(Un)Real Estate

Almost 5 per cent of GDP is contributed by the housing sector, and in the next few years it is expected to rise to 6 per cent. Moreover, the construction sector has also been responsible for the development of over 250 ancillary industries such as cement, steel, paints, brick, timber, building materials, etc. A study by a credit rating agency ICRA shows that the construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the Indian economy. A unit increase in expenditure in the real estate sector can generate a fivefold increase in income.

Yet this is one of the most unregulated markets in the country with shady deals and obscene profits ruling the roost. This lassiez faire sector has allowed anti social elements to get in and muscle power to determine who get the most. This has also led to high prices forcing the unaffordable consumers out of the market. There are massive frauds occuring regularly where promises are not kept and the consumer is left in the lurch. While easy access to credit multiplied this boom it also raised the risk levels for the banks in case of a bust in the bubble and consequently devaulation of the properties.

So what needs to change?

Currently, land, a ‘state’ subject, is under the jurisdiction of the local governments. There is a kaleidoscope of interwoven state, centre and local laws dealing with every parcel of land. This means that there are varying rules, regulations, standards, practices, from town to town across India. The simple concept of replicating ‘best practices’ from town to town across the country does not exist due to a fragmented legal framework. - The Hindu

People take advantages of these loopholes and mostly out for a quick buck. Scams have become so common and brazen that consumers have no confidence in ANY real estate transaction irrespective of how much checking and verification has been done.

Here is a recent scam from a company which made a splash in print and TV. I still remember them dishing out cars as a freebie in return for purchasing a flat from them inspite of retaining the rates at the same levels as the rest in the area. They even featured on TV channels for their freebies.

How long is lassiez faire going to last and where is the regulator?
Real Estate Management (Regulation and Control) Bill is being formulated by the central govt for Delhi and is expected to serve as a reference and model for the rest of the states to follow. It is now being discussed and various objections are being raised in various fora and industry associations. Some others have clearly come out in support. Clearly regardless of the objections the move to have a regulator is a definitely positive step and hope the state overnments follow likewise.

An authority that can issue licences, be responsible for renewal of licences to developers, ratings of developers, architects, contractors and real-estate consultants would have to be set up. Whether it is a regulator which is set up under the aegis of the government or whether self regulation by industry associations is the way forward, the need for some of the above activities to be carried out by a professional body is imperative for sustainable growth of this sector. - The Hindu

Karnataka has taken a step of setting up a certifying system. The need for that is clearly because the registration of deeds and documents does not guarantee the title of the property as it operates on the principle of presumptive rights. The prospective buyer has to consult various sources such as past transactions, mortgage deeds, revenue records and encumbrance certificate to verify the title. Hopefully this is a first step in a series of steps to bring credibility and professionalism in this sector.