What India Can Learn From Japan’s Land Laws; Less Regulation, Solid Property Protection

Arbitrary government regulation and corruption in land deals have turned the real estate business in India into a messy, corrupt and massively costly endeavour. Real estate in India is overpriced and simply not good enough as investment.

A recent KPMG report mentioned that in India there is currently a housing shortage of 5.9 crore units. This number will increase to about 10.7-11.3 crore units by 2022. In eight of India’s major cities – Delhi/NCR, Mumbai, Bengaluru, Chennai, Kolkata, Pune, Hyderabad and Ahmedabad - four percent fewer homes were bought in 2015. Nearly seven lakh units were left unsold in these cities.

Contrast the distressing scenarios in Indian cities to Tokyo, which has a growing population of over 13 million people. However, there has hardly been any increase in house prices in the last 20 years. The graph below displays this positive phenomenon:

The reason for this is the fact that the Japanese government’s approach to land use allows lots of construction, subject to only some general national regulations. As Robin Harding (the Tokyo bureau chief for the Financial Times) explains in this very important piece , Japan has a history of strong property rights with regards to land use:

Subject to the zoning rules, the rights of landowners are strong. In fact, Japan’s constitution declares that “the right to own or to hold property is inviolable.”

A private developer cannot make you sell land; a local government cannot stop you using it. If you want to build a mock-Gothic castle faced in pink seashells that is your business.

From 1986 to 1991 a huge property price-boom took place in Japan. But it was with the collapse of that boom that Japan managed to upgrade its system, by reducing regulation and speeding the permit approval process. As Harding states:

In the 1990s, the government relaxed development rules, culminating in the Urban Renaissance Law of 2002, which made it easier to rezone land. Office sites were repurposed for new housing….Hallways and public areas were excluded from the calculated size of apartment buildings, letting them grow much higher within existing zoning, while a proposal now under debate would allow owners to rebuild bigger if they knock down blocks built to old earthquake standards.

Similarly in India the solution for housing shortage is straightforward, local and state governments must reverse failed policies. The policies need to be reworked in order to deliver a credible solution to the Indian housing market’s supply inelasticity. Japan may be a suitable model to look into.

Most important, property needs to become a fundamental right. We don’t need the Land Acquisition Act. What we need is a fair property law the politicians cannot monkey around with and make money for themselves.