Out of Box Thinking Necessary
Mohan Deshmukh, President MCHI
May 30, 2007
Maharashtra Chamber of Housing Industry
(I) New State Housing Policy / Out of Box Thinking Necessary
We welcome this policy notbecause it is comprehensive and has all the solutions. but it is at least the first attempt on the part of Government to address housing as a serious problem. Some time back Prime Minister also had made a statement that Mumbai is the fiinancial capital of the country and Mumbai should become Shanghai of India by making it a world class city. Whether we compare Mumbai with Shanghai or Singapore or Seoul is not important.The point is all Mumbaikars and even all people of Maharashtra cherish the dream of making Mumbai a world class city. Mumbai is pride of India. And it is possible to convert this dream into reality only if our policy makers and leaders address this problem by thinking out of box.
In 1991 since our economy was liberalized, common man has been benefited in all sectors except in the area of housing. For example when mobile phone was just
introduced, the call charges were Rs.17/- per minute. Today the rates have gone down so much that even the mason working in our building has a mobile. Common
man has Telephone, Televesion, Refrigerator, Washing Machine, Computer but no roof over his head. If affordable housing to all is Government’s motto, then it will
have to enact proactive housing policies which will encourage more housing which will be available to common man both on ownership as well as on rental basis.
Ultimately it is the universal law of demand and. supply which will determine the prices and housing sector cannot be exception.
(2) Proactive Housing Laws will create affordable Housing
Proactive laws play very important role in development of any country. Latest example is Dubai. Dubai is one of the world class cities only because of two things. First proactive laws in all the areas and secondly good governance. Even in a country like Malaysia a common man spends 10% of hi income on house.Today, in Mumbai, 60% of the population stay in slums and also prices have gone beyond the affordable level only due to non proactive housing policy. Today, in Mumbai,even when husband and wife are working and earning Rs. I lakh per month and if they own Two Bed Room-Kitchen flat in Andheri, they pay as much as Rs40,000/- per month as EMI. Can a common man who wants to repair his house in Malad or Kandivli or man who stays in rural area afford to buy a bag of cement at the rate of Rs.250/- to construct or repair his house. Is this not an indication of the wrong government policies towards the housing sector?
(3) Present Housing Scenario and Main Reasons
In April 2003, Alain Bertaud, a well known town planner with World Bank submitted his report to Government of Maharashtra comparing the development of Mumbai with that of Seoul in South Korea. The reason he compared Mumbai with Seoul was that in 1990 the population of Seoul was 98 lakh as against 106 lakh of Mumbai. Today Seoul is well planned and developed as one of the world class cities whereas in Mumbai development has taken place in an imbalanced manner during the last several years. Today we find in the island city of Mumbai – let us say from Churchgate to Mahim or Sion – there are some 25 storied sky scrappers and adjoining to that there are 3 to 4 storied old dilapidated chawls having one room tenements of 100 to 150 sq ft. where families stay even at the cost of risk to their lives and in the vicinity invariably is one slum pocket or .the other.
The main reasons for such imbalanced develcpment are :
a) Topographical Conditions:
Mumbai is surrounded by water and sea on all the three sides. Mumbai has only 232 sq.kms. of land available for development. Considering the above topographical constraints, it is necessary to utilize the existing land in Mumbai in the best possible manner for construction of housing as wel! as commercial complexes.
b) Policy regarding Floor Space Index (FS1)
Cities like New York, Honkong and Singapore are also island cities and have similar land constraints. Hence, their government encourages more and more of tall
buildings. In 1964, in Nariman Point, Mumbai, the permissible FSI was 4.5 whereas in 1991 in the entire island city FSI was frozen to 1.33 and in suburban areas it is
only 1. World over FSI around Central Business Districts is 5 to 15 whereas in suburban areas it is limited to 5 to 1.
c) Random Increase of FSI & Population Density
Recently, Government increased FSI from 2 to 4 in Bandra-Kurla Complex. which is developed hy MMRDA. Similarly, Govt. has taken a decision to allow redevelopment of Dharavi by increasing the FSI upto 4. BMC has approached Govt. for granting extra FSI to accommodate 29.000 Mill Workers’ families. This kind of random increase of FSI results in imbalanced and haphazard development of the city. Instead of this, Government should allow cluster type development plan for the entire city and allow uniform increase of FSI for the entire island city. As per provision under D.C. Rule 33(9) under Urban Renewal Scheme for cluster type development, higher FSI upto 4 is permitted. This may increase the density, however, whether planned or otherwise, nearly 120 lakhs people are already staying in Mumbai. Then why not they provide them proper housing. This question the Government will have to address in the new housing policy.
Where there is a proper existing net work of railway and wide roads, say between Colaba to Mahim on western side and Sion on the eastern side, higher FSI should be
permitted as it will help the overall development of the island city. Govt. can even put restrictions on the size of the tenements within island city. This will create more
housing stock. Those who want bigger houses should be encouraged to go to suburban areas’ as they can afford to travel to their work places by their own
private transport. Unfortunately today we are exactly in the reverse situation where rich people who use their own transport and stay closer to their work places and the middle class employee trave1s on an average 3 hours a day commuting between his work place and home.
d) More Emphasis on Infrastructure Development
Lack of suflicient infrastructure is always cited as a reason for controlling housing development in island city by putting restrictions on FSI.
As per one of the reports, Planning Commission has allocated whopping sum of Rs.2,28,000 crores by the year 2020 for development of Mumbai’s infrastructure.
Besides, there are other various means by which State Government can get revenue from Mumbaikars for the purpose of generating revenue for the development of infrastructure. New development will generate more income by way of development charges and taxes. Besides, Government can raise money by way of Amnesty Scheme for the purpose of getting pending conveyances of more than 20,000 old buildings which is a burning issue. A simple Amnesty Scheme can generate Rs.80,000 to Rs.90,000 crores from Mumbai which can be dedicated for the purpose of development of Mumbai infrastructure.
(4) Stamp Duty and VAT:
Upto 3 years, Govt. of Maharashtra was charging Stamp Duty @10%, when State’s total revenue from Stamp Duty was Rs.500 crores. 3 years ago, Govt. reduced it from 10% to 5%. Last Financial Year, State’s collection from Stamp Duty was Rs;6200 crores. There is scope for further reduction of stamp duty. However, instead of reducing the stamp duty, Govt. of Maharashtra has now levied 5% VAT on sale of flats. That means, a flat purchaser will now have to pay 5% by way of stamp duty and also have to pay the amount of 5% by way of V A T. This is a case of double taxation. Govt. should remove VAT on sale of flat.
5) Recent Amendment to MOFA / (Remedy worst than Disease)
Originally, the above Act was passed to promote housing through cooperative sector. At that time, role of a promoter was different and concept of one building and one society was in practice. In those days, 3-4 people used to come together as promoters, collect money from prospective members and with their money, they used to buy a plot and construct the huilding. Hence, they were true Trustees of the money so collected from the prospective members. The developer-cum-promoter came on scene in 70’s where he was stake holder. In 90’s, concept of group housing and big complexes came. People, also prefer to stay in large layouts with large gardens, health club, swimming pool, market, school, etc. The MOFA with recent amendment will hamper the development of such large layouts which would consist of 15 or 20 buildings and where different societies which will be registered at different stages.
The necessity of bringing about this modification was to enable 20,000 old buildings where conveyance was pending. As per the recent amendment. Govt. has introduced provision of deemed conveyance and also incorporated the penal provisions for those who delay in giving the conveyances.
The real issue here is the way stamp duty is charged.Todav, for registering a document, stamp duty has to be paid at today’s market value. In case of old buildings even after giving the set offs as provided in Bombay Stamp Act, the amount of stamp duty becomes much more than the original value of the flat. For example, in the year 1980, value of the flat in Borivli was Rs.80 per sq.ft. Today, if owner of the said flat goes for a registration of his document, he has to pay 5% stamp duty at today’s market value which is about Rs.5.000/- per sq. ft.as per the Ready Reckoner. Even after giving set offs. if the present market value is considered as at Rs.2,500/-@ 5%, he has to pay Rs.125/- per sq. ft. by way of stamp duty which is more than the original cost of the flat. The solution to address this issue is that Govt. should announce a simple Amnesty Scheme by charging a lump sum amount of about Rs.5,000/- to Rs.l0,000/- depending upon the location of the flat. By this method, Govt. will be able to collect upto Rs.20000 crores in Mumbai, which amount can be utilized for Mumbai infrastructure. Merely by making deemed conveyance as provided in recent MOFA amendment, societies will not get the title until the said conveyance is registered. With unfair penal provisions, large scale developers will go in other states like Andhra & Kamataka where these laws are more proactive. Govt. should take fresh look at this act & amendment immediately as it will worsen the problem
rather than solving it.
6) Rent Control Act
In foreign countries, out of the total new housing done, 80% houses are on rental basis and 20% houses sold on ownership basis. In Mumbai, after 1961, not a single building was constructed for the purpose of giving on rent. If we are to make housing available to all it is necessary to encourage rental housing. Govt. should amend the Rent Control Act at least prospectively. The amendment to Rent Control Act will help solve housing problem in a very big way.
7) Urban Land Ceiling. Act
In the last Assembly assessment, Govt. has introduced a Bill for repeal of Urban Land Ceiling Act. This act has served no purpose for common good of society. The total administrative cost of implementation of this act is much more than the value of the total land and the built-up space aquired by the Govt. during last 30 years. The Central Govt. has withheld Rs.5,000/- crores which is from Jawaharlal Nehru Urban Renewal Fund whih can be used for development of infrastructure. Govt. must repeal the Urban Land Ceiling Act at least in the coming. Assemblv session.
8) Finance – External Commercial Borrowing for Real Estate Sector
In the last Budget, Central Government has removed concession under 80IB under Income Tax Act. This incentive did help to create more housing stock. Govt. should reconsider on this issue.
Recently, RBI with a view to curb general inflation has curtailed credit to Real Estate Sector. This has affected psyche of the flat buyers. No doubt curbing inflation is
important in overall interest of the economy. It is only availability of easy money at affordable rates which will create affordable housing for all.
9) Issue of sale on built-up/carpet area
As per the new policy it is proposed to make mandatory on the developers to sell the flats on carpet area basis. But even today as per model agreement as provided in Maharashtra Ownership FIats Act, developers have to compulsorily record carpet area in their agreements with flat purchasers, yet sale takes place on built-up or super built-up areas. The practical solution to address this issue can be that the planning authority or BMC while approving the plan pass plans on carpet area basis only. Today when builder goes to purchase land the land owners calculate common area while selling the land to developers. Naturally builders recover this amount from the flat buyer and this vicious circle goes on.
10) Rationalisation of Municipal Assessment
As per today’s method of charging the municipal taxes, a man staying at Malabar Hill having 2.000 Sq.ft. flat in an old building. pays Rs.300/- per month as property tax, whereas man staying in Dahisar in one-bedroom-kitchen-hall flat having 550 sq.ft.area, he pays as much as Rs.l.500/- per month as municipal taxes, even though he does not have proper roads, there is no sufficient water supply and drainage facilities. It is necessary to rationalize the municipal assessment system.
I I) Fast Track Approval & Computerisation in BMC
Central Govt. is coming with legislation to ensure that buyer should get timely possession failing which developer will be fined. Today, builder has to obtain 52 different NOCs and it takes as much as 9 to 12 months to get the Municipal Plans passed. Plans are passed also in phases. It is necessary that Fast Track approval and computerisation are implemented by BMC at the earliest, so that ultimately Flat Purchaser will also get possession of his flat on time.
12) Use of Salt Pan Land and Urban Land Ceiling Surplus Land for creating more affordable LIG & MI\G Housing Stock
Government should make use of Salt Pan Land On Eastern Express Highway as well as surplus land available from Urban Land Ceiling for the purpose of construction
of houses for LlG & MIG housing. Govt. can enter into public/private partnership or create some kind of mechanism, so that more housing stock is available within a time bound programme. Govt. can even put a price limit on sale of such flats as the land w ill be provided by the Govt.
Out of Box Thinking Necessary