Streamlining Approval Procedures for Real Estate Projects

1. Streamlining Approval Procedures for Real Estate Projects November 1-2, 2012 Hotel The Leela, Mumbai Dhanendra Kumar Chairman, Committee on Streamlining Approval Procedures for Real Estate Projects (SAPREP), set up by Ministry of Housing and Urban Poverty Alleviation, Govt. of India & Former Chairman, Competition Commission of India (CCI) Disclaimer - The views expressed in this presentation are personal and do not reflect the views of the Ministry of Housing and Urban Poverty Alleviation (M/HUPA).

2. Overview Importance of real estate and construction sector and key challenges 1 Introduction to SAPREP* Committee 2 Key findings of the Committee report 3 Recommendations and next steps 4 Your feedback and suggestions 5 *Streamlining Approval Procedures for Real Estate Projects

3. Importance of real estate and construction sector and key challenges

4. Importance of the sector Real estate and construction sector has continued to contribute significantly to the country’s GDP; Average contribution over 2011-16 estimated to be 17.5% • On an average, real estate contributes 8% while construction contributes 9.5% • Both real estate (19.5% CAGR) & construction (CAGR 18.3%) have witnessed tremendous growth since 2001 Contribution of Real estate and Construction to India’s GDP (USD Bn) 17.5% 17.5% Source: RICS Research: Real estate and construction professionals in India 2020

5. Eg. NHB Residex, Central registry, digitization of land records Draft real estate regulation bill Focus on capacity building in new JNNURM, capacity building schemes, NSDC etc Eg. building standards, affordable housing standards? Land acquisition bill, valuation standards Given that the sector is riddled with many complex issues threatening to slow down growth, multiple efforts are being made by Government to address these issues SAPREP Committee set up by Ministry of Housing to look at streamlining approval procedures Cumbersome project approval process Absence of regulatory body Lack of market data & transparency Shortage of skilled workforce Lack of standards and uniform practices Land values & acquisition

6. Introduction to the Committee set up by MoHUPA on ‘Streamlining Approval Procedures for Real Estate Projects (SAPREP)’

7. SAPREP CommitteeTerms of Reference SAPREP Committee was set up to study successful models in Indian states as well as international best practices in order to suggest a methodology for fast track Central/State building clearances. • Examine few best practices on streamlining building plan approval processes in cities like Pune, Hyderabad, Mysore and Indore etc. • Study of Bihar model on the obtaining of building plan approvals from certified architects. • Suggest a methodology for fast trackingCentral/State building clearances. • Suggest a systematic approach through which all cities and states can develop fast track, single window clearance mechanism giving specific focus on • simplification of procedural aspects, • formulating single composite form with complete listing of the set of documents necessary to accord sanction by the authorities and • automated system for building plan approval with special emphasis on Affordable Housing.

8. SAPREP Committee Work done so far • Extensive secondary research • Feedback collected from states via questionnaire • Invited public comments • Committee and sub-committee meetings • Representatives from approval authorities invited to attend meetings and contribute to the deliberations • Current status • Draft report has been prepared and will be submitted to the Ministry of Housing and Urban Poverty Alleviation in November 2012

9. Key findings of SAPREP Committee - Magnitude of the problem - Legal framework and other challenges - Developer’s issues due to existing process - Consumer issues

10. According to a World Bank Study, India has one of the most cumbersome and lengthy process for seeking construction permits Magnitude of the problem India – Overall ‘ease of doing business’ But, still a long way to go as India ranks 182 out of 185 countries India – ‘Dealing with Construction permits’ India has reduced time from 227 days to 196 days to process building permit applications by implementing strict time limits at municipalities And it has a huge cost associated with this process -passed on to consumers Source: Doing Business 2013 – report by The World Bank and IFC

11. Legal framework Numerous Central and State level laws, rules and regulations govern the construction activity… Construction of buildings Land title Planning & Land • Indian Registration Act , 1908 • Various State legislations • Land Revenue Acts by all State Governments • Town and Country Planning Acts by all State Governments • Master Plans/ Development Plans • National Building Code 2005 • Local Building Bye-Laws NOC from Central Govt. NOC from State Govt. Service Installations • Water connection • Sewerage connection • Gas connection • Telecom connection Power / Electricity connection • Water (Prevention & control of pollution) Act, 1974 and Air (Prevention & control of Pollution) Act, 1981 • Environnent Impact Assesment (EIA) Notification S.O. 1533 (2006) • Ancient Monuments and Archaeological Sites and Remains Act, 1958 • Works of Defense Act 1903 (WDA) • Environment (Protection) Act, 1986 • Forest Conservation Act, 1980

12. Developer issues …resulting in a lengthy and cumbersome process where developer needs to approach multiple authorities 12

13. Multiple factors add to the complex process, leading to uncertainties and delays in building approvals Developer issues • World Bank Study estimates • If procedures are too complicated or costly, builders tend to proceed without a permit. • By some estimates 60–80% of building projects in developing economies are undertaken without the proper permits and approval ‘Land’ is a state subject resulting in multiple laws, rules and regulations Rigid urban planning processes Lack of transparency and corruption Lack of institutional clarity Ambiguity and discretion Complex building bye laws with excessive control Complexity and coordination hurdles with multiple depts.

14. Consumer issues Whilst building laws are framed for safety and protection of people and environment, complexity of the procedure results in uncertainty for consumers as well as developers Is the location good with adequate urban Infrastructure? 1 9 Does the developer have clear land title? 2 Who do I approach for delays and un-kept promises by developers? Have all statutory planning and building approvals been received? 3 Is the paper work / contracts neutral and not one-sided? 4 8 Has the property received the completion certificate after necessary inspections? 5 7 What is the actual carpet area that I can use? Is the construction quality and specification as promised/shown in the apartment brochure? How can I know the status of the project and approvals to estimate when construction may get completed? 6

16. What have other countries to reform their systems? Introducing or improving one-stop shops was among the most common features of construction permitting reforms in the past 8 years International best practices Source: Doing Business 2013 – report by The World Bank and IFC Source: Doing Business 2013 – report by The World Bank and IFC

17. Recommendations and next steps

18. 6 Key Pillars to streamline real estate project approvals Key recommendations 5 1 3 Single Window or ‘One-Stop Shop’ enabled by IT Bring transparency, predictability and accountability to protect consumer interest Share best practices and incentivize States 6 4 2 Reforms to promote affordable and green housing Capacity building in private and public sector Review existing systems and procedures

19. Shift from paperwork and chaotic processes Transparent processes Clarity of sequential and parallel processes Composite Application Form, Standard checklists and timelines State wise compendium of process and timelines - what approvals- where to go and- by when to expect 1 State wise compendium of all processes and timelines forTransparency, Predictability and Accountability While Central Government can facilitate these, States will be responsible for implementation

20. Transparency, Predictability and AccountabilityWith consumer interest at the heart of all reforms… 1 Contd. • Uploading a list of all approved projects on websites of local authority • Online information on the status of building approval applications • Prompt notification of application approvals Access to building approval information and status updates to avoid pre-sales of projects without requisite approvals • Projects to be registered with (proposed) real estate regulation authority • Enforcement of various state building laws by local building authorities or private/third party inspectors • To provide consumer redress for building defects Strengthening regulatory mechanisms to enforce building standards; ensure quality

21. 2 Review of systems and proceduresRemove redundancies, simplify process, automate or delegate powers • Remove duplicity or unnecessary approvals and documentation • Eg dual process of getting conversion of land use approval from revenue department as well as town planning / local dept may be done away with • Simplify or improve process by clarity in rules and restrictions • There are opportunities to eliminate the need for NOC from certain authorities such as NMA, AAI, if the restricted areas are marked as red, green, yellow • Identify activities that can be automated • Eg online submission of building plans, e-payments • Identify approvals that may be delegated • Eg planning approvals (zoning plan or change in land use) can be delegated to local bodies after adequate capacity building

22. Developer submits all information and documents in a Composite Application Form IT Portal acting as ‘Single Window’ will connect various departments National Services Delivery Gateway (NSDG) Department Portal • Application Routing • Processing (Scrutiny, Approval) • Communication • MIS Reporting Developer / Applicant Responses / status updates from various authorities returned to the applicant 3 Single Window or ‘One-Stop Shop’ enabled by IT Approval authorities / Department Users Source: Graphic representation adapted from e-Biz being developed by DIPP

23. With the help of IT enabled one-stop shop, Hong Kong SAR, China and Singapore have achieved no. 1 and no. 2 ranks respectively for ‘dealing with construction permits’ International best practices Singapore Hong Kong • Many departments have been inter-connected and manual procedures automated by leveraging IT • Singapore takes 11 procedures and only 26 days to get a construction permit • A One Stop Centre (OSC) was set up under the administration of the Efficient Unit (EU) • Hong Kong takes only 6 procedures and 67 days to get a construction permit 3 Contd.

24. Taiwan, China, made the biggest improvement in the ease of dealing with construction permits in the past year International best practices 3 Contd. By improving one-stop shop and introducing private inspections by building inspectors, 14 procedures were eliminated and 31 days were saved Source: Doing Business 2013 – report by The World Bank and IFC Source: Doing Business 2013 – report by The World Bank and IFC

25. Clear ‘definition of affordable housing’ projects Nodal agency to act as ‘Single window’ and coordinate all approvals from different authorities Green certified projects to be exempt from environment clearance Exemptions from certain NOCs or ‘deemed approval’ to expedite supply of affordable housing Fast track process/ green channel with 60-90 day clearance window Revision of building codes with specific provisions for ‘affordable housing’ including revised densification (built-up area) norms and standardization of building specification 4 Reforms to promotefor affordable and green housingthrough planning/development policies and approval procedures

26. 1. Many best practices exist which need to be shared amongst States Rajasthan Nodal agency (Avas Vikas Limited) for affordable housing; Clear processes and time limits Andhra Pradesh Consolidation of building laws (AP Building Rules 2011) to make building stipulations clear, easy to comprehend, user friendly Hyderabad Fast tracking G+4 houses by empowering empanelled professionals (Green channel) JNNURM Cities Building plan automation has been a mandatory reform under JNNURM which has resulted in many cities developing custom software/website for online building approvals 5 Share best practices and incentivize StatesRecognize and reward States and individuals to build competitive spirit 2. States need to be incentivized by Central Govt. to reform procedures 3. States and individuals could be recognized through National Awards

27. Capacity building in private and public sectorTraining in-house staff; outsourcing and empowering private sector • Empanel/Outsource - to review and verify (self-certify) building plans and zonal/layout plans for building projects Architects Urban Planners • Train – ULB staff to be able to approve land-use/zonal plans* • Empanel/Outsource - to review application of building plans, construction as well as structural design requirements Civil / structural engineers • Train or empanel - to review adherence to stipulated building codes and bye laws, including site inspection Building surveyors / inspectors • Empanel/Outsource - to verify legal documents including ownership and non-encumbrance certificated Lawyers and law firms • Train - ULB staff on procedures and IT Other ULB Staff *India needs ~40,000 urban planners for 7935 towns; only 616 planners annual supply from educational institutions 6

28. Summary Summary Technology platform is being identified Land surveyors, urban planners, building inspectors Review of processes, Composite Application Form Facilitation window in ULB, Empowered committee, Ombudsman or Appellate Authority Document processes, checklists, timelines, automatic/deemed approval Consider nodal agencies, special exemptions

29. Next steps • National workshop of all states to discuss implementation – end November • Pilot implementation of the recommendations in one or two states

30. Your feedback and suggestions….

31. Your feedback and suggestions… • Which approvals prove to be the biggest bottleneck? • Areas where standardized documents and checklists would be most helpful • Identifying redundant processes (which can be eliminated) and areas of duplication • Suggestions to streamline approvals from MOEF/AAI/NMA/ Defense Ministry • Should Environment Impact assessment under MOEF should be undertaken at the Master Plan / City Development plan or for every project approval stage? What should be the minimum threshold for which environment clearance should be required? • What kind of incentives will be effective to motivate States to implement procedural reforms? • Can the simplified norms of Andhra Pradesh be adopted in other states to incentivize housing • What special exemptions should be considered for affordable housing • What facilities/functionalities should be made available in e-platform as a single window shop for building approvals • Is there need for an appellate authority or ombudsman to hear appeals against building approval related cases • Other suggestions on how building approvals can be facilitated and expedited

32. Thank you! Dhanendra Kumar, Chairman Committee on Streamlining Approval Procedures for Real Estate Projects (SAPREP) and Former Chairman, Competition Commission of India (CCI) Email - dkumar1946@gmail.com