The past decade saw the real estate business in India grow at tortoise pace – moving rapidly in favourable spells and withdrawing into the shell for long periods as soon as adversity showed up.
Post the global melt down of 2008, focused assistance to the weaker sections of the economy, including the National Rural Employment Guarantee program helped the Central government to return to power in 2009. But unlike the previous term, they could not push their economic reforms agenda as the legislations got jammed in parliament.
Three major policy initiatives of that government remained unimplemented at the official level or got stuck at the Reserve Bank’s or SEBI’s rule making rigmarole. One of these concerned the creation of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trsuts (InvITs), which could attract smaller investments into viable real estate and infrastructure projects. Stagnancy in the real estate market due to a plethora of factors had led to the demand to permit these kind of trusts, otherwise popular in developed countries, to be set up in India. Lack of a determined pursuit by the officialdom and lack of political will of the then government caused the rule making process to drag on indefinitely. The rules for this purpose have now been notified in August 2014.
Another important decision was one of allowing External Commercial Borrowing. Here again, the procedure had to be laid down by the Reserve Bank. An entire financial year and some more months in the next year were lost in the procedural action. By then the potential markets from where funds could be sourced for borrowing had faced their own glitches. The real estate industry had to face the consequences of this delay. Builders had to source funds from unofficial lenders, incurring abnormally high rates of interest, which in turn increased the cost of housing units built. What compounded the builders’ woes were the reluctance of the banks to lend to individual borrowers who were borderline cases of eligibility.
This was a direct consequence of the 2008 crisis in the US real estate market. The final result was that the builders were left holding housing inventory built at higher than normal cost, and every day the units remained unsold, the marginal profit remaining was eroded systematically.
The third and most important policy fiasco related to regulatory framework for the real estate industry. With a legion of rules and procedures and an equal number of regulating agencies having a say on individual projects, it is a miracle that any work does get done at all. The whole system appeared to be loaded against small enterprises coming up. The bigger players could afford to appoint liaison officers and manage to get their projects chased from office to office till final clearance. Naturally there would be an increase in the cost. And the customer will be bearing it. This problem had been voiced by several relevant organizations and assurances were offered that things will be set right. Yet the draft legislation for the purpose has taken years to get notified and formally passed. The need for self regulation by the industry was voiced time and again by many observers, including these columns.
It was expected that CREDAI would do something tangible about it. Unfortunately the industry association chose to be just the loud speaker for the grievances of the builders alone, ignoring the cardinal fact that without a satisfied customer base, there can be no credibility for the industry. Where the association failed, private citizens came forward to set the regulatory exercise in motion. The result was the now well known case of Belair Owners Association v/s DLF Case, which is going on for the past many years and is presently under an appeal by the company in the Supreme Court. The interesting feature of that case is that at the relevant time when the grievance of monopolistic domination was alleged by the purchasers from DLF, there was absolutely no law or local regulation dealing with the matter of contracts between a seller and a buyer, save the Transfer of Property Act, which does not cover this aspect of a transaction.
After several abortive attempt between 2006 and 2011, the Bill has finally been notified by the outgoing government in July 2013. It has several welcome measures to regulate the industry. One of these is the provision for regulating timely execution of projects. Other features include setting up of a National level body for policy matters and also Appellate bodies for redressal of grievances.
The current government has set itself up as business friendly. If it is equally customer friendly also, we can hope to see some good legislation and effective implementation.
