In what is being called a landmark move, the Real Estate (Regulation and Development) Bill was passed in the Rajya Sabha this week. The idea behind it is, of course, to bring transparency into a sector that is, in my opinion, as important as agriculture. The construction industry, as we all know, impacts a number of auxiliary manufacturing industries — cement and steel, for example — and the government’s decision will have repercussions on all of them. In today’s urban world, mortgages are the norm, both for the individual borrower and for banks, which secure the deposits of their customers and lend them back to the home loan buyers. Therefore, the ecosystem affects all of us in one way or another.
To really understand what this means we need to look at pre-liberalisation India. Back then housing was supported by the government and migration didn't take place on the scale that it does today. People lived in villages and those who managed to get government or private sector jobs — both of which were hard to come by — bought plots in and around the cities with their retirement savings. The government, for its part, sought to provide housing for the middle class supported by groups like the Delhi Development Authority. Post 1991, however, the government stopped building homes for the masses. In 2005, FDI was permitted and the IPO market opened up, with the real estate sector becoming one of the biggest beneficiaries of both as it gained the required platform for growth.
However, in 2008 the global financial crisis, that caused a slowdown in demand, coupled with the inability of several developers, especially in the NCR area, to rise to the occasion, led to the first cracks in the system. The lack of transparency within the sector led to delivery delays and quality problems for the customer. The sector's unprecedented growth was becoming harder to manage as India became a faster moving economy. And this is why the government felt the problem was getting too large to ignore and felt it necessary to have a central regulatory authority. I welcome the move because it will help the customer, the developer and the sector as a whole.
Currently one knows how many automobiles are sold each month, how much coal is produced and even the degree of mobile connectivity in India, but there is no such publicly available information on the workings of the real estate sector. Parameters have not been defined and anybody can advertise as being the best in the business. The prospective buyer remains confused and has nobody to turn to for clarity. So the bill is very welcome for it looks at both regulation and development while differentiating the good from the bad. It will herald a very positive change in years to come.
As the real estate sector is unorganised there are several discrepancies in its functioning. The bill therefore calls for the establishment of state-level authorities to regulate projects, both commercial and residential. These will be graded, helping customers make a well informed choice. Delay in completion of projects is one of the most common problems buyers face today, and the bill addresses it. Also, developers will no longer be able to sell on the basis of super built-up area (SBA).
Every project that exceeds 5000 sq. metres or eight units will have to be registered with the regulatory body and can be sold only after it gets the neccessary approvals. The developer will have to disclose information like project layout, approvals, land status and the schedule, to both the regulatory authority and the customer. Also, delays in completion of the project will result in punishment.
But as there are already laws to punish developers in case they fall back on any of these criteria should customers should file a case, existing authorities are being undermined by the new legislation. Why don't municipal authorities, for instance, demolish buildings when there is a deviation from the sanctions? So the fear is that the new regulatory body with members appointed by the state governments could become irrelevant too eventually.
As a precaution we need to ensure the involvement of all stakeholders and the regulatory body itself needs to have representatives from all sections of the industry, including developers, land consultants, lawyers and environmentalists. However, once the authority comes into being we can hope that new projects, at least, will be made more transparent and standardised. There is no question any longer of developers making false promises.
The naysayers, if any, should think back to a time when we had stock exchanges in every state. Brokers would cheat customers, who couldn’t do a thing about it. That’s why SEBI was brought in as a regulatory authority, which made the stock market centralised and technology-driven. TRAI plays a similar role and safeguards the interests of the people by thwarting Facebook’s efforts to start internet.org, which would have challenged Net neutrality.
India is expected to grow at eight per cent this financial year and upto 10 per cent in coming years. We are the fastest growing economy of our size and there is huge potential for tapping the demographic dividend. The real estate sector is booming and the state government, through a central authority, can start focusing on its relevance as well as the need to nurture it. If things unfold according to plan, it will augur very well for the nation.
(The writer is vice-chairman and MD, Sobha Ltd and president, CREDAI Bengaluru)
