Saturday, September 19, 2009

Govt plans regulatory reform for housing sector Assetventures

The central government is working on a model real estate regulation bill to provide guidelines to facilitate growth and promotion of healthy and transparent efficient and competitive real estate sector in the country, said the housing and urban poverty alleviation minister Kumari Selja.

This is a welcome move and will help the sector in becoming efficient and competitive. However, developers feel the government should form a separate regulator on the lines of Securities and Exchange Board of India (SEBI) to regulate the sector.

Addressing a conference on real estate, the minister said Indian real estate market is unorganised and fragmented and that most of property transactions are based on certain perceptions and not necessarily on sound business principles. In this, customer satisfaction is low and redressal procedure is long and cumbersome. This has created problems for both buyers and developers. As end users are not sure of delivery of a house by builders on time, they dont want to risk a purchase by taking a loan from the bank.

Apart from this, many buyers are not even sure of the specifications, which developers promise while selling them the houses/flats. Worse still, when developers do not deliver on time or stick to the promised specifications while selling, buyers do not know where to for redressal.

Going to a court is not only time consuming but also expensive. This has forced buyers to either defer their purchase or to go for completed projects. But, this apprehension of end users has affected genuine developers as well, which have a plan and required finances to complete a project. However, in the last couple of months, end users have started showing interest in buying new projects. But, they want to buy in the projects of reputed developers alone. This has created problem for the new but good developers.

A senior developer says if the sector is well regulated, the role of brokers and investors can be reduced. In most of the cases, investors, who have better understanding of the sector and who can invest time and money to know about developers, invest at the early stage of implementation of a project and make easy money by selling them to end users at high prices when the project comes to a close. The end users, on the other hand, are comfortable in buying a house when projects are close to completion, hence making the sector over dependent on investors.

Consequently, in the last one year of market downturn, the entire real estate sector came to a screeching halt as investors disappeared from the market. But, had the sector been well regulated, end users would have been bold enough to buy at the early stage of project implementation. This would have helped developers also.

However, another problem in regulating the sector is that it comes under the state subject as well. Thus, a senior official says nothing much can be done unless state governments show interest. Haryana Government has already passed an act to regulate the sector. But, the results are not encouraging, thus far. It was assured all the stakeholders that the government will accord full cooperation and support to encourage affordable housing.

She said the housing sector in India holds tremendous potential and has positive impact on the social and economic development of the country. In
2006-07 the sector was about 4.5% of country's Gross Domestic Product and comprised approximately 7% of the total urban workforce. Housing is the largest component of the construction sector and central to economic growth.

However, provision of affordable housing for all is a complex problem with challenges emerging from many facets of urban sector. The minister said there are many impediments to the growth of affordable housing land and capital being the two key constraints.

To increase the stock for affordable housing the focus has to be on augmenting land supplies. Kumari Selja said the issue is a critical one and requires a number of measures such as alternative methods of land assembly, development and disposal to be pursued, check on prices of urban land, encouraging public-private partnership, promoting intense use of land-higher densities, revision in Floor Area Ratio or Floor Space Index and change of norms to suit local situations, discouraging speculation in land development, and allotment or disposal process to check rising prices of land.

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