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The Rediff Business Interview/Akshaya Kumar

'Urban Land Ceiling Act repeal will lower property prices'

In the week when the Indian nuclear tests shook the country and the world, wiping out most other news from the front pages, the Bharatiya Janata Party-led coalition government brought in an amendment whose effect on individuals is no less. It repealed the Urban Land Ceiling Act, introduced in 1976. The act was created to allow the government to take over the property of an individual and distribute it to the poor. In implementation, however, it was a failure.

Senior Correspondent Syed Firdaus Ashraf met Akshaya Kumar, chief executive officer of Colliers Jardine, the international real estate firm, to find out if the ULCA's repeal will improve the housing situation in India.

In India, it is very difficult for most people to buy a decent house even if he earns a good salary. Can you compare the Indian situation with the rest of the world?

The Indian housing scene is very different from the rest of the world. Abroad, an average person in the West takes five to eight years to buy a decent house. In India, it can take between 20 and 30 years for an average middle class person to do so.

This can be either due to low income or due to the high interest rates. At the end of the day, I think the interest rates are very, very expensive. An interest rate of 15, 16 per cent for a house loan is too high for an individual, in my opinion.

Where did we fail in the last 50 years in the housing sector? Laws like the Urban Land Ceiling Act were meant for a good cause, but did not work. Why?

I don't think we can call it a failure. But I think we should learn where we could have acted upon earlier. Some of these acts such as ULCA, Rent Control, and Stamp Duty should have been addressed earlier. If you cut your finger, you go to the doctor the same day. You don't wait for three years to go the doctor. And to that extent, I think we have failed.

Do you think that ULCA was a bad plan?

I think the government had a good objective, which was to provide housing to the people. Any person who owned excess land, the government would take it over and redistribute it to the poor. It was a good objective. But in a market-driven economy, it will never work. A wealthy person who owns an asset is not going to give it away. And the government needs a lot of willpower to implement its decision.

The objectives were never met due to a lack of government will and too much litigation. It is unfortunate the government could not meet its objectives, but having failed, they should have amended the law much earlier.

Some owners associations have also opposed the ULCA repeal and stated that they would like to see more amendments in the act. What is the reason?

There is a viewpoint that the government should redistribute land to the poor. In a socialist sense, it looks possible. But in a country that wants to liberalise and be market driven, such acts are only irritants and I don't think they will work.

How exactly will repeal of the ULCA benefit the common people?

The ULCA repeal is good for the industry as well as customers (ordinary house seekers) in the long run. For the customer, it is good because a major irritant on the supply side has been removed. So after the repealing, additional stock of land will come out in the market which has been held back for a very long time. This will result in the prices of land dropping and customers will have to pay reasonable prices to buy their houses.

Is the ULCA repeal enough to see activity in the real estate market that is in a slump at present? Or do we need some more steps?

The ULCA was a major irritant in the past. Its repeal was long overdue. But there are a few other hurdles whose removal will help the customer in the housing sector. One is the Stamp Duty Act that is as high as 14,15 per cent. The Stamp Duty needs to be streamlined.

The other is the high interest taken on loans for the housing purposes. Probably, industry would benefit if the government reduces the interest rates on loans for houses. The Rent Control Act, though amended, also needs some modification. There has to be some market kind of situation.

Are you satisfied with the new Rent Act passed by the Maharashtra government?

The government has only modified the Supreme Court order because it had no other option. But it is not in the interest of the structural problem of the housing sector. Some of the acts need to be rectified. I feel some of the tenants must not get the protection that they do. At least a particular class of tenants which includes multinational companies and individuals occupying more than 300 to 500 square feet houses. These are the people who do not need protection and therefore some more changes are needed in the new Rent Act.

There is a talk that housing industry should be brought on a par with the infrastructure sector. What exactly does it mean?

Everybody is clamouring that you need roads, power, and bridges. But nobody is talking about good quality office space or decent housing that are essential for corporations to move into this country. We have to set up offices to create decent working environment. Therefore, one suggestion made to the urban development ministry is that at least housing be classified as infrastructure because you need more houses, and of good quality. It is a part of social infrastructure. People have to live decently. And that is where the classification of infrastructure will help because India needs funds to flow into this area.

Do you think it is possible to have two million houses annually, as the government says?

I think Urban Development Minister Ram Jethmalani too said that it is a difficult target to meet. It is an enormous task and will not be easy to achieve.

Besides housing, don't you think we need to tackle the problems of power, roads, etc?

Of course! Telecommunications, electricity, and quality of roads have always been a problem. These things are absolutely essential. But not many resources have been thrown into these areas. Take Thailand, for example. In spite of a bad economy and a currency problem, you see so many bridges coming up and so much investment being made in the infrastructure sector. India is doing nothing of that sort. We have to attend to these problems and we have to attend to them quickly.

In Southeast Asia, the real estate market collapsed. Why did that not happen in India?

Anything uncontrolled can lead to disaster. We are not saying India should open up exactly in the same way. I think a reason why India never suffered like Southeast Asia is because we control the amount of foreign exchange in the country. And our borrowing limit has been under a thoughtful parameter and manageable.

Akshaya Kumar interview, continued