Lesson from Singapore: For Cheaper Homes, Cut The Red Tape

India has much to learn from Singapore on real estate policy. When World Bank ranks countries on dealing with construction permits, India is consistently on the bottom of the list while Singapore is consistently on the top of the list. In India, real estate developers often face huge delays in receiving approvals for construction of projects. Their plans are rejected with retrospective effect. Many government policies are not implemented on time, and when projects are in progress, regulations are routinely changed. Real estate developers face much political interference in the construction process too.

Yesterday, Confederation of Real Estate Developers' Association of India (CREDAI) , the body of real estate developers observed a one day nation-wide strike. The trigger was that Suraj Parmar, a prominent real estate developer in Thane committed suicide recently. According to media reports, what compelled him to take his own life were problems, which real estate developers routinely face.

Real estate developers have a bad press, but this is puzzling. Like homes, food is a fundamental need of human beings. But, this does not stop us from recognising that food is cultivated by farmers. If the legitimate needs and rights of farmers are ignored, they would not be able to produce food in large quantities. When there is a famine, the best the government could do is to create a regulatory environment that allows farmers to produce wheat, rice and other food items in large quantities. But, such obvious principles of market economics are ignored in discussions on real estate regulations and affordability of homes. If there is a shortage of homes, the best that can be done is to allow developers to increase the supply of homes.

How can India improve by learning from Singapore? How does India fare in the freedom real estate developers enjoy?

According to a World Bank study conducted in 2014, out of 189 countries, India's rank in dealing with construction permits was 184. The average number of procedure required to get a construction permit was 25.4. The average number of days required to a get a construction permit was 185.9. The cost of getting construction permits as a percentage of warehouse value was 28.2 per cent. This means that India is one of the most regulated countries in the world, as far as real estate developers are concerned.

Let us compare India's performance with that of Singapore, Singapore's rank in dealing with construction permits is 2. It takes merely 10 procedures to get a construction permit on average. The average number of days taken to get a construction permit is 26. This means that in India, the time taken to get construction permits is seven times more than that in Singapore. The cost of obtaining construction permits as a percentage of warehouse value is 0.3 per cent. In India, this cost is 94 times higher.

Now, observe the results. In Mumbai, an average citizen would have to work 308.1 years to buy a 100 sqm residence in prime neighbourhood. But, in Singapore, an average citizen can buy similar home in 42.7 years.

The examples of India and Singapore are not unusual. The degree of freedom developers have are positively correlated to the affordability of homes, all other things being equal. To make homes affordable, real estate developerscould be allowed to function with a reasonably high degree of autonomy, the report suggests.