There are certain legislations that hamper the growth of housing finance in India. For instance, the archaic Urban Land Ceiling Regulation Act (ULCRA) has been a failure in the Indian housing finance system. The Act has only helped contribute towards the galloping prices of land, because it has failed to release adequate land for the purposes of housing development and financing.
Though the level of foreclosure for the housing finance companies are relatively low at around 1.5 to 2 percent, the foreclosure laws are obsolete and outdated. The laws for non-payment of Equated Monthly Installment (EMI) and consequent foreclosure and repossession of the property must be revised. This would help financing companies to have the final rights on the property, which is the collateral for the housing loan. Moreover, this would further boost the housing finance business.
This is one problem area which needs to be tackled on a war footing. Most Indian cities lack the infrastructure since they fail to keep pace with the growth in population and development. The central and state governments must provide sufficient power, water and roads to cope with the growth. The electricity boards must be able to provide reliable power and the corporation must charge reasonable property taxes to cover the costs of roads and water supply. The assessment base of property tax must be changed from historical value to capital value. The user charge for water, sewage and electricity and other municipal services boards may have to be considered very seriously. Presently, the property taxes do not cover the infrastructure costs. There is also pilferage and actual charges are not collected. The government cannot continue to subsidize these infrastructure costs indefinitely.
Recognition of Housing as an industry:
This is the one issue that the government cannot afford to ignore any longer. The Indian real estate industry has been lagging behind the rest of the world for too long, and this is one industry which can provide a boost to the overall economy, as was clearly emphasized in the McKinsey Report of September 2001. The direct impact of this recognition to the housing industry will provide easier access to capital and tax incentives, which will jump start the entire housing industry. The government can provide further incentives such as tax holidays, larger depreciation and increased equity support from HUDCO and NAREDCO.
Slum Clearance and Public Housing:
For nearly 40 years, developing countries sought to solve the problems of poverty and housing deficiencies by removing the poor from the slum neighborhoods and re-housing them in more durable shelters. The failure of these policies led many developing countries to try massive public housing construction during the sixties and the seventies. The problems of the poor were defined primarily by the condition of their housing. Again, neither services nor employment opportunities were usually provided, and the results were equally disappointing. The cost of public housing construction and rentals were high. As a result these policies benefited middle income rather than the poorest families. Most slum dwellers were merely pushed from cleared sites to other parts of the city.
Countries with rapidly growing economies were no more successful in slum removal and public housing for meeting the needs of the poorest groups than countries with sluggish economic growth. By the early 1970’s the inability to execute slum clearance, relocation and public housing policies alone to deal effectively with the problems of slum dwellers, or to provide other services needed by growing numbers of poor households in urban settlements became clearly evident. The problems with these policies are that they create serious problems of social displacement and disruption for the residents of slum and squatter settlements. Policy execution is often delayed by social and political pressures exerted by slum residents who resist forced removal from their homes. Displacement imposes high transport costs on families who are relocated far from their workplaces which tend to be in the center of city. Moreover, the policies do not alleviate the housing problems of the poor and indeed, exacerbate them in many countries. The poor cannot afford much of the public housing that replaces slum dwellings, and this often reduces the stock of low income housing and increases overcrowding in the low rent units. Often, slum clearance in one part of the city simply exacerbates overcrowding in other slum communities.
The limited supply of land, which accounts for 75 percent of the housing costs in urban areas, makes it the most valuable factor of production. The ULCRA and the Land Acquisition Act (LAA) further constrain land availability. In Delhi, for instance only 34 percent of the total usable land is available for housing. The ULCRA which was enacted in 1976 to prevent profiteering and speculation, banned individuals or companies from holding vacant land above certain city-specific limits.