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Developers need about 54 to 60 approvals before starting to build, a process that can stretch on for years. Photo: Ramesh Pathania/Mint
Developers need about 54 to 60 approvals before starting to build, a process that can stretch on for years. Photo: Ramesh Pathania/Mint

Builder’s suicide unites real estate developers battling red tape

The property industry's push to revive a proposal meant to ease project approvals has gained momentum after developer Suraj Parmar's suicide

Singapore: The death of property developer Suraj Parmar might have been a quiet tragedy had it not been for the 13-page suicide note he left behind.

Instead, the document outlining alleged harassment from government officials and demands for bribes has become a rallying cry for India’s beleaguered property industry. After years of seeing profits curtailed by worsening red tape and byzantine approvals processes, the industry is pointing to the incident to push for change that has so far proved elusive.

“It’s sad that someone had to commit suicide to get things going," Niranjan Hiranandani, managing director of Hiranandani Constructions Pvt., said in an interview. “Getting all the permits used to take six to eight months some years back. They now can take two to three years."

Parmar, the former chairman of the Cosmos Group, which built residential projects in Mumbai’s suburbs, shot himself at one of his company’s condo sites on 7 October. Following his death, an industry group organized a protest march in Mumbai and shut down work at construction sites. The association’s push to revive a proposal meant to ease project approvals has gained momentum after Parmar’s suicide, industry executives said.

Ancient monuments

Developers need about 54 to 60 approvals before starting to build, a process that can stretch on for years. They need permissions ranging from an “Ancient Monument" approval to ensure that no monuments of historical significance are near the proposed project, to clearance from the Tree Authority, which must ascertain how many trees, if any, will be cut as a result of construction. 

In his letter, which was verified by his family to Bloomberg News, Parmar wrote of delays in getting approvals, building plans getting rejected with retrospective effect, political interference, deliberate delays in implementing government policy and subjecting on-going projects to whimsical regulations, according to excerpts published by the developer’s industry group. Representatives at Parmar’s firm Cosmos didn’t respond to telephone calls seeking comment seeking comment about Parmar’s complaints about the approval process.

Parag Manare, the deputy commissioner of police at the crime branch in Mumbai, said in a telephone interview that the department is investigating four government officials named in Parmar’s suicide note. The four, who haven’t been formally charged, have sought anticipatory bail, which the court has granted to them on an interim basis until 2 December, he said. The police department has requested the court for a speedy hearing, Manare said.

‘Painful indictment’

“The suicide note left by him is a painful indictment of our system," the Confederation of Real Estate Developers’ Association of India, or Credai, wrote last month in a letter to the city commissioner in Mumbai.

Delays in getting permits are adding pressure on an industry already grappling with dwindling sales and a funding squeeze. Home sales in India’s top eight property markets has been falling while unsold inventory is on the rise, according to research firm Liases Foras, which estimates it will take at least 45 months to find buyers for unsold homes in Mumbai alone.

“Developers are already facing slower sales and high interest costs, so the delay in getting permissions adds to the problems," said Liases Foras founder Pankaj Kapoor.

The industry group is seeking a single-window system for all clearances, which would allow developers to apply for all permits and approvals at one time, instead of dealing with them piecemeal. Though the demand has been approved in principle by a number of committees, there has been no action, according to Credai.

After the incident, Devendra Fadnavis, the chief minister of Maharashtra state, said the government will take action against corrupt officers and ensure that a speedy approval procedure is in place. The government will focus on strengthening the online project approval system, Fadnavis said last month.

Bureaucratic hurdles

Red tape is a prime obstacle to Prime Minister Narendra Modi’s push to make India a simpler place to do business. Its bureaucrats have been ranked the worst among 12 Asian countries for almost two decades, according to a survey of about 1,200 investors across the region by Hong Kong-based Political and Economic Risk Consultancy Ltd. India ranked 130 of 189 economies in the World Bank’s latest annual Ease of Doing Business report, with China at 84.

Of the 8,088 projects currently being marketed by developers across India, more than half were delayed, according to data from Liases Foras, with 463 developments pushed back more than two years. In Mumbai, 59% of all projects marketed were running behind scheduled delivery dates, the data showed.

Cost overruns

“The delays result in costs shooting up; just the interest cost of holding the land for two years could increase to 20%, add to that the inflation of construction costs, it’s a lot," Hiranandani said. “We could cut costs by 25 to 30% if we could start building faster and also deliver larger volumes quicker for the consumer."

Indian developer shares have underperformed the broader S&P BSE Sensex Index this year, with the realty index dropping 13%.

Though the process of getting permits is slow, developers are also sometimes responsible for the delays. Many developers start construction without receiving all the permissions. Some building plans don’t comply with rules and builders try to get them approved by colluding with government officials, said Rohit Poddar, managing director of Poddar Developers Ltd. Violations include exceeding allowed construction limits, and flouting coastal, air space and environmental regulations.

In those cases where developers aren’t trying to maximize profits by altering building plans, permissions are easier and quicker to come by, Poddar says. He expects the government to implement a single window clearance for all permits by March.

Approval delays are hurting homebuyers too. Riyaz Khatri, 37, bought a 700-square foot apartment in 2010 in Mumbai’s suburbs. Five years later and three years beyond the promised delivery date, he’s still waiting. He has already paid 95% of the apartment’s purchase price and is now forced to rent another home with his 16 month-old son and wife, paying 20,000 a month.

“This is a messy business," said Parmar’s cousin, Uday Parmar, in an interview. “You need so many permissions, then you start work and then authorities will issue stop work notices, then you get dragged to court to sort out the issues, projects get delayed, and customers don’t get their houses in time. " Bloomberg

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