Delay in approvals increase property prices by 20-30%
Did you know that delayed approvals for real estate projects may push up your project cost by up to 20 to 30 per cent? As it takes years to the builders in getting approvals from the authorities for their projects, all the escalation in cost is passed on to the end buyer. Out of 185 economies, India ranks at 182, in terms of getting construction-related approvals, as per the World Bank’s Doing Business 2013 report.
The delay in getting approvals directly increases the cost of a project. Time is money. If a developer invests millions and many times billions in buying land, it simply adds to the interest cost if the land is kept unused.
What causes the delay in approvals? A real estate developer, in order to start construction, has to get as many as 34 procedures from dozens of government departments. On an average, it takes more than 196 days, says the World Bank report. However, there is no set timeframe within which a developer should receive these approvals. It may take years and it is mostly at the discretion of the concerned authorities.
“Obtaining all the approvals increases the gestation period of a real estate project. These approvals usually take 2-3 years to commence construction after purchasing the land for a project. During this time, land cost rises by 20-30 per cent due to hefty interest,” says Neeraj Bansal, Partner-Advisory, KPMG India.
But construction is such a complex matter, isn’t it okay for the government authorities to take time? Not actually. In Hong Kong, it takes only 6 procedures and 67 days to get all construction-related approvals. In Singapore, a developer just needs to comply with 11 procedures and the approvals come in within 26 days!
Understandably, India is a large country. Then, let’s take China. In year 2012, China eliminated 14 procedures by improving its single-window clearance platform. The result: saving of 31 days.
Is India doing enough in this regard. The ministry of housing and urban poverty alleviation set-up a committee on Streamlining Approval Procedures for Real Estate Projects (SAPREP). According to Dhanendra Kumar, who is the head of this committee, India should constitute a nodal agency to act as ‘single window’ and coordinate all approvals from different authorities.
Is it going to happen? Going by the Real Estate Regulatory Bill, which has been approved by the houses of Parliament and waiting for the President’s consent, there is no provision for introducing single-window clearance system. Long way to go.