Hyderabad's traffic police recently tightened the implementation of certain rules like wearing helmet & seat belt and carrying licence / vehicle documents. A developer was sharing his frustration about these rules, because of which he has had to start carrying his driving licence in his pocket for the first time in his life. He felt everything nowadays is about jail terms and hefty penalties. His next frustration was the recently passed real estate bill which also prescribes punishments on similar lines for non-compliance. 'Kya hoga' was his question, for which I had no answer except advising him to follow rules be it traffic or real estate.

No point in feeling frustrated about following rules. To begin with, he should have always been carrying his driving licence while driving and followed traffic rules. This precisely seems to be the point of the real estate bill. There are lot of laws both central and state, governing real estate but implementation has been lax and non-compliance rampant. The government seems to be tightening the screws on the real estate industry by passing this stringent real estate bill. The fact is that to begin with the real estate industry should have been following the prevalent rules. Rampant non-compliance has lead to this self-inflicting situation wherein far more stricter laws have been made for the industry.

The bill's intent is to provide much needed protection for buyers of real estate and possibly will create a more level playing field for them while dealing with developers. Our thoughts on the bill are as follows:

  • For beginners, the bill's untold message seems to be that all developers and brokers are the 'perennial bad guys'. This is a stigma which most of us have carried around our entire life. This bill seems to further cement this notion. Seldom does any piece of legislation mention so many wrong practices, black listing, jail terms, penalties etc. and probably rightly so, but not all developers and brokers are bad. The bill provides for the real estate authority to work on a system of grading the developers. This grading system should have been part of the bill itself or now should be amongst one of the first actions of the authority. It is not fair to measure every developer and broker by the same yardstick. There are good and professional developers and brokers, though in a minority. A proper grading system with stringent norms for grading would separate the women from the girls, and hopefully shift the focus of non-compliance on the bad ones. A grading system could rate developers as Grade A, B, C and non-graded. The act does not provide for any grading for brokers, which is unfair. This should also be taken up in same earnest. Customers deal with a lot of brokers and they should know more about who they are dealing with.
  • As you read the bill you begin to appreciate the pro-active role the government now wants to play in the real estate sector. This bill reminds one of the rule against drunken driving in our country. Drivers are used to a breathe-analyser test once or twice late night at important junctions. The real estate bill makes one feel as though it is a breath-analyser test at every traffic light. Rules have been made from the day you conceive a project to 5 years after completion of the project and for every step in between. Each step has to be approved, implemented, uploaded etc. This kind of over-regulation could be an overkill and certain key aspects of the industry could become casualties. Innovation and risk-taking abilities of the industry could definitely be the first casualties.
  • With so much regulation, the mass / affordable housing segment could be a big casualty. Every budget spells out good notions for this segment but nothing much happens on the ground because dealing with this segment needs innovation in terms of visualising, planning, project, financing, phasing etc. When we mention affordable housing we mean the Rs. 3-6L price range for 300 - 600 sft segment market. This is segment where people engaged as day labour, house maids, security guards, auto & taxi drivers etc. need to be given housing. This segment of buyers may not qualify in the standard KYC norms which are followed by housing finance companies. At one of the conferences a speaker shared his idea of evaluating the loan paying capacity of this segment by studying their mobile usage patterns. This sector needs a lot of such out-of-the-box innovations, which could be difficult with the new bill. Plus, costs for developers are likely to go up with the quantum of compliances at each stage which would be passed onto customers.
  • One important aspect that the bill tries to answer is the eternal riddle of trying to find out what the carpet area of a particular unit is. I must admit that even after spending more than 1.5 decades in this industry I am still puzzled as to how the carpet area gets calculated. It is a fact that you can never measure the said 'carpet area'. To complicate matters, carpet area calculations are always presented as percentage of another interesting terminology 'super built-up area'. It would be interesting to find out how the developers calculate carpet area in compliance with the carpet area definition given in the act.
  • The act covers developers, brokers and employees of developers under its ambit. Not sure why the bureaucracy has been left out of this. In our country, all rules for the real estate industry, be it the masterplan of a city, development control rules, FSI regulations, certifications etc. are all decided by the bureaucracy. It is the same bureaucracy that is also responsible to ensure implementation of all plans, regulations, approvals etc. When faults of all players be it developer, broker and employees are being penalised then how come the officials who manage the entire industry are being left out. If real estate industry is rotting today, then a significant amount of blame goes to the bureaucracy. The act being silent on this matter does not give one great confidence in terms of implementation. In Telangana we have a single window policy called the TS-iPass. Companies can easily submit their investment proposals online and monitor clearance progress on real time basis. The government strives to approve all proposals in a matter of 15 days from applying. The act provides for a fine per day on the government officials, for every day of delay at their end for clearing such files. Not sure if such a rule, which penalises government officials for non-performance, exists anywhere in our country. Fresh rules are being created so that past mistakes are not repeated but to ensure a better future all facets of the real estate industry should be covered for compliance and booked for non-compliance. Bureaucracy is the most important facet for the real estate industry and they should be covered.
  • The real estate market consists of transactions both primary or secondary better known as resale. The act seems to focus its attention on primary sales only. A lot of confusion and heart break prevails in the resale market also. We hope at some stage strident processes would be put in place for this too.
  • The authority should eventually put in a system to make licensing mandatory for brokers. This licensing should be based on educational qualifications, memberships, experience and most importantly clearing an exam. The system should have provision for renewals for these licences say once in 5 years or less. We have to ensure that just about anybody does not become a broker or worst, a developer. Certain entry barriers are required to be put in place. Anybody can become part of the industry but after fulfilling the entry criteria. Registration of brokers is a step in that direction.
  • The team to be put in place for monitoring the authority and its activities are all from non-real estate backgrounds. The only exception being the advisory council to be set up the government which will advise the government on real estate matters. Like in any sport, the administration of a particular sport should also include people who have actually played the sport in the past at any level. They understand the requirements of the future and shortcomings of the past better. Same way real estate is not everybody's cup of tea. If the government wants to get the real estate industry back on track in terms of compliance then involvement of developers and brokers in this process is required. The developers and brokers have organised themselves into state / national level associations. Representatives from these associations could be involved in an advisory role. The government should refrain from using services of developers and brokers who are not active in the trade currently. Real estate industry representatives should be people who have an actual stake in the market.
  • The act should also provide for a system wherein the developer and brokers are part of the planning, budgeting initiatives of the government especially the masterplan. Each city's planning has to be unique but issues like traffic congestion, lack of civic infrastructure, no proper day-to-day maintenance etc. are the same for every city. One finds that growing cities become the cauldron of the same issues like all other big cities. Maybe we have an opportunity to standardise a lot of issues basis our previous experiences. The industry can help the government do this part better.
  • The act requires developers to submit a lot of details about their project, previous projects, sanctioned plan etc. We hope one important aspect that gets checked by them is the financial closure a developer has achieved for a project atleast to cover the cost of construction. This is where all trouble starts, basically if the developers cash flow plan equals sale proceeds then normally such projects are doomed.

The implementation of the act will hold the key to fulfilling all the the hopes that all of us have placed on this act. Such strict compliance might force some developers and brokers to exit the industry but this shake up is already long delayed. We hope implementation of this act will herald a new era for the real estate industry in our country.

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