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Economy Dec 6, 2012

Bribe:Key factor that disincentivises low-cost housing

By Firstbiz Staff

There is an inherent irony in the government's thrust for affordable housing. The policy is aimed at giving the much needed push, but ends up as a disincentive for serious players in the segment.

The reason? There is no difference in the amount of paper work for both affordable and premium housing. And paper work, by default, involves bribe, at least in India.

Sachin Kulkarni, managing director of Vastushodh, a Mumbai-based organisation that develops micro housing satellite townships, is bang on.

The logic is simple: A larger ticket size will bring in a higher profit margin.

"The bribe we pay for premium-housing projects is the same as for our affordable category, with the same amount of paperwork," he says in a report in theEconomic Times.

Precisely, there is no incentives for being in the business of building affordable houses for economically weaker sections of the society.

This is apart from the other most commonly cited reasons such as non-availability of urban land, rising threshold costs of construction and less access to finance.

Even though India's new Minister for Housing and Urban Poverty wants norms to be put in place for private builders to build at least 35 percent of housing units in any real estate project - or 15 percent of the floor area ratio - for economically weaker section, it is the government's current rules and operating environment that is to be blamed for the disinterest among builders.

Why would any businessman opt for a low-margin project rather than a high paying one when the bribe amount is the same in both the cases?

The logic is simple: A larger ticket size will bring in a higher profit margin.

And this is perhaps the reason why many developers that had earlier started off constructing houses costing below Rs 10 lakh have now ventured into what is called affordable housing- higher price points targeting salaried persons with the ability to shell out anything between Rs 15-40 lakh.

With only a few lost-cost players in the market, the government can forget about making affordable housing a reality in India.

This shift to a hybrid model with multiple price points and a low-income tag has fuelled investor interest in this space too which in turn has made this market speculative in nature.

"The pool of investors is very large, and they are pushing up prices and blocking out end-users. The objective of low-cost housing is lost," Subhankar Mitra, head, strategic consulting (west), Jones Lang LaSalle India, a real estate consultancy firm is quoted as saying in the report.

Clearly without any checks and balances and penalties for non-compliance, the whole object of low-cost housing is lost.

by Firstbiz Staff

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