Will faster construction approvals make homes cheaper?

Several states in the country have made efforts, to streamline the process of obtaining approvals for constructions. Will this translate into timely delivery of projects and lower property prices for home buyers?

The enactment of the Real Estate (Regulation and Development) Act 2016, is expected to provide a fillip to the real estate and construction sector and improve ease of doing business in the country. Added to this, the reforms in construction approvals that are now taking place, are likely to reduce the inordinate delays in completion of projects.

“In the last couple of years, the government has undertaken various policy initiatives and reforms, specifically addressing the liquidity and transparency concerns in the sector,” points out Neeraj Bansal, partner and India head, building, construction and real estate (BCRE) sector, KPMG India. The Real Estate Act, is expected to drive transparency, governance and professionalism in the sector. The next step, is addressing the delays in approvals and skill shortage, he elaborates.

See also: Invest in a project only if the builder has all these approvals in place

 

Work done till date

According to a government study on regulatory approvals, as many as 50 approvals are needed in several states, before the commencement of a project. To address this issue, several states and government bodies, have announced measures to streamline the approval process and speed up the construction of projects.

Government agencies and civic bodies

Work done so far

Outcome

Ministry of Housing and Urban Poverty Alleviation (MoHUPA) In 2013, a committee for Streamlining Approval Procedures for Real Estate Projects (SAPREP) formed earlier, submitted its recommendations to the ministry for setting up a mechanism in the country. The government, with some limitations, agreed to most of the recommendations, paving the way forward.
Ministry of Urban Development (MoUD) In March 2016, it announced a single-window clearance mechanism for New Delhi and Mumbai, for both, residential and commercial projects. The implementation will happen by October this year.

Once the automation is done in the two big metros, some other key cities will follow: Hyderabad, Kolkata, Ahmedabad, Lucknow, Jaipur, Guwahati, Bengaluru and HAL Bengaluru, Amritsar, Chennai, Nagpur, Jaipur, Aurangabad, and Patna.

Construction approvals will be done smoothly and within a small span of time.
Ministry of Environment, Forests & Climate Change This ministry has come out with revised and simplified environmental norms and these will be notified after consultation with the MoUD. Considered as the biggest hurdle, the new rules for environmental clearance are likely to be clearer and will expedite approvals.
Maharashtra Already following an automated system of project approvals for various levels, such as environment, fire, etc. It has announced plans to streamline the entire process and make it online. A number of key real estate markets, such as Mumbai and Pune will benefit from the move.
Haryana Has already put in place an online mechanism, for the approval of building plans for individual houses.

In October 2015, Haryana’s new integrated licensing policy (NILP) reduced the land area required for integrated townships from 100 acres to 25 acres. The policy is applicable to high and hyper potential areas in the NCR and the state capital region (SCR).

Reduced burden on the approving authorities.

 

Will result in development of integrated townships.

Brihanmumbai Municipal Corporation Has allowed construction activity till 10 pm, to expedite construction. The extended hours are likely to reduce the time overrun on projects.
City administrations of Vishakhapatnam, Indore, and Coimbatore Have already put in place automated systems for building plan approvals. Takes lesser time to approve building plans.

 

Benefits of easing the construction approvals’ process

At present, there is a huge pile-up of unsold inventory, across key markets. “The biggest hurdle in a project’s completion, is the approval process. With the streamlining of the process, the time taken on approvals will significantly reduce,” says Dharmesh Jain, president of the Maharashtra Chamber of Housing Industry (MCHI). A mid-sized housing project that has been approved, usually takes 24-36 months to complete. Delays in approvals, could extend the project by six months to more than a year. With faster approvals, this time overrun can be reduced significantly.

Anuj Puri, chairman and country head, JLL India, in a recent blog post, wrote, “A simpler and uniform process, will help bring down the cost of each unit in a project by 20%-30%.”

 

Challenges

According to Rohit Raj Modi, VP – south, CREDAI National, the foremost challenge will be in the implementation of these measures. “The changes should not merely be in the ease of getting permits, but also in the number of permits required, without compromising on building quality or putting buyers at risk. In the age of self-certifications, if the government can do away with unnecessary documentation, it will help the developers immensely,” he maintains.

Officials at the urban local bodies, also need to be trained to handle the online or automated mechanism. Moreover, the state-level units will need to collaborate with the central agencies, to effectively implement such plans.

 

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