WHY this “Real estate Regulation & development Bill 2011”

Black money, failed transactions, deceit, cheat, opaque, pre launches, scam, unregulated, rogue builders etc are terms which are referred to in the Indian real estate sector, although not the desired references to the largest employers of human capital in India, after agriculture.

If IT / ITES is forecasted to be the show-window of out nation with a $125 Billion turnover, Real estate is forecasted to be $150 Billion. Are both these industries referred to in the same vein? Do similarly proficient managements run both these Industries?

The “Quality of management” can be debated another day. Let’s focus on the WHY, of the bill.

The following four are the stated objectives of the bill.

  • For regulation and planned development in the real estate sector
  • To ensure sale of immovable properties in an efficient and transparent manner
  • To protect the interest of consumers in the real estate sector
  • To establish an Appellate Tribunal to adjudicate disputes and hear appeals from the decisions or orders of the Authority and for incidental/ connected therewith. 

For the uninitiated, this means that the bill aims to restore the confidence of the consumers in the real estate sector by brining in more responsibility, accountability and regulation (transparency & fairness) into the housing sector. To some readers, this sounds like “reining in the errant builders”, while the developers would like to believe that their hands are being tied down with another needless regulation. (As if the scores of forms, approvals and aren’t regulation enough).

No one’s talking of corruption though. Are the builders & developers the genesis of corruption, OR, is the system that is so in love with the licensing Raj the perpetrator? Chalo, let’s leave that also for another day, and keep at the “Why”.

The Real estate regulations & development bill 2011 seeks to protect the interest of the consumers, through regulation, and fostering orderly growth, efficiency and standardization. Good thought. But, the moot question is “CAN ALL THIS BE ACHIEVED WITHOUT BRINGING IN A SINGLE WONDOW CLEARANCE SYSTEM?”

Lets talk about the why again.

The Indian real estate sector is one of the largest business & employment generators. It is second to Agriculture in providing employment, and larger that IT / ITES, in India. It is the second largest advertiser after FMCG, maybe. Despite its mammoth size, it does not have a regulator who can balance the interest of the developers, as well as the consumers of the products. Consumers complain about being at the mercy of the developers, once they pay the money for a purchase. Developers, on the other hand, blame the policy makers & multiplicity of authorities for the delays, cost over runs and lack of pro consumer strategies. Also, agreements & legal documents were allegedly one sided, favoring the developers. The only recourse for a consumer for redressal of grievances is the consumer forum, OR, civil litigation, both not ideal for prompt justice.

Yes, one needs to protect the consumers, but not from the industry, but from the unscrupulous developers in the pack. This bill should meet that purpose, wherein; all developers should mandatorily get registered with the authorities, before the project is offered to the market. Secondly, the honest developers, who are within the boundaries of the regulations, should find more traction with the consumers. Thirdly, if the industry gets a cleaner image, this should push consumption and lead to creation and purchase of more residential dwelling units / Apartments & plots.

Most consumers feel shortchanged on two places by the developers.

1) When the developer collects money for project (a), but diverts the same towards project (b). If this bill takes into account the pragmatic portion of the collection to be kept aside by the developer into an escrow account, this should help the consumer too, with the developer having his cash flow for the construction of the project healthy.

2) When the developer commits a particular time line for the completion of the project, and the actual delivery happens much later, and at an escalated cost. In most cases, the true suspect is the intent of the developer & the lack of funds owing to bad decision-making.

In both above situations, the consumer would have the option to approach the regulator for quick redressal. Also, the tenets of the law, esp. where stringent punishments are proposed for the errant would act as a deterrent on the unscrupulous. For a change, esp. in North India, Accountability would cease to remain a mere word, and would be brought into practice.

The bill calls for stringent disclosure norms about the new projects for the developers, and would take away the “Pre-launch” model out of the market. However, it is yet to be seen if the property dealers & channel partner of the developers can be reined in.

In defense of the industry where I make my living, I must mention this though.

“While the thought of overhauling the business practices in an industry is welcome, no regulator can afford to overlook the interest of the entity which is infusing Time, effort & money to create infrastructure, including residential houses. The industry has / would have valid & legitimate concerns, which needs to be addressed, before taking unilateral decisions. The industry in general does notice the benefits of a regulator, who does not act like a ‘school monitor’, but someone who would promote the industry, as well as foster a healthy environment to regulate the sale, transfer, management of properties. The so-called ‘corrupt practices’ are a product of the system, and the gullible fall for it. With greater transparency and sound policies, the FDI & foreign developers & technologies would not afford to ignore the India opportunity”.

If implemented well, the Industry would be the winner, encompassing all stakeholders; Land owners, developers, financiers & consumers.

 

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