What In­dia’s jump in ease of biz rank­ings means for realty?

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Shubhran­shu Pani ht­es­tates@hin­dus­tan­times.com The au­thor is Man­ag­ing Di­rec­tor ­ Strate­gic Consulting, In­fra­struc­ture & Smart Cities, JLL In­dia

For all the right rea­sons, the World Bank’s Do­ing Busi­ness 2018 re­port was the toast of the coun­try, and the mar­kets re acted with pos­i­tiv­ity. Now that the ini­tial eu­pho­ria has died down, it is ap­pro­pri­ate to delve deeper and look for po­ten­tial learn­ing sin the re­port.

As a coun­try, we should an­a­lyze the WB re­port not only from the rank­ing per­spec­tive but also the DTF scor­ing point of view. DTF stands for‘ dis­tance from the fron­tier’ with scores rang­ing from 0-100 (where 100 is the strong­est or front-run­ner econ­omy). Also, to gauge the rul­ing Gov­ern­ment’s per­for­mance since elec­tion, it is ap­pro­pri­ate to com­pare the rank­ings of 2018 and 2014. These three in­di­ca­tors re­veal a lot more than what has been dis­cussed so far.

This anal­y­sis does not at­tempt to down­play the progress made by the coun­try and the fact that In­dia has com­menced in the di­rec­tion of the Gov­ern­ment’s goal to at­tain a rank­ing un­der 50. How­ever, from point of view of se­ri­ous in­vestors and an­a­lysts, it is im­por­tant to try and fig­ure out how soon In­dia will reach the top 50, and how other coun­tries are far­ing.

In­dia has made good progress vis-à-vis ar­eas that still need im­prove­ments on the jour­ney of go­ing from the 100th to the 50th rank­ing na­tion. From the per­spec­tive of real es­tate, the five in­di­ca­tors that have a high im­pact on the sec­tor are reg­is­ter­ing a prop­erty, deal­ing with con­struc­tion per­mits, en forc­ing con­tracts, and re­solv­ing in­sol­vency.

Deal­ing with con­struc­tion per­mits

All pro­ce­dures re­quired for a busi­ness in the con­struc­tion in­dus­try to con­struct a build­ing, for in­stance a ware­house, fac­tor­ing in the time and cost to com­plete each pro­ce­dure as well as the qual­ity of build­ing reg­u­la­tions, the strength of qual­ity con­trol and safety mech­a­nisms, li­a­bil­ity and in­sur­ance regimes, and pro­fes­sional cer­ti­fi­ca­tion re­quire­ments.

While ma­tur­ing real es­tate sec­tors such as the res­i­den­tial, of­fice and re­tail have been do­ing well, it is time we look at new sun­rise op­por­tu­ni­ties in sec­tors such as ware­hous­ing. With GST paving the way for cross-bor­der move­ment of goods across In­dia, the World Bank data on time and cost in­volved in con­struct­ing a ware­house is not en­cour­ag­ing enough.

The e-com­merce sec­tor is grow­ing rapidly in In­dia, and very soon there will be op­por­tu­ni­ties for con­struct­ing large mod­ern ware­houses equipped with state-of-art au­to­ma­tion.

Reg­is­ter­ing a prop­erty

The full se­quence of pro­ce­dures nec­es­sary for a busi­ness (the buyer) to pur­chase a prop­erty from an­other busi­ness( the seller) and to trans­fer the prop­erty ti­tle to the buyer’s name so that the buyer can use the prop­erty for ex­pand­ing its busi­ness, use the prop­erty as col­lat­eral in tak­ing new loans - or, if nec­es­sary, sell the prop­erty to an­other busi­ness.

Prior to RERA be­com­ing a mar­ket force in 2017, in­for­ma­tion on projects, land ti­tle clear­ance deeds and de­vel­oper li­a­bil­ity ex­isted some­where on pa­per (if ex­isted at all) and buy­ers had no ac­cess to it. Nev­er­the­less, ver­i­fy­ing land ti­tle clear­ances and other as­pects of due dili­gence were the re­spon­si­bil­ity of the buyer, who would have to en­gage a con­sul­tant for such ver­i­fi­ca­tion. The full im­pact of RERA is still not vis­i­ble in the rank­ing for prop­erty reg­is­tra­tions This will only hap­pen when all states have adopted RERA with­out tam­per­ing with the Cen­tral guide­lines by next year. Also, ini­tia­tives such as sin­gle-win­dow clear­ance sand on­line reg­is­tra­tion fa­cil­i­ties should be strength­ened in or­der to make these pro­ce­dures less time-con­sum­ing and cost-in­ten­sive.

On­line records of ti­tles, ti­tle in­sur­ance and ti­tle search and cer­ti­fi­ca­tion will be the real game-change rs which could take In­dia into the World Bank’s Top 50 al­most im­me­di­ately. Work has com­menced on dig­i­tal reg­is­tra­tion, dig­i­tal records and on­line search and cer­ti­fi­ca­tion, but ad­e­quate con­trols also need to be added at ev­ery stage.

En­forc­ing con­tracts

The time and cost in­volved in re­solv­ing a com­mer­cial dis­pute through a lo­cal first-in­stance court, the qual­ity of ju­di­cial pro­cesses in­dex, and eval­u­at­ing the econ­omy on how well it has adopted good prac­tices that pro­mote qual­ity and ef­fi­ciency in the ju­di­cial sys­tem.

The World Bank’ s Do­ing Busi­ness re­port says af­ter es­tab­lish­ing debt re­cov­ery tri­bunal sin In­dia, non-per­form­ing loans have re­duced by 28%, thereby re­sult­ing in a de­crease in over­all in­ter­est rates. RERA as a body that re­solves dis­putes be­tween de­vel­op­ers and buy­ers is a pro­gres­sive ini­tia­tive, which how­ever must be im­ple­mented in all mar­kets with­out di­lu­tion. Progress on this will be cap­tured in next year’s re­port and re­flect in In­dia’ s rank­ing on this pa­ram­e­ter.

The pro­cesses in­volved in re­solv­ing dis­putes be­tween busi­nesses, land own­ers, de­vel­op­ers and the Gov­ern­ment need to be speeded up – a clear ac­tion point for the com­ing year.

Re­solv­ing in­sol­vency

The time, cost and out­come of in­sol­vency pro­ceed­ings in­volv­ing do­mes­tic en­ti­ties, as well as the strength of the le­gal frame­work ap­pli­ca­ble to ju­di­cial liq­ui­da­tion and re­or­ga­ni­za­tion pro­ceed­ings.

As the chart be­low in­di­cates, In­dia’ s track record with re­gards to in­sol­vency has been very poor, re­sult­ing in in­vestors’ re­luc­tance to in­volve them­selves fi­nan­cially. There is a large con­cen­tra­tion of stress in the land-rich tex­tiles and metal man­u­fac­tur­ing in­dus­tries, and it re­mains to be seen whether the new In­sol­vency and Bank­ruptcy Code will help un­lock land par­cel sin In­dian cities.

This does not mean that In­dian Gov­ern­ment has not done any­thing – these ranks are merely rel­a­tive per­for­mances as seen from a strong cor­re­la­tion be­tween­ranksandDTFs­cores.It does mean that other coun­tries in Asia and Africa are pos­si­bly do­ing far bet­ter in terms of re­form­ing their real es­tate and man­u­fac­tur­ing com­pet­i­tive­ness when com­pared to In­dia.

The re­port has ac­knowl­edged In­dia’s ef­forts in terms of:

1. Sin­gle win­dow ap­proval sys­tem for build­ing plans

2. Stream­lin­ing busi­ness in­cor­po­ra­tion pro­cesses

3. Ea sing tax com­pli­ance pro­ce­dures( via on­line fil­ing, con­sol­i­da­tion through GST, etc .)

4. Bank­ruptcy and in­sol­vency

5. Eas­ing ex­port-im­port bor­der com­pli­ance pro­ce­dures

It also con­firms that af­ter es­tab­lish­ing debt re­cov­ery tri­bunal sin In­dia, non-per­form­ing loans have re­duced by 28%, lead­ing to a re­duc­tion in over­all in­ter­est rates.

The Do­ing Busi­ness in­di­ca­tors are now the ba­sis for un­der­tak­ing re­forms across many economies, in­clud­ing In­dia, pro­vid­ing ready bench­marks or guid­ance val­ues.

There are still fac­tors which the World Bank could not ac­knowl­edge this year, pri­mar­ily be­cause of tim­ing of the re­port. These are fac­tors that can be seen as ‘low hang­ing fruit’, and a lot can be done this year to im­prove on them. .

GETTY IM­AGES

It is im­por­tant to an­a­lyse how In­dia will reach the top 50

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