India Property Market Transparency Index Aims to Attract Foreign Investment

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Inefficiencies in the property markets of emerging economies are largely attributed to the dismal levels of transparency in their real estate ecosystem.

According to Jones Lang LaSalle's recently released Indian Real Estate Transparency Index 2011, developing markets with higher levels of transparency will benefit from reduced information asymmetry, thus attracting foreign investment, while providing adequate property rights to owners.

Ashutosh Limaye, Head of Research & Real Estate Intelligence Service at Jones Lang LaSalle tells the World Property Channel that as global investment markets reel under a crisis of confidence, the flight of capital flows towards quality is imminent.

Rising levels of transparency have been found to be closely associated with the rise in Foreign Direct Investment (FDI). A transparent legal and regulatory framework facilitates cross-border mergers and acquisitions and provides stronger protection for property rights, a key requisite for foreign investment.

Those emerging market destinations that offer higher degrees of transparency will benefit, as investors see better prospects of gaining returns with lower risk.

India Transparency Index Key Findings

• Andhra Pradesh, Tamil Nadu, Maharashtra, Gujarat, NCR-Delhi and Karnataka are the top six states in terms of transparency.

• 24-36 months are added to the pre-construction process in acquiring statutory approvals.

• 97% of the developers are willing to provide actual measurements for calculating saleable areas, to improve transparency to buyers. 

• A majority of developers want single window clearance for projects with regulators at state level than at the national level.

The need for this study stems from the fact that property markets in developing nations are largely inefficient compared with those in developed nations, primarily due to the dismal levels of transparency in the real estate ecosystem. The prime reasons for higher costs in non-transparent markets are lack of information, corruption, multiplicity or ambiguity in taxation and lengthy procedures. Transparency is a requirement at all stages of the real estate value chain and thus necessitates strong contributions from all stakeholders - government, developers, financing agencies and buyers.

The government is responsible for providing bonafide information and a healthy development climate with a streamlined approval processes, unambiguous zoning & development regulations and improved dispute mechanisms. Developers and financing agencies need to adhere to improved reporting standards to minimize information asymmetry among buyers.

While certain Indian states provide a better and transparent ecosystem for the industry today and others languish, a series of ongoing and proposed reforms are likely to impact the sector positively in the longer run. The likely establishment of Real Estate Regulatory Authority will make the stakeholders more responsible towards their commitments and infuse confidence, currently lacking in the industry. It will also bring the industry at par with the other economies that compete with India in attracting global investment.

Along with regulation, the need for streamlining approval procedures, together with a "single window clearance" structure is also imperative due to the associated costs of lengthy and cumbersome processes for construction approval that Indian developers face today. Under Jawaharlal Nehru Urban Renewal Mission (JNNURM), reforms linked assistance is being provided by the Central Government to respective State Governments wherein those states that have progressively implemented the reforms would benefit from increased funds for urban development projects.

India is also witnessing a series of reforms related to the protection of property rights through strengthened land acquisition policies, improved legal and regulatory structure and repeal of archaic  laws regarding rent control and land ceiling, that will ensure investors' control over their assets.

The study progresses by assessing the levels of transparency in the Indian real estate market through the Indian Real Estate Transparency Index (IRETI 2011). In this, 20 major geographies in India are ranked based on five core components, essential for the transparency of the real estate eco-system. In addition, we have undertaken a survey of top Indian developers, which reveals their opinion on current transparency levels in the real estate industry and on approval processes across India. It also underlines  their key demands and expectations from the Government, financing agencies and buyers, demonstrating that greater transparency levels is indeed, the need of the hour.