Realty industry needs regulator to promote ethical business

The Confederation of Real Estate Developers Associations of India (Credai) has once again brought to the centre-stage the issue of transparency by pushing it as a panacea for the negative perception about developers among policy-makers and the public. It is another matter the government has not caught this self-regulation bait and has made up its mind to bring a regulator.

A section of developers is opposing the regulatory bill on the ground that the sector is already over-regulated. No one denies the need for simplifying policies and procedures. But we cannot overlook the need for bringing in a regulatory mechanism to promote ethical and transparent business practices to protect the interests of both consumers and investors. The developer community must realise that today we are not able to tap the full potential of the sector, simply because it is unregulated.

The biggest crisis in the real estate sector at present is the crisis of confidence among consumers and investors that stresses the need of an external regulator. But Credai, the apex body of developers, says self-regulation is working well by way of the code of conduct formulated by it. But the embattled property consumers say they are at the receiving end due to lack of consumer-friendly sale agreements, delivery defaults and ineffective dispute redressal mechanism.

It is a common complaint of property buyers that the code does not reflect their concerns. Its biggest flaw is that it is only recommendatory in nature and does not confer any legal rights on the consumer. Moreover, it is applicable only to Credai members. The thousands of developers who are not Credai members are out of its purview.

The fact that the code is not mandatory and that there is a provision for merely suspending a member for violating the agreement do not make it a deterrent for developers to desist from adopting unfair practices, such as exceptionally high loadings on carpet area, pre-launching, delayed delivery and arbitrary price increase.

Many developers openly resort to the malpractice of pre-launching as the code falls short of banning this practice or prescribing penalties for errant developers. On the contrary, it simply prescribes that developers should commence bookings/sale only after getting requisite sanctions. Lastly, lack of provision for an independent arbitrator to sort out disputes between developers and property buyers does not inspire confidence among property buyers.

There is a case for progressive reforms in the real estate sector that is facing a credibility crisis among consumers and investors alike. One cannot deny the fact that the reforms related to liberalisation of foreign investment rules, public-private partnerships to boost urban renewal, computerisation of land records and urban land ceiling rules, together with increasing corporatisation and entry of international property consultants, have contributed significantly to infusing professionalism and transparency.

But the biggest challenge before us today is to reform the sector to achieve the aim of housing for all. And that can be achieved by making developed land available at affordable cost and with policy initiatives like liberalising floor-area regulation, rationalising tax structure, subsidising housing finance for low-cost housing, single window clearance and creating enabling environment for boosting rental housing. There is also a need for policy reform to develop debt market for housing, fully integrated with financial market.

The recent industry reports have underscored the need for reforms and regulation. A KPMG report dubs the real estate sector as the most corrupt one. A recent Jones Lang LaSalle India report on Indian Real Estate Transparency Index 2011 clearly says that disclosure of correct information, adherence to commitments and prevention of unfair practices remain a challenge.

In this backdrop, all the stakeholders must realise that a realistic and balanced real estate regulator is the way forward to correct the negative perception of real estate community among policy makers, consumers and investors, thereby paving the way for sustainable growth of the sector.

Vinod Behl is editor of real estate monthly, Realty Plus. He can be reached at vbehl2008@gmail.com

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