The Supreme Court's adverse verdicts against two major real estate firms, DLF and Supertech, show consumer activism is at its peak in the business. Do buyers have enough safeguards to protect them in the absence of a regulator for the real estate sector? CBRE South Asia Chairman and Managing Director Anshuman Magazine tells Mansi Taneja that if the existing laws are reformed and enforced in an efficient way, the sector doesn't need a regulator as envisaged under the Real Estate Regulation and Development Bill
Real estate litigation is piling up in courts and consumer forums. Why are we seeing so much activism in the sector?
The fundamental reason why it is happening is that the laws are outdated and nobody is focusing on reforming the laws. Beside land acquisition becoming more difficult, developers need at least 40 approvals before launching a realty project. Projects often get delayed because of this. Consumer activism takes place because end users suffer due to these delays. We have to make sure that approvals are minimised and given in time. However, there are also developers who start new projects even if they are short of funds. Or they take on multiple projects beyond their capacities. Long-term planning, clear policies and proper enforcement of existing laws will enable the sector to move forward smoothly.
There was a time when the buyer paid escalation costs even if it was the developer who delayed the project. Today, because of increasing competition, not only have the contracts improved, but it is the developer who pays the penalty for a delay. With time, as more players enter the fray, the remaining issues will also be resolved. The situation is not perfect yet, but there is a big shift.
A regulator, in my view, will create more problems. If our existing laws were enforceable, we would not need a regulator. In any other country, if you have a contract and there is a delay, you go to court for redressal. Why can't we do that here? But courts take 10 years to decide a case. So, why don't we strengthen the courts and the rules instead of wasting taxpayers' money in creating a regulatory body? We talk of single window clearances on the one hand, but want one more body sitting over decisions.
Since the dispute-resolution process takes so long, consumers shy from standing up to developers. Don't you think a regulator will give buyers a door to knock on against erring developers?
Dispute resolution has to be quicker. For the developers, there has to be a clear time period for getting approvals. If the government does not respond in time, then approval should be taken as automatic. On the consumer's side, any complaints about delays should be clarified by the developer in a specified time frame. In this way, the consumer will know it will not take 10 years to fight a case. While the consumers will be protected by the new bill, conditions on the ground are difficult for a developer too. If a developer gets approvals on time and yet there are delays, he should be prosecuted. But, no doubt, the Bill will give foreign as well as domestic investors confidence in the sector. We need to attract funding in this sector. Investors need to be sure that their investment is safe with a regulator is in place.
Except in a few markets, there is hardly any decline in prices in the residential sector. Is this because of corruption during approvals or it is a market-driven phenomenon?
Price is always determined by demand and supply. Supply is constrained because of delays in projects and other reasons. The slowdown in the economy has contributed to this too. The government also has to increase the floor space index to help developers recover land cost by building more floors. Besides, Price has been pushed up by the huge number of speculators. Indians specially believe in real estate as an investment. If interest rates come down and the economy starts growing at a good pace, the prices may stabilise.
How has the sector responded to the Narendra Modi government? Are we seeing any signs of revival in the market?
Sentiments are positive and encouraging, but it is too early to assess the impact. Business during the coming festival season is expected to be better than last year. A complete revival might take a year or more. The government has announced big steps in the infrastructure segment, including the announcement of REITs (real estate investment trusts). The key is to improve liquidity in the market and mobilise investments from domestic and foreign funds and investors.
Real estate litigation is piling up in courts and consumer forums. Why are we seeing so much activism in the sector?
The fundamental reason why it is happening is that the laws are outdated and nobody is focusing on reforming the laws. Beside land acquisition becoming more difficult, developers need at least 40 approvals before launching a realty project. Projects often get delayed because of this. Consumer activism takes place because end users suffer due to these delays. We have to make sure that approvals are minimised and given in time. However, there are also developers who start new projects even if they are short of funds. Or they take on multiple projects beyond their capacities. Long-term planning, clear policies and proper enforcement of existing laws will enable the sector to move forward smoothly.
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But haven't developers long undermined the rights of buyers through loopholes in purchase agreements? Has the absence of a regulator compounded the problems?
There was a time when the buyer paid escalation costs even if it was the developer who delayed the project. Today, because of increasing competition, not only have the contracts improved, but it is the developer who pays the penalty for a delay. With time, as more players enter the fray, the remaining issues will also be resolved. The situation is not perfect yet, but there is a big shift.
A regulator, in my view, will create more problems. If our existing laws were enforceable, we would not need a regulator. In any other country, if you have a contract and there is a delay, you go to court for redressal. Why can't we do that here? But courts take 10 years to decide a case. So, why don't we strengthen the courts and the rules instead of wasting taxpayers' money in creating a regulatory body? We talk of single window clearances on the one hand, but want one more body sitting over decisions.
Since the dispute-resolution process takes so long, consumers shy from standing up to developers. Don't you think a regulator will give buyers a door to knock on against erring developers?
Dispute resolution has to be quicker. For the developers, there has to be a clear time period for getting approvals. If the government does not respond in time, then approval should be taken as automatic. On the consumer's side, any complaints about delays should be clarified by the developer in a specified time frame. In this way, the consumer will know it will not take 10 years to fight a case. While the consumers will be protected by the new bill, conditions on the ground are difficult for a developer too. If a developer gets approvals on time and yet there are delays, he should be prosecuted. But, no doubt, the Bill will give foreign as well as domestic investors confidence in the sector. We need to attract funding in this sector. Investors need to be sure that their investment is safe with a regulator is in place.
Except in a few markets, there is hardly any decline in prices in the residential sector. Is this because of corruption during approvals or it is a market-driven phenomenon?
Price is always determined by demand and supply. Supply is constrained because of delays in projects and other reasons. The slowdown in the economy has contributed to this too. The government also has to increase the floor space index to help developers recover land cost by building more floors. Besides, Price has been pushed up by the huge number of speculators. Indians specially believe in real estate as an investment. If interest rates come down and the economy starts growing at a good pace, the prices may stabilise.
How has the sector responded to the Narendra Modi government? Are we seeing any signs of revival in the market?
Sentiments are positive and encouraging, but it is too early to assess the impact. Business during the coming festival season is expected to be better than last year. A complete revival might take a year or more. The government has announced big steps in the infrastructure segment, including the announcement of REITs (real estate investment trusts). The key is to improve liquidity in the market and mobilise investments from domestic and foreign funds and investors.