Cleaning up the Real Estate Mess

Sucheta Dalal 22 December 2015

Regulation and commercial pressures can make a difference to buyers in 2016

By all indications, many changes set in motion this year will impact the real estate industry in 2016 and beyond, in a way that will benefit ordinary Indians yearning for an affordable roof over their head. The rapid, decade-long increase in prices finally halted, sometime around 2013, when prices became unaffordable for ordinary Indians. The developments, since then, indicate that things can only improve for the ordinary Indian who makes his biggest investment with a borrowing tenure of a decade or two.

A research report issued by securities firm CLSA (Credit Lyonnais Securities Asia) in December 2015 says that the bear cycle in real estate that began in 2013 could lead to price correction of 50%, based on past trends. According to CLSA, bull and bear cycles in this sector usually lasts a decade. More importantly, it says, black money, which kept prices unaffordable for the common man, will play a lesser role in the years to come. If that really happens, the ‘mind boggling’ returns in realty will drop to 2%-3% above inflation (or a return of 7% to 8%).

Were this to really happen, investors who anchor large realty projects would no longer be interested, forcing builders to embark on new projects only if there is demand from consumers and to construct and sell flats at fair prices. With property prices declining and increased pressure from bankers to recover outstanding loans, builders can no longer afford long construction delays or put up with the rent-seeking ways of government officials and politicians. The backlash against corruption is already evident in Mumbai, where demands of politicians and officials allegedly drove a well-known builder, Suraj Parmar, to suicide. This has turned the spotlight on six municipal corporators he had named in his suicide note, as well as the trail of payments made to some members of the legislative assembly (MLAs). The builder community erupted with anger. A builder, who wants to remain unnamed, told me that although realty prices were stagnant for over a year and building rules had been tightened considerably to disallow illegal extension of the floor space allocation, the rapacious demands from government officials for routine permissions were only increasing.

Yet another factor to impact the industry is the growing pressure from banks to recover outstanding loans by selling assets. Anuj Puri, chairman of JLL India, real estate consultants, points out in his year-end report that “Construction delay is a major hindrance to Indian Real estate and the cost of delay across 25 major cities impacts 1.32% of the nation’s GDP.” He believes that the Cabinet clearance to the Real Estate Regulatory Bill will push the industry towards greater transparency and accountability and also introduce new financing instruments for the sector. He, correctly, points out that concern for the consumer has to be matched with ease of getting sanctions and clearances by builders; otherwise, it is only half a solution.

Pankaj Kapoor, of Liases Foras, also believes that increased accountability will have positive implications across the value chain. However, he, too, is of the view that delays in sanctions and clearances, unless fixed, will continue to drag the sector down and make the bill only half as effective. Quick clearances, faster construction, transparency, accountability and effective regulation are all crucial for the government’s much-touted ‘Housing for All’ programme. At the same time, we know that manipulating land and realty prices has been the biggest milch cow for Indian politicians and provided a cover for their unaccounted wealth. In fact, many of our politicians claim to be in the real estate business; they are bound to block any move for complete transparency in property records and transactions. The bigger issue today is whether parliament will ever be allowed to function and perform its duty of clearing legislation that is in the national interest.

Comments

User

sundararaman gopalakrishnan

1 decade ago

The article has hit the nail on the head.
Greedy Government officials and politicians along with builders have made owning a home in a metro city in India beyond the reach of the common man.House prices in Dubai are cheaper than prices of similar apartments in Mumbai suburbs!!

Mahesh S Bhatt

1 decade ago

PM Modi failed on land bill for simple reason in Bhagwat Gita.

As you sow so shall you reap with returns.

Politicians/Builders/Municipalities keep / kept/shall keep usuping our land/now sky creepers at premium to buyers

When Buyers becomes Sellers & return the same medicine its bitterly bitter hence atleast till now bill lost for good.

Blessings to BJP.

Amen Mahesh

Mahesh S Bhatt

1 decade ago

When Rulers become Cheats & trade free land at cost of Gold chaos was already made.

Why new regulations??

Are existing laws not enough??

Why donot we enforce Sales Contract Act on Builders??

Like Developed countries we have created GHOST TOWNS.

PM is asking more money for toilets while 245000 crores of stressed assets are having unstressed flushes / toilets.

Why are we agreeing to pay more & telling they are corrupt when are part of the shit creation?

God also may not support us.

Enjoy the Free Fall when God also doesnot know because each one of us has our CHITRA GUPT IN VICHITRA & VIKAT WAY.

Mahesh Bhatt

Mahesh S Bhatt

1 decade ago

Avinash Murkute

1 decade ago

I agree that Corruption plays an important role in pricing and all the builders I have met in last 3 years have agreed that they have paid bribes and there is no way apart from paying bribes. Then there are various manipulations in the areas and many builders including their design consultants have refused to certify the area which is being sold. I refused to buy them. A report from reputed publication named Indian Express cites that the demand side is decreasing and supply inventory is mounting to danger level. HOPE organizations like CREDAI and PUNE METRO gives their members NO CORRUPTION OATH and make it mandatory in the agreement and insert clause that the builder agrees / undertakes / declare and disclose that he has not paid any amount of bribe to any officials and if discovered in future, he shall be liable to face punishment according to laws. Transparency, who doesn't want?

manoharlalsharma

1 decade ago

Now there should be one more cleaning required is Co-operative society / We 316 members (out of total 454), request your honor to depute / appoint an honest and Non-Corrupt officer urgently in the matter of Special Audit from 1992 to 2015 of ‘Shree Ganesh (A) Cooperative Housing Society’, Plot No. 01,Sector 28, Nerul (W), Navi Mumbai - 400706, before matter goes very serious, most of us are senior- citizens and highly discouraged with the callous attitude of MC,

(1) This society having two Registration Numbers and two types of Share Certificates i.e., One in English & Second in Marathi;
(A) TNA/HSG/TC/5626/92-93, Dated;17/02/1993 &
(B) NBOM/CIDCO/HSG(TC)/4532/JTR/2012-2013, Dated;30/05/2012

(2) Some of the members under the fear / denial of the membership of the CHS, have sold their flats at huge discount from the prevailing market price.

(3) We all compelled to pay the Society’s maintenance dues with Non- Occupancy charges and without bill to a self appointed MC citing some unofficial ‘BYE-LAWS’. and

It seems as ;
Motto behind 15 year long litigation may be to earn mega cash PRIMIUM from redevelopment , literally by denied shareholders right to realize fair market value of their equity shares and indirectly forced them to opt for redeem shares thus making the society plot fully owned by the promoters . without the consent of majority Shareholders by so called MC. in such a Scenario share holders are denied their benefit from the Redevelopment as they shall have to retain illiquid shares and carry on being members of society or opt for exit option.

With warm Regards,

Mahesh S Bhatt

1 decade ago

Unreal is Real estate its all cement & sand.

USA went down the drain with crash of prices to 25% in 2008,

so did Japan in 80's /Greece,Spain,Italy & Portugal are bankrupt with real unreturning investments.

Global easy money has pushed India in same direction from Big 5 cities to 20 growing towns are now ghost towns

no media reports RBI cries hoarse nobody listens.

Politicians Builders nexus is leading suicides/murders/underworld dons calling shots.

Common man is stuck with Lodhas Rahejas host of onesided agreemental deals driving India & Indians Mental.

Amen Merry Christmas HNY 2016

Mahesh

Vikram Dhotre

1 decade ago

All these years builders functioning without any clear regulations remains biggest drawback of this nation. Just like the telecom and data revolution, real estate awaits its turn.

If I am not wrong there were four corporators who were named (all under arrest) and not six.

c v manian

1 decade ago

Dear Sir
The article is an exercise in futility. The builders control the purse and the politicians of all colours will only dance to their tunes, when the elections are near. The governments and municipal bodies are full of people, who thrive on the bribes provided by the builders and they will always control the legislation and laws. This is an open secret. All elections need lot of unaccounted money and this problem will not disappear overnight. So unless, the supply exceeds so much that it would not be worthwhile to hold to vacant flats, nothing will improve.
Regards
C V Manian

c v manian

1 decade ago

uttamkumar dubey

1 decade ago

Dear PMO,
Ppl say you are beating down on corruption.
Please setup some provision for
ongoing projects started before 2016 as well.We are in deep trouble.
We as a taxpayers equally expect some respite against dishonest and fraud builders and contractors.Hope this reach to the right department , i will also tweet at other places for genuine help without stopping the progress of my flat.

Best Rgds,

Meenal Mamdani

1 decade ago

Very good summary of the problems affecting real estate sector.

Modi govt has an excellent opportunity to show its commitment to reform by making the approval process transparent and time bound. If it drags its feet on this issue, then people will know that NaMo is beholden to the politician-babu nexus.

For India's sake, I wish NaMo all the best in tackling this den of thieves.

uttamkumar dubey

1 decade ago

We are suffering since past 2 years with the delay, variable commitments, zero communication.Where can we beg against them.ppl say going in law is wastage of time and money , plus threats from builder, it will affect the progress of my flat.

pls help, SOS

Best Rgds,
uttam

uttamkumar dubey

1 decade ago

But how about consumers trapped before 2016?

uttam