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Last Updated : May 29, 2020 01:09 PM IST | Source: Moneycontrol.com

India’s realty sector needs to reform itself before seeking lifeline from Modi

At its core – the industry needs improvement in its governance and transparency culture to gain the trust of its audience.

Is there a sector that does a poorer job of branding itself than the real estate industry? There are certainly other industries that are perceived to be dubious but it is unlikely that any other retail consumer-facing industry arouses the scorn that the construction industry does.

The reason I am addressing the topic this week is on account of one of the real estate associations, CREDAI, writing to the prime minister seeking support for reviving the battered industry. The letter included a laundry list of recommendations by the industry. Few of them are even reasonable. Social media is not fully representative but there was overwhelming desire from the public to see that the industry doesn’t get a helping hand.

It is likely that social media’s thoughts will be echoed by the administration. No other prime minister in recent memory has had the firm and tough resolve on straightening the real estate sector as Narendra Modi. In his speech to CREDAI on February 13, 2019, before elections -- he held no punches back in confronting the industry to understand his strong commitment in reforming the sector.

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To be fair -- he had tamed the erratic sector to an extent by then already: The number of fly-by-night developers has reduced, apartment deal transactions have become transparent, a regulator at its nascent stage is making the right moves, reputed developers are gaining traction, etc.

Public despises it

No one knows the outcome of the letter by the real estate sector. But it will be a relevant exercise if the industry introspects about the reasons that the public despises it. There are four fundamental reasons for this sentiment in my view:

The first reason is the most obvious: Reputation. The legendary former US secretary of state, Henry Kissinger, is quoted to have said “90 percent of politicians give the other 10 percent a bad reputation.” A similar statement could have been attributed to the real estate sector as well. It is hard to find someone who is unaware of a betrayal story by a developer – be it delayed delivery, poor construction quality or even duping on the size of an apartment. A big reason for this is that until a few years back the only qualification needed to enter the sector was a nexus with the authorities. That allowed mushrooming of several players, some of which had only a short-term interest in the business. CREDAI itself claims to be the “apex body of private real estate developers representing 20,000 members.” While the number appears to be large and will be higher if members of the other association NAREDCO are added, it is not unique to India. Even in China, there are close to 100,000 developers as a sharp shake-out and consolidation are underway.

The second reason for the negative perception is that the public continues to believe, incorrectly in most cases, that developers make a steep profit at the expense of the home buyer. I don’t deny that super-normal profits were par for the course over a decade ago but the situation is different now. The reality is that the only entity that has made a windfall in real estate in recent years has been the government and municipal authorities. The tragedy is that the industry puts up such a dismal defence of that reality, that no one really believes them.

The third reason is the one-sided terms of a contract between a developer and a buyer. Anyone who has reached an advanced stage of doing a home purchase is likely to be in shock at the one-sided nature of agreements. Loosely put – the developer can evade his responsibility by citing a number of reasons but the home buyer does not have any liberty. That’s the reason why ready apartments find favour: Only 27 percent of apartments that have received OC today are lying unsold even in a battered market like Mumbai according to real estate analytics firm CRE Matrix.

The biggest reason, however, is that the audience sees through the double game of the industry. And they don’t like it. On one hand, there are agencies of the ecosystem that highlight record sales or throw survey results which are flattering for the industry and are supposed to boost sentiment – and on the other hand, the industry itself makes a bee-line for a bailout citing an imminent collapse. The obvious question in the mind of most then is “If the industry is doing so well, then why do they need a bailout?”

Dearth of capable developers

Is the situation changing for the better? It is. The weak and poor reputed builders are struggling to survive. Harsh as it may sound – for an industry that is so critical, it needs a limited but capable list of developers.

At its core – the industry needs improvement in its governance and transparency culture to gain the trust of its audience. Being branded or unbranded is not as relevant – keep in mind the premier listed developer of the country, Godrej Properties, often does not even share the name of their joint venture partner while announcing a joint venture to the stock exchange.

Perhaps when there is a radical cultural shift in the workings of the industry it will attract the goodwill of the masses. For now, the prime minister should read the long CREDAI letter of recommendations. And ignore it. His mission of reforming the sector will only come through a painful consolidation.

When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. The views are personal.
First Published on May 29, 2020 01:09 pm
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