Regulator for the housing sector

For the last couple of years we are experiencing a zooming boom in real estate prices. Be it rental value or the capital value of residential or commercial properties, prices have crossed all barriers and have reached to a level where a common man with an average income cannot dream of buying a new house. Keeping in view the reports coming in the media, it seems that the trend will never stop at least in the near future or at least in the next 10 years.

But the big question is whether the current trend can be sustained or is it just a bubble? The rule of the market is that product prices cannot move in one direction after a certain limit and every caution needs to be exercised before taking a purchase decision. We have seen the impact of such reckless investments in East Asia and now the sub prime crisis in the United States. So it is time to figure out if we are really in need of more and more residential units, being projected and published by analysts and media and the possibility of a crisis emerging in the sector.

If we compare the rise in realty prices and increase in the income of the general public, there is visible fear about who is going to and how one is going to own a dream house in the near future. At this point of time the developers, with the help of the government, must work towards making the property market transparent and try to avoid any unpleasant situations.

We need to consider some kind of interventions to ensure this sector grows without hurting the economy of the country. To prevent any unpleasant situation from arising, the authorities must start a dialogue with the people in realty business and find ways and means to frame such regulations that insulates the market in such a way that it serves both a commercial as well as a social purpose. This process can be evolved around the following steps.

The first would be to reserve land for the common man. Since the residential requirement is the basic essential need of our society, it should be ensured that ownership is to be within the reach of the whole community, to the extent possible. Since land resources are limited, a portion, say 30% of the available land for sale, must be reserved for the common public. For the last two to three years, no major schemes have been floated by government agencies, which used to cater to the demand of the common public in the past, either in the shape of plots or flats.

Instead we now see regular advertisements even by the government authorities to auction residential plots. This practice of auctioning has increased the prices of land and impacted the availability of residential units at a price that is totally out of reach of even the middle-income group. Government authorities need to address this issue by at least reserving a defined portion of land to be developed by the authority as in the past, to cater to the needs of the common man. The very basic purpose of establishing these developmental authorities was to acquire land and develop the same without commercialising the same for the common man and not to acquire land for the auction at a later date. This auctioning of every piece of land has started competition among these developmental agencies to accumulate monies, departing from the basic object of social service for which these agencies came into existence.

The second step would be the setting up of a regulatory authority. The latest trend in the realty industry is to pay a certain percent of the cost of the plot or the flat and balance after a fixed period or at the time of possession. Just two years earlier, developers used to lure the potential buyers to buy properties before launching a new scheme, which were commercially termed pre launch schemes. Who knows about the success of such schemes? There is no data available to know whether people who contributed to such schemes really got the possession of their houses as per the terms of the contract or not. This is because there is no system to regulate this sector. We have Sebi, IRDA and TRAI etc to address the systems’ failure if any. One can get his grievances addressed through these authorities who keep a good surveillance of the developments in their segments. A regulatory authority may be set up on the same lines.

The regulator should ensure that just like a public issue of a company, every developer may be required to file papers of his upcoming scheme with full details as may be considered necessary by the experts. It should be only after their clearance that a developer can be allowed to advertise his scheme. The regulator should ensure periodic monitoring by ensuring the filing of the latest progress report with the said authority that should be made mandatory.

Any deviation in the initial plan should be brought to the notice of the said regulator and general public be informed through advertisements in the newspaper. Aggrieved customers must be allowed to get their grievances addressed through the authorities; this will lessen the cost of litigation and will help in reducing the number of court cases. The regulators should try to understand the needs of the industry and the buyers and to ensure better transparency to make all the stakeholders more comfortable and confident and boost the overall growth.

DILIP K RAINA –Chartered Accountant

B.Com; FCA (ICAI); PGDFM; PGDCA; DBM; Cert. IFRS (ICAEW); Microsoft Certified IT Professional: Application for Microsoft   Dynamics NAV.

Published in The Financial Express:

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