The former can end up increasing their non-performing assets and the latter accentuating mismatches in prices and between assets and liabilities. As for the consumer, his gains from competition will be shortlived if the sector soon plunges into ill health. The housing sector in general, if not housing finance in particular, certainly does need regulation and reform. More importantly, changes in various archaic laws and regulations are needed for the consumer to benefit. For example, black money in housing needs to be eliminated but this will not happen until artificially created shortages are eliminated.
First, the Urban Land (Ceiling and Regulation) Act needs to be repealed, not merely tinkered with by removing exemptions granted under Sections 20 and 21. Second, current rent control legislation needs to be scrapped. Third, the floor space index needs to be made more realistic. Fourth, there has to be an Apartment Ownership Act so that sale and purchase of apartments or flats, in addition to that of land, is recognised.
Fifth, securitisation of mortgages must be made possible by amending dysfunctional sections in the Transfer of Property Act so that foreclosure is possible without court intervention. Perhaps tribunals, along the lines of debt recovery tribunals, may provide part of the answer. Sixth, stamp duties need to be unified across states and also brought down, so that there is no built-in incentive to avoid English mortgages and go in for simple mortgages that make foreclosure difficult. Seventh, the corruption and red tape involved in obtaining municipal clearances has to be eliminated by reducing discretion.
Eighth, a regulatory mechanism is needed to govern activities of builders and real estate developers.
Several cases under the Consumer Protection Act demonstrate that builders arbitrarily escalate prices and divert funds obtained from consumes for other purposes. Perhaps the money obtained from consumers could go into trust funds. As a corollary, one must work out mechanisms so that developers can be granted loans against money in such trust funds. Obviously, defaults by developers are much more important than defaults by actual consumers, so that recovery tribunals are also essential for developers. Ensuring all this a tall order. However, ready models exist in countries like Canada.
