Pending Approval: Why Developers Fail To Deliver Projects On Time?

When despite a slow growth in real estate market developers did not budge on reducing property prices, many raised eyebrows. Among reasons for not cutting prices, developers often quote delays in project approvals. This could be true to a large extent.

According to a report by Confederation of Real Estate Developer's Association (CREDAI), it generally takes two to three years for a project to get off the ground in India. If the land is waiting for around three years before construction starts, its value changes. With that, interest rates of the developer holding on such a land shoots, while he is running around many departments for various clearances. All this adds on to project costs. A developer has to earn at least what he invests.

A report by Kotak Institutional Equities which was based on a real estate conference said that the participants blamed the protracted approval process for their inability to cut prices of properties. “Participants concluded that the inability to reduce costs was due to high approval costs”. The panel included some of the largest unlisted developers of Mumbai such as Runwal Group, Raheja Universal, The Wadhwa Group, Rustomjee Developers, Ekta World, Dosti Realty, Terraform Realty and Happy Home Developers.

For years, many industry bodies have been requesting the government to grant a single-window clearance for real estate projects, which has remained only on cards. Recently, Urban Development Minister Venkaiah Naidu set up a high-powered committee to speed up approval for building plans in Delhi. While Punjab has such a system in place, elsewhere the old process of months and years of waiting exists.

A look at the approvals required to get a real estate project off the ground in Mumbai or Maharashtra:

Obtaining an ownership certificate or extract

This process takes around 15 days and requires an approval from the state revenue department.

Building layout approval

The development authority or municipality grants building layout approvals. This process might take around a month. A submission has to be made with all the relevant documents and a scrutiny fees has to be paid. The file is then sent to the survey office, after which is a site inspection is conducted.

'Intimation of Disapproval'

The third step is to obtain an 'intimation of disapproval' or authorisation from the building proposal office. This permit is issued with a list of no-objection certificates (NOCs), which the builder should obtain from various departments.

Structural plans

The fourth step is to submit structural plans approved by the structural engineer to the municipal authority. What was given earlier was an approval of civil plans, a review of structural plans is done along with the NOC process.

Non-agricultural certificate

The revenue department grants a certificate that a piece of land is non-agricultural and it takes a minimum of three months, depending on the location. This is the most time-taking step of the approval process.

NOC from the tree authority

The Tree Authority Committee of the municipal corporation grants an NOC and the process takes one to three months. This is to meet with the stringent environmental regulations. The committee ascertains whether trees could be felled during construction. The builder will have to plant trees to replace those that have been cut.

NOC from drain department

Getting an NOC from the storm water and drain department takes around 15- 30 days. After this, a nod from the sewerage department takes another 15- 30 days.

NOC from electrical department

The electrical department of the city should also gives an NOC as the load required for the building will have to be sanctioned by them. A copy of the building plan has to be submitted for this, as the department will assess if an electrical sub-station upgrade is required for this. This might take anywhere between 15-30 days. Yet another NOC has to be taken from the traffic and co-ordination department which takes around 30 days.

NOC from fire authorities

If the height of a building is over 24 metres, it requires an approval from the chief fire officer and takes around 30 days. The fee for this approval cost Rs 50 per square meter.

Environmental clearance

After a consultant prepares an environment impact assessment report of a property, it is submitted to the state-level appraisal committee, which is then referred to the State Environment Impact Assessment Authority. If required, a costal regulatory zone approval also needs to be taken. A number of projects get stuck at the environmental clearance stage due to stringent laws, objections raised by local authorities, etc.

Most of the approvals that are given out have a fee associated with them which is levied on the area of the building that is planned. Apart from those mentioned above, a developer has to get NOCs from the hydraulic department, the environmental department and the Airports Authority of India.

If all the approvals are given on time, it could take around two years for all the clearances to fall through. If minor delays from governmental authorities are added up, the time frame of the approval process only goes up higher.

In a scenario like this, blaming developers for rising property prices may not be altogether justified.