Housing and the Real Estate Industry
Real Estate industry has gone through several shocks one after the other. First was demonetization and flight of skilled labor, next was the news of GST implementation and the reports in the media asking buyers to stay away since prices were expected to fall after implementation of GST. In reality the pricing structure saw a significant cost increase to the builders with no clarity on what set offs they would finally get. Third was implementation of the new RERA - Real Estate Regulation Act which to my mind has swung the pendulum in the totally opposite direction and vested all powers in the buyer and negligible power in the hands of the developer or builder. If this had been structured in a more balanced way it would have been fair to both. Fourth was the IL&FS meltdown and subsequent withdrawal of exposure by all NBFCs to this sector. Market outcomes are - a) the small builders have been basically wiped out and their projects are held up, b) the medium sized ones are in their death throes, and c) the game has shifted to the large builders who have the sustained rental cash flows from commercial assets that they own and lease. There is a class of mid size builders who have been able to get funding from people like Piramals. These will try to survive the down turn. To conform to the strict RERA regulations and specifically to reduce the post purchase liabilities on the seller, large operators have shifted the modus operandi to investing in the construction costs till completion and selling ready to move in units - so buy what you see at the price offered or look elsewhere.
On the one side Government wants to do right by the customer and therefore the RERA law. As per above a lot of small buyers have their investments stuck creating thereby the exactly opposite situation.
We also speak of jobless growth of the economy. Real Estate industry is one of the largest employment generators - the body blows of the above changes has resulted in a complete downturn in the industry. New hiring is non existent, layoffs are common, projects have been prioritized based on balance effort required for completion, consultants are without work etc.
Customers who have invested earlier want to exit. Exiting earlier investments has become difficult since market values have crashed.
It is high time Government took notice and stock of the situation and take steps to help the industry get back on its feet. Among them could be:
1. RERA to be designed afresh to make it fair to both parties. Approvals and time required for same to be factored in. Strict guidelines for approval time needed by Government at various stages. Penalty on the approving agency as well as compensation to builder and his customers from Government for delays from their side.
2. Improve financial attractiveness to end customers so that a pull is created - incentivize real estate investments - reduce taxation, increase tax benefits, reduce capital gains, reduce stamp duties
3. Introduce State owned Title insurance for land to convey safety in transactions to end customers
4. Implement on war footing PID tags - property identification tags which are already in process in some States.
5. Eradicate benami by linking all property registration to Aadhaar numbers retrospectively. In the event that such benami ones are found, ensure ownership reverts to State and auction these at 30% discount on market.
6. Create fresh avenues for project funding - long term funding avenues for long term assets so that there is no mismatch in expectations and projects getting unnecessarily labeled as NPA. Involve pension funds and insurance funds for this. Attract foreign debt funding on similar long term basis. India's growth story is credible.
7. Create insurance for project delays so that builders have a fair chance to complete projects within time-frames and costs.
8. Encourage joint ventures and joint development rather than taxing the life out of them. more
On the one side Government wants to do right by the customer and therefore the RERA law. As per above a lot of small buyers have their investments stuck creating thereby the exactly opposite situation.
We also speak of jobless growth of the economy. Real Estate industry is one of the largest employment generators - the body blows of the above changes has resulted in a complete downturn in the industry. New hiring is non existent, layoffs are common, projects have been prioritized based on balance effort required for completion, consultants are without work etc.
Customers who have invested earlier want to exit. Exiting earlier investments has become difficult since market values have crashed.
It is high time Government took notice and stock of the situation and take steps to help the industry get back on its feet. Among them could be:
1. RERA to be designed afresh to make it fair to both parties. Approvals and time required for same to be factored in. Strict guidelines for approval time needed by Government at various stages. Penalty on the approving agency as well as compensation to builder and his customers from Government for delays from their side.
2. Improve financial attractiveness to end customers so that a pull is created - incentivize real estate investments - reduce taxation, increase tax benefits, reduce capital gains, reduce stamp duties
3. Introduce State owned Title insurance for land to convey safety in transactions to end customers
4. Implement on war footing PID tags - property identification tags which are already in process in some States.
5. Eradicate benami by linking all property registration to Aadhaar numbers retrospectively. In the event that such benami ones are found, ensure ownership reverts to State and auction these at 30% discount on market.
6. Create fresh avenues for project funding - long term funding avenues for long term assets so that there is no mismatch in expectations and projects getting unnecessarily labeled as NPA. Involve pension funds and insurance funds for this. Attract foreign debt funding on similar long term basis. India's growth story is credible.
7. Create insurance for project delays so that builders have a fair chance to complete projects within time-frames and costs.
8. Encourage joint ventures and joint development rather than taxing the life out of them. more
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Oct 31
Its good that Demonetisation and RERA came, as it will surely make markets formal and more transparent, so this is to be applauded and encouraged RERA is still being manipulated by builders to make one sided agreements and putting buyer at risk and mercy of builder and adding lot of extra charges too, hope RERA can better monitor and bring more transparency for buyers, and the cash transactions also reduced more and more Builders have spoilt all the market all these years and they must come forward to be law abiding, built as per sanctioned plans, and stop cash transactions too Thanks more
Dec 30
Builders have made enough money during the sellers' market & don't deserve any sympathy. The real buyers (not investors) should be protected & that is what RERA is doing, even if it is a little one sided take it granted it is in compensation for decades of squeezing done by builders. Most of the builders are politicians & they will not go bust with so much of black money available with them. more
Dec 28
There were heaps of complaints against all the builders & developers (small & big) all over the nation. These builders jump into this line of activity only with one point mission of doubling their investments within a short span of time, for which they resort to all kind of dishonest and immoral tactics to spin off money from the buyers. There were large number of complaints against the builders in big cities and metros. Complaints were pouring in from the buyers of Delhi, Noida, Gurgaon, Bengaluru like cities, where the builders didn't start their projects even after 7/8 years of launching their projects and collecting money from the buyers, neither money so collected were refunded. In the name of Super Built up they collect money from different purchasers for the same area. They include GST over & above the offer prices but never pass on the benefits of Input Credit Tax to the buyers. These are some of the dishonest tactics among many other they adopt. Under such a situation, RERA is the much wanted appropriate remedy to deal with the buyers' hardships and interests and in my opinion, the real estate developers and builders do not deserve any concession in the said act. more
Dec 27
Linkage of Aadhar, Bank through transactions are only remedies. more
Dec 27
I find Sri Shenoy supporting the builders and lamenting for them utterly laughable. Whether they are small or big, all of them cheat. Even big companies like Prestige Constructions never pay the default amount (as per the construction agreement, a legally binding document) when they delivered the flat 2 years late. This is in spite of the fact that ALL money was collected as post dated cheques almost 4 years before completion. Not only that, they keep charge of maintenance and the flat owners are at their mercy. Further, they do not allow any changes to the balcony (of putting protective barriers for the flats in the second floor onwards). What kind of cheating is this? Strict laws should be enforced to prevent these exploiters from cheating the gullible owners. more
Dec 27
