A recent survey by the Ministry of Consumer Affairs has dubbed the real estate sector as the second worst industry after telecom in terms of quality of service, causing monetary losses of Rs 32.3 crore (though the figure is probably but the proverbial tip of the ice-berg) due to delayed delivery and poor quality of houses. Add to this the funding crisis, unaffordable property, rising delivery defaults, falling sales and plummeting investor confidence, the picture is complete. Be it the domestic home-buyers or global investors (with the NRIs forming a major chunk of this segment), the abject lack of reforms and transparency in real estate transactions has shaken their confidence with regard to safe and profitable investments. NRI Achievers takes a look.
One single biggest factors responsible for the mess in the real estate sector today is the near-total lack of a regulatory and redressal mechanism. In this backdrop, the Real Estate Regulatory Bill cleared by the Union Cabinet just a few days ago assumes considerable significance. Key provisions of this bill include compulsory licensing of developers and property brokers, mandatory registration of projects, complete disclosure of approvals and project plans, and ban on the launching and advertising of any project without all necessary approvals, mandatory disclosure in advertisements and project prospectus to check any gap in promise and delivery, property sale on the basis of carpet area, removing the ambiguity with regard to carpet and super area, restriction on fund diversion with mandatory escrow account, compensations for delays in delivery, obligation by developers to address quality issues after delivery, appellate tribunal for dispute resolutions, and imprisonment and penalty for non-complying developers.
Today, the consumer is at the receiving end with no effective redressal mechanism in place. Besides quality issues, consumers have been facing problems of delayed delivery, super area manipulations and unfulfilled promises. However, the real estate regulator promises to bring malpractices to an end, ensuring fair play and transparency in real estate transactions. But then the key to its success lies in implementing it in letter and spirit so that this does not end up as just another piece of legislation, adding to yet another layer of red-tapism and corruption, resulting in delays and price escalations.
One major flaw in the Bill is that government authorities are not under the purview of the regulator. As such, it poses a challenge to check delays and subsequent increase in prices due to long approval processes. Therefore, there is a need for supporting reforms to simplify and streamline approval processes which hold up projects, choke up supply and add to cost of property. One hopes that the government puts the single-window clearance system in place soon following the report submitted by the expert committee set up by the Housing Ministry on this subject. Also, pro-consumer provisions in the Regulatory Bill that builders will not be able to advertise and launch their projects without all the required permissions are in place, will further constraint the supply. As such the government will have to come up with a policy to boost affordable housing by way of incentives to developers in terms of cheap funding and liberalized FSI and density norms and lower tax structure, besides favourable rental housing policy. Property buyers also need to be given relief by way of cheaper home loan and reduced registration charges.
The government’s recent move to classify home developers under the commercial real estate – residential category, will bring easy & cheaper funding to developers and home buyers. Loans for low-cost housing are also likely to get cheaper with NHB formulating guidelines to ensure companies raise cheaper funds through ECB and pass on the benefits to home loan seekers. The land reforms including the new, ‘Right to Fair Compensation & Transparency in Land Acquisition, Rehabilitation and Resettlement Bill 2012, passed by Lok Sabha and the proposed amendments in Registration Act would help prevent fraudulent transactions and also make compensations under the proposed Land Acquisitions Bill easier though the land bill may have adverse impact on real estate prices due to steep rise in compensation rates.
While the Land Acquisition Bill is all poised to be passed by the Rajya Sabha as well, the government must ensure that Real Estate Regulatory Bill is passed at the earliest. Going forward, the Real Estate Regulatory Bill and Land Acquisition Bills will prove their efficacy only if relevant reforms are also made alongside, paving the way for more fair, credible & transparent transactions thereby making real estate investor-friendly both for domestic and global investors including NRIs.