Approvals for land and building across states are not uniform. Moreover, they are contradictory in some places and differ in order of importance. The Indian Express uses a recent study by the Planning Commission to examine the differences and how they affect investors.
For an investor, the key regulatory framework that bears the greatest significance is the time taken to get land and building approvals in place. The investor needs to plan finances and prepare for contingencies that could come in the way of effective project implementation. This impacts almost all industrial activity and more so real estate development. The World Bank has also devoted a lot of attention to the processes in this space while ranking countries on the ease of doing business.
The Planning Commission has recently carried out a survey across all states on the business regulatory environment and impediments faced. This survey was commissioned to the accounting firm Deloitte, whose report has been seen by The Indian Express. One of the main factors identified by the Plan panel is the land and building approval mechanism across states, which has a huge role to play in the perception of the business environment in that state as being conducive or not.
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The two key parameters that were surveyed were: time taken for conversion of land use, and time taken for building approvals. When compared across key real estate markets in the country, two states Madhya Pradesh and Andhra Pradesh stand out for the progress they have made in cutting red tape. In Madhya Pradesh, conversion of land use takes around 45 days while building plans get approval in 34 days on an average. The report has surveyed the processes in getting industrial activity started, so that timeline might not be exactly the same for a real estate project, but throws some light on the efficiency of the approving authority.
The accompanying table shows the picture across several states. In the key real estate market of Haryana, conversion of agricultural land takes as long as eight months, while in Maharashtra that could stretch to one year. That process could shorten if development is carried out in lands demarcated by the authority for that purpose such as industrial townships or lands sold by the urban development authority. The other laggard state is Punjab, where survey respondents say that in many cases due procedure is seldom followed. In the other states that have seen substantial real estate activity — Uttar Pradesh, Karnataka, Tamil Nadu, West Bengal — the time taken could range from 4-6 months. Rajasthan is longer at 195 days while Kerala scores remarkably well on this score at 65 days and Gujarat at 100 days.
Even as some of these states paint a picture of progress in streamlining procedures, they are by no means complete for there are several serious lacunae that still persist.
“Andhra Pradesh has adopted the best practices in its registration departments, while Delhi, the national capital ranks among the worst,” says Shyam Sunder, a Chennai-based advocate who has recently released his book ‘Property registration, land records and Building Approval Procedures followed in Various States in India.’
The state has computerised almost all its procedures such as encumbrance certificates. In addition, Andhra Pradesh is at the forefront of making available several land-related details online.
These include encumbrance status stretching to 1983, general power of attorney, land layouts of Hyderabad town and country planning department stretching up to 1941 till 2008. In addition, all real estate developers have to be compulsorily licensed with the state government. “These are unique procedures in Andhra Pradesh, which are not followed in other states,” says Shyam Sunder.
In contrast, the national capital Delhi presents a totally different picture. “Documents presented for registration are not scanned, computerised non-encumbrance certificates are not issued,” says Shyam Sunder. Further, circle rates cannot be verified online, and also the land records. “Moreover Delhi is the only city in India where an architect (empanelled with DDA) can grant building approvals for certain kind of properties on their own. All over India, it is only the concerned local body that has this power,” adds Shyam Sunder.
Most other states fall somewhere in between these extremes. Maharashtra has online search facility for property records dating back to 2002, and online verification of property cards is now operational in a few cities such as Mumbai. Gujarat has computerised processes such as encumbrance certificates, but circle rates and verification facilities are yet to be brought online. Uttar Pradesh ensures that photograph of the property purchased under a deed is affixed to the document, as does Madhya Pradesh, Gujarat and Andhra Pradesh. However, as in Delhi, no scanning of sale deeds is done in Uttar Pradesh.
Most states issue handwritten encumbrance certificates. Only six states — Gujarat, Andhra Pradesh, Tamil Nadu, Karnataka, Kerala and Orissa — have computerised them. Maharashtra, Rajasthan and West Bengal do not issue them at all. Assam issues encumbrance certificates from 2002 onwards. For records prior to that, additional permissions are necessary, which take up significant time, placing the state among the worst performers in land registration. In addition, the state has the highest registration fee (8.5 per cent) across the country.
In addition to such complications, a real estate developer is subjected to a multitude of clearances to start construction on the land that is assembled.
“More than 40 different approvals are required before the commencement of a real estate project, which may take somewhere between six months to a year,” says Sachin Sandhir, MD, RICS South Asia, a body that sets standards and certifies practices in the real estate sector.
A report prepared by real estate consultancy Cushman & Wakefield and industry chamber Assocham has detailed some of these requirements (see table).
“Getting all requisite clearances can take a developer as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders already have to cover external and internal development charges, licence costs and often charges for change of land use, which have also risen. Cost of construction has gone up by more than 25-30 per cent over the last four years, as well,” says Santhosh Kumar, CEO-Operations, JLL India.
To address these bottlenecks, the Union ministry of housing and urban poverty alleviation set up a committee that worked from April 2012 to January 2013. It has recommended forward and backward linkages at the Union, states, urban local bodies and panchayats through a robust technology platform that will usher in a single-window mechanism. “There needs to be a greater push for establishing of a single window clearance mechanism in the country,” says Sandhir.
Given the complications in each state, it will be a long haul towards a single-window system throughout India. “As per the expert committee’s estimates, the right kind of decisions could possibly bring down the approval timelines from the current 196 days to 60 days. However, this is easier said than done. Only time will tell how this arrangement will pan out,” says Kumar.