Indian real estate had the best run it could during the pandemic than it had for over seven years earlier. The residential inventory is at its lowest, commercial pick-up is robust and alternative options for logistics, warehousing and data centres are all on track. Finance is steady and available for good borrowers and the Real Estate Regulatory Authorities (RERAs) have ensured that houses for which money is picked up has got to be used for constructing them.
So what is missing? Real estate policy is still weak. West Bengal has still been able to get away without implementing a national law - RERA. Black money is still not removed though the Benami Transactions Act is very much in place and demonetisation was implemented for just this reason. Many consumers have levelled corruption charges even against RERAs.
As a result, transactions are still way below what they can be. The common man started buying property from the private sector, largely after the first Housing and Habitat Policy 1998 was framed. So, the history of rapid buying and selling of property is just over two decades old.
Policy Fixes Needed
Real estate needs certain specific fixes that only policymakers can give:
1) Land records have been maintained better than earlier. But unless there is a system of maintaining records that can guarantee a correct, clear title, the sector will continue to struggle.
2) Formal finance, if made available to purchase land will bring down the cost of land. However, as chartered accountant Naresh Parasrampuria says, while the country balances inflation and growth, it is unlikely that the Reserve Bank of India will allow banks to lend to anything that can trigger speculation. Today many non-banking finance companies (NBFCs) and private equities (PEs) offer short-term finance to buy land. After projects are approved, project financiers step in and the NBFCs and PEs can get their money back.
3) Lack of time-bound project approvals is a big reason why projects become more expensive. Recently, a developer got approval to purchase a stressed project from another developer to take it through to completion. The RERA took its time transferring the project registration from one to the other. The lapsed project approvals from the authority too were no cakewalk. All the time, the developer was paying interest on the loans he had taken to buy the plot. This additional loan servicing cost for a year is loaded onto the project and paid for by the consumer.
4) The only way to solve this is to impose penalties on approving authorities if they violate the benchmark timelines. However, government authorities are not subject to regulation. This needs to change through regulation and policy. Baseline timelines should be agreed upon and there should be a penalty for delaying a system that eventually transfers the burden on the shoulders of the buyer.
5) India has taken stiff Sustainable Development Goals (SDGs) targets on global fora. However, it can only be met if the smallest municipal authority and the entire real estate and construction industry pull up their socks and get moving on making the industry sustainable. Pilots of the Global Housing Technology Challenge (GHTC) have become lighthouses for the industry to learn from. However, they have not made much impact on large government projects such as the Kidwai Nagar redevelopment, which stuck to traditional methods of construction.
6) The biggest change in policy that I would like to see is that there should be entry barriers to this industry. Developers should be able to prove their ability to manage finance and structural competence before they get cleared to build. If they do not possess it, the rules need to make it mandatory to show their access to the relevant skilled workforce through tie-ups with contracting companies or finance agents. Only then will the industry be able to rise above shoddy and delayed execution.
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A rapidly urbanising India desperately needs to make urbanisation planned and prioritised. With another 7,200 cities, big and small, waiting to be added to the urban numbers, it is vital that union budgets accept their directional responsibility and give the right policy push.
E Jayashree Kurup is a writer/researcher in real estate. She is Director, Wordmeister Editorial Services, Cities and Real Estate. Views are personal and do not represent the stand of this publication.
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