Director, Center for Study of Public Choice - Bartley J. Madden Chair in Economics, The Mercatus Center George Mason University
India is urbanising and putting increasing pressure on urban land and there is growing impetus to convert land from agriculture to non-agriculture use. According to the United Nations (2015), India will see the largest increase of all countries in urban population by 2050. Efficient functioning of urban land markets will be critical to ensure decent quality of living. The incremental urban population in India is being accommodated through redevelopment within cities and expansion around city peripheries (Angel et al. 2010, Angel et al. 2011a, Angel et al. 2011b, Chandrashekar and Sharma 2015, Shrigaonkar 2016).
India will see the largest increase of all countries in urban population by 2050. Efficient functioning of urban land markets will be critical to ensure decent quality of living.
Both processes depend on availability of adequate land and rules governing land use and development. It is well known that formal urban land markets have remained unresponsive to housing needs in India (Bertaud and Bruckner 2004, Brueckner and Sridhar 2012, Annez et al. 2010, Bertaud 2014). This has led to a rise in informal housing or slums (Bertaud 2014). Around 17 percent of India’s urban population lives in slums with Mumbai having 42 percent of its population in slums.
Indian cities are known to have some of the most stringent urban land regulations, which affect housing supply elasticities. This paper looks at a major factor contributing to supply side constraints in the urban market, the relationship between construction delays and litigation. The paper also adds to the literature on the real estate sector and developers in urban India.
This paper looks at a major factor contributing to supply side constraints in the urban market, the relationship between construction delays and litigation.
This study investigates the nature of delays in real estate construction in Mumbai, which is under the jurisdiction of the Local Government of Mumbai. Specifically, it examines whether projects under litigation have longer completion times. The paper uses data from three sources: The Real Estate Regulatory Authority of Maharashtra, the Municipal Corporation of Greater Mumbai (MCGM) and the Bombay High Court. The Act that set up this authority mandates that all projects on a plot size larger than 500 sqm or having more than eight apartments register with the regulatory authority. The public data from this Authority includes the names of developers, their previous projects, and details regarding the projects such as project size, and estimated completion times. The dataset provides information on approvals granted by the relevant authorities, whether the project is currently or has been under litigation and details regarding the same. In the dataset, nearly 30 percent of the projects are or have been under litigation at different stages. Since the data provides proposed completion times self-reported by developers, there could be a possibility that the completion times are overstated in order to avoid facing penalties for not adhering to the declared completion date. To check this, we cross- reference projects against data with the MCGM to see if projects are actually completed by the self-reported proposed completion dates. The authors make use of this data to see whether projects under litigation take longer completion times. They control for other factors that could affect completion times such as size of the project, previous experience of developers, type of project, ward dummies, whether a project is under slum rehabilitation and whether it is new or a redevelopment.
Further, we also undertake a qualitative study on the nature of litigations of around 225 cases being heard in the Bombay High Court – the highest court in the state of Maharashtra. The authors cross-reference litigation case data from RERA’s database against cases in Bombay High Court database to find information about the plaintiffs, respondents, and the nature of the disputes. They use these cases to understand the underlying reasons for litigations.
The authors find that while on an average projects have lengthy completion times, projects under litigation take longer to complete. The baseline results show that for all of Mumbai, projects under litigation have around 22 percent longer completion times compared to projects without litigation and have 21.8 percent longer completion times after controlling for use and ward fixed effects. For residential projects, completion times are 24 percent higher for litigated projects. The study finds that the completion time is also affected by the number of cases in the courts. The paper undertakes qualitative analysis of litigation and finds that, in the case of Mumbai, Government is a major litigant and is a party to the dispute in a majority of the cases examined.
The baseline results show that for all of Mumbai, projects under litigation have around 22 percent longer completion times compared to projects without litigation and have 21.8 percent longer completion times after controlling for use and ward fixed effects.
The findings of the paper make a strong case to examine the underlying causes of legal disputes and introduce policy reforms to address them. Judicial pendency needs to be addressed urgently in order to reduce time taken for clearing cases. Reforms for improving the system of land titling and tenure are equally critical in lowering possibilities for disputes. A fair and incentive-compatible policy needs to be in place for dealing with encroachments on public or private lands. Finally, policy reforms have to focus on untangling the current complex regulations in order to eliminate possibilities of misuse and misinterpretation, and bringing about transparency in decision making and simplifying the process for granting approvals.