SHOULD politicians and top bureaucrats occupy sprawling 1-2 acre bungalows in the capital's best areas while the rest of the city's citizens are pushed to misery? Union Urban Development and Employment Minister Ram Jethmalani believes they don't. This wastage of prime real estate, he says, is a luxury the government cannot afford. Jethmalani's prescription: demolish these palaces and build high-rise apartments, some of which can be occupied by the erstwhile inhabitants of the bungalows.
This proposal forms part of a series of radical recommendations and decisions announced by the Urban Development Ministry last week. Housing and construction is one of the priority areas spelt out by the government in its National Agenda and Prime Minister Vajpayee's reform call at the CII annual session late last month. In fact,Jethmalani's proposals have come ahead of the 60-day deadline set by the PM for a National Housing Policy. The government sees boosting housing as one of the best ways of energising the economy, since construction will have ripple effects on a host of other industries like steel and cement, and generate significant employment.
Beginning with a repeal of the Urban Land (Ceiling & Regulation) Act—ULCRA—the proposals centre around efforts to increase construction of quality houses at affordable prices, reducing real estate prices, providing houses for the poor and extensive sops for the housing industry: The ineffective and oft-
The repeal of ULCRA: misused ULCRA has been the bane of the housing and construction industry for the last two decades. Large blocks of urban land have stayed locked up, creating an artificial scarcity. The government identified 220,674 hectares of vacant land in 8,000 sites as excess, but only about 50,046 hectares had been lawfully vested in state governments. Till November 1997, only about 19,020 hectares (nine per cent) of this had actually been taken over by the states.
The result: large-scale speculation, taking property beyond the reach of the average Indian. Says Jethmalani: "Construction of houses in urban metros like Delhi is at a standstill and one of its main stumbling blocks is the ULCRA. It is a totally useless Act, an instrument of corruption and has failed in its prime objective." By repealing the law, Jethmalani expects to increase supply of urban land for construction, which should bring prices down.
The fresh Act will be introduced in the upcoming budget session of Parliament. Interestingly, the United Front government too had decided to repeal the ULCRA and would have done so had it stayed in office.
But there is some scepticism about the move. Says M. Balachandran of the Mumbai-based Gold Star Property Services:"Theoretically this is a good move; lots of land will be available in the market and prices will go down, but one must be careful of the law that will replace the ULCRA, because there will be an affected lobby from whom land is traditionally purchased and whose earning will be reduced. The builder lobby will also suffer as free and increased supply of land may shrink prices which they will not like." Agrees Niranjan Hiranandani, vice-president, Maharashtra Chamber of Housing Industry: "There are many things needed to make housing universal. ULCRA is just one of them and it is not a magic wand. Non-agricultural permission has to come fast, stamp duty has to be reduced and zoning laws have to be reviewed."
New Delhi's Bungalow Zone: The govern ment feels that the bungalow zone—what is known as Lutyen's Delhi—has adequate infrastructure to take on additional load. If necessary, 100 bungalows could be retained as a showpiece of the past. Ministers could be shifted to high-quality multistoreyed residential complexes which would also facilitate security. A three-member committee has been appointed to study the issue and report in two months. At the same time, the ministry has sought extra-budgetary allocation for general pool housing to construct more houses for government servants, where there is an acute shortage. A minimum of Rs 1,000 crore is required in the current financial year for this.
Rehabilitation of slum-dwellers: Due to large-scale migration to cities, slums have increased—in Delhi, about 1.5 million people live in slums. The government will involve the private sector to convert part of the slum land into houses. The private sector can develop the remaining land as commercial complexes. The land would be put on open bids and houses would be given to slum-dwellers at nominal or no cost.
Bringing down property prices : High property prices and rentals have led to unauthorised colonies and encroachment on government land. In Delhi alone, there is a shortage of one million houses. Since creation of new housing facilities will not solve the problem, construction of one more floor in existing houses would be allowed to create more space without putting any extra burden on the government.
Concessions to housing industry : Massive sops announced include according infrastructure status to housing so that companies get a five-year tax holiday. Other concessions: housing finance companies to be given special concessions on lending, 40 per cent of their profits to be tax-free, 100 per cent in case of low income group housing. To encourage rentals, income tax deduction on rent will be raised from 20 per cent to 50. Construction loans will be allowed as deduction under the IT Act. Rental housing will not be assessed for wealth tax. Real estate development companies can take foreign loans. Houses can be depreciated over 10 years.
More private sector involvement : Since government agencies like the Delhi Development Authority (DDA) have failed to deliver, Jethmalani proposes to allow the private sector, even foreign companies, to develop mini-townships. In Delhi, DDA could hand over plots to private developers for faster development, and similarly, in other cities. DDA itself is to be restructured and its staff strength slashed from the present 25,000 to about 2,500! "The economy can revive if this happens," says K. Raheja, CEO, Raheja Constructions. "In every country under recession, the government pumps funds into the housing sector but since the government does not have funds, it should allow foreign funds into this sector."
Prefab housing : Considering the delays in construction by government agencies, the government proposes to encourage prefabricated housing. So the public sector Hindustan Prefab Ltd may be modernised with private sector help. If necessary, private sector expertise in terms of investment and technology can also be brought in.
On paper, most of Jethmalani's proposals are perfect to the T, but in practice, it might be asking for too much to expect the private sector to construct low cost houses and handing them free to the poor by cutting profits from other operations. Especially given the private sector's record in low cost housing. Demolition of bungalows in Lutyen's Delhi, though a laudable idea, may not be possible. And to think that there will be a substantial drop in real estate prices may be very optimistic. Says Akshaya Kumar, CEO, Colliers Jardine (India) Property services: "Prices will weaken in the short run due to sentiments but is unlikely in the long run and physical stock will not increase."
While Jethmalani's moves may bring cheer to the people at large and give the housing sector its much required boost, it will also entail a substantial expenditure on part of the government. Does the government have the funds, especially at a time when India faces international sanctions?
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