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Debashis Basu: Real estate Bill: no pressure on officials?

On paper, the need for a real estate law that would "protect" the buyers is sound. Real estate is the largest expense item for everyone, barring the super rich

Debashis Basu 

Debashis Basu

"It has been brought to the notice, of the State Government that, consequent on the acute shortage of housing in the several areas of the State of Maharashtra, sundry abuses, malpractices and difficulties relating to the promotion of the construction of and the sale and management and transfer of flats taken on ownership basis exist, and are increasing…"

No this is not from the preamble of the Real Estate (Regulation and Development) Bill of 2015, which the Union Cabinet has cleared, which was being planned to be tabled in the winter session of Parliament. These words are from an Act that came into force 52 years ago! It is called the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale and Transfer) Act, 1963, or MOFA. Anybody familiar with the real-life scenario in Maharashtra will agree that these words, capturing the pains of home-buyers, are still true; nothing has changed on the ground in the last 52 years. If so, what is the basis for assuming that a new real estate Bill would change anything?


On paper, the need for a real estate law that would "protect" the buyers is sound. Real estate is the largest expense item for everyone, barring the super rich.

People need to buy a house. For most people, it is a dream. But those who want to rent, too, are forced to buy. Thanks to a poor rental market (caused by terrible laws), long-term renting is not an easy option even if one were to take that route. In short, everyone either wants to buy a property or is forced to. Quite atrociously, however, consumer experience when it comes to spending lakhs and crores on this biggest expense item of their lives has been totally shameful. Over the years, real estate developers have emerged as the main villain in the eyes of consumers. It must be a rare home buyer indeed who has not suffered frustrating delays, cost escalations, faulty construction, illegally built areas, short delivery of promised area, additional charges, leaving buyers high and dry. Builders don't need any qualifications or satisfy any requirements to enter the business, and are often found to flout safety standards and norms. A flat purchase contract is heavily tilted in favour of the sellers.

Will a real estate law fix all this without addressing the core issues of the real estate sector? There is a breakdown in the principles of sound economics at every single stage in a flat-buyer's journey. It starts with buyers looking for a place to stay in the city that they work. And where they work is determined by how economic development has spread across the country. Uneven economic development across states, lack of opportunities for most people to work where they live and haphazard town planning have created a situation where more and more people are forced to live in large cities, which also become a magnet for migrants. But town planning and political decisions that create new urban and semi-urban spaces have been slow and inadequate with their response. This has resulted in a huge distortion of demand-supply prices. Prices in cities have become astronomical. Mumbai was fortunate in having a committed administrator like R C Sinha (now advisor to Nitin Gadkari), who ensured that Navi Mumbai develops as a large, well-planned city; Mumbai and Pune got connected with a spanking new expressway and more than 40 flyovers, built in record time, made movement within Mumbai easier in the last decade. Without them, Mumbai would have been an urban nightmare, like Bengaluru is fast turning out to be. The main big reason for the distortions in the housing market is policy failure.

The second big source of problems for flat buyers is the deep and corrupt nexus between politicians, officials and builders. Indeed, many builders are politicians or vice versa and fix things for themselves from the inside. The government requires hundreds of rules and regulations to be fulfilled before a builder can construct and hand over flats to buyers. Each step requires them to pay bribes. The sums involved are huge. Newspapers regularly report crores of rupees of cash found in tax or anti-corruption raids on the homes of small-time engineers even in municipalities. All this adds to the cost. In Kolkata, extortion by political leaders has been so draconian that in some cases builders have stopped construction half-way. Neither existing laws nor the new real estate Bill deal with this. The structure of the realty business does not reward honest builders or penalise bad ones, so, over a period of time, flat buyers are left to deal with a certain kind of businessmen as developers. Thirdly, builders, who borrow from banks for their projects, continue to be treated with kid gloves by the lenders. The two Budgets of the Modi government have supported them, allowing them to hold up the prices, instead of forcing them to get rid of their inventory and repay banks. In short, bad economics and deliberately distorted policies are contributing to delays and high costs.

In this situation comes a law that puts onerous conditions on builders (mostly justified) but does not touch the main reasons for high costs and project delays. For instance, while there is provision for imprisonment of builders and real estate agents, and compulsory registration of projects of 500 square meters or eight flats, the main hindrance - which is delays caused by the babus - will continue to remain unquestioned. After all, the Bill has not touched impediments to land acquisition, registration, transfer, taxation and a plethora of permissions and clearances that would be granted by government officials. Also, the problem in India is not about laws. India has plenty of laws; it's about their sensible enforcement (as I wrote in a piece for this paper 21 years ago). For instance, the Bill proposes that all permissions, information, online declarations and registration are to be validated before the project starts. Time will tell whether this is too overambitious. After all, Section 3 of MOFA, enacted 52 years ago, laid down that title certificate, disclosure of amenities, design, materials and "not to allow persons to enter into possession until completion certificate is given by the local authority" are "general liabilities" of the developer. As any buyer knows, for decades these provisions have been easily flouted. If things didn't change then, why will they change now?



The writer is the editor of www.moneylife.in
editor@moneylife.in

First Published: Sun, December 27 2015. 21:47 IST
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