The realities of realty

INSIDE UNREAL ESTATE
A Journey through India's Most Controversial Sector
Sushil Kumar Sayal
Portfolio
272 pages; Rs 499

Real estate has always been a controversial sector, an unorganised market in which corruption flourishes openly but is rarely acknowledged by players in the business. Inside Unreal Estate is noteworthy because it marks the first time a major participant has written about the unscrupulous practices that have been prevalent for decades and distorted the market in lasting ways.

It is to the credit of Sushil Kumar Sayal, currently chief executive officer of Bharti Realty, that his account of the rampant corruption and irregularities in real estate extends to discussing the hush-hush nexus between some builders and bureaucrats, one of the biggest problems afflicting the sector. "Construction laws are openly flouted as dishonest builders collude with corrupt bureaucrats. I am convinced that bureaucrats deliberately keep the rules complex. This is rent-seeking by another name. If all the procedures are simplified, they will be left with no discretionary power. And nobody wants to give up power and the money that comes with it," he writes.

This nexus, he explains, has a cascading effect on the entire supply chain, ultimately increasing the price points for the final consumer. This is mainly why there is a general perception that for many people, buying a home starts with hope but ends with despair. "In a market like Gurgaon, black money adds 10-20 per cent to the land cost. And since, land accounts for 30-50 per cent of the project cost, this black money escalates overall cost by three to 10 per cent. But this is hardly a cost that the builder absorbs. He recovers each and every paisa of this money from unsuspecting customers," Mr Sayal notes.

Mr Sayal, with over 30 years of experience in this business, once refused an offer from now country's largest real estate firm DLF started by K P Singh. Back then, Mr Singh's son Rajiv Singh had entered the business and was trying to bring a paradigm shift in the way DLF functioned.

"Change has to be institutionalised if you want it to last. It can't simply be driven down from the top. In DLF's case, I felt the vision was good but the hierarchy had not bought Rajiv Singh's vision 100 per cent. This was bound to cause some discordance and friction," he writes, explaining why he decided not to join the realty major. Subsequently, he joined the board of The Great Eastern Shipping Company, which was foraying into real estate, and then went on to start his own firm, Alpha G Corp, along with other people but before joining Bharti Realty.

Given that the book boasts of a Foreword by Sunil Bharti Mittal, it is no surprise that Mr Sayal talks about the corporatisation of the realty sector in great detail. "The rampant malpractices in the sector prevented big corporates… this sector till a few years ago. Corporatisation has started in earnest... the entry of Bharti Enterprises into the real estate sector was a clear indication that the winds of change had started to blow. In a matter of years, real estate could become like other industries where organised corporate players would command the lion's share in the market." He has praised the Narendra Modi government in his book besides the Bharatiya Janata Party government in Haryana, understandable given the extent of his company's involvement in real estate projects there.

Replete with anecdotes, it is mainly a memoir tracing Mr Sayal's journey in the business. The book, however, may be a useful read for people who intend to join the real estate sector but it offers little for the common reader. In good times, it was not uncommon for people to double their investments in two or three years but the situation changed beyond recognition from 2013, he recounts. "Real estate lags behind traditional asset classes now. Even fixed deposits from banks fetch better returns. This is why builders are finding it difficult to sell their stocks…. It is regular fallout of all bullish markets - valuations rise so steeply and the thought of quick profits eclipses reasonable behaviour."

Though there has been a correction in the last couple of years, prices are unlikely to fall further, making this as the 'best time' to buy a property or rather invest in it, experts say. Mr Sayal echoes similar views when he says "home buyers could use this opportunity to invest. It is unlikely that prices will soften substantially from here but hard negotiations will yield a handsome discount."

There is an epilogue that lists buying and investing mantras but there is little that is new here. For instance, he cautions people not to be lured by fancy advertisements and Bollywood stars endorsing real estate projects.

The real message of the book is that ethics and real estate can go hand-in-hand. In that context, Mr Sayal and other organised realtors could find some succour in the Real Estate (Regulation and Development) Act, recently cleared by Parliament. The Act is expected to usher in much-needed transparency and accountability in the sector. It will take at least a year before the Act is implemented. But if it eventually helps squeeze out black money from the system, prices, especially in the residential market, can be expected to come down to a rational level.