matters in respect of shelter. FICCI will be very happy to associate in any manner that the Government may consider fit.

We are certain that with the leadership provided by the Government and with all co-operation of industry, we will, with public and private participation, promise the people of India "Affordable Shelter to All" before the end of the decade.