Land & Development

Land & Development

When it comes to Real Estate in India, the money bags instantly start to jingle. All of it appreciates in value via a one way trajectory. The very good, like the 3500 odd sq.ft. Duplex flat in Samudra Mahal building in South Mumbai, bought very recently by specialised glassware maker Borosil for Rs. 43 crores, shows you just how good it can get.  Scarcity, maintenance, location, amenities, all put together, breed bumper profits.

And any old hovel or piece of land also appreciates, anywhere in this country, even in troubled Kashmir or the bad lands of Bastar. Land and buildings simply never lose value here. The market may slow from time to time cyclically, even go into hibernation, but prices never retreat. There may be a distress sale every now and then but it has no effect on the overall rates. If an old, unsafe building falls down in the rains, it provides an opportunity to build a new one in its place and make money all around.

The Realty Bill, or The Real Estate Regulatory Bill, recently passed by the Union Cabinet for enactment into law, will be tabled soon. It seeks to regulate builders to protect the interests of the investors. Builders will be required to place the proceeds of investor payments in an escrow account to the extent of 70%, and use the money only for the building they have received the money to build.

They are not going to be allowed to sell space to speculators, cartels of brokers and “investors” etc. before all permissions are secured. They might however be able to access bank funds more easily after all these niceties are observed. There are a host of other provisions intended to provide greater transparency and accountability. There is also a redressal mechanism by way of an appellate and a dedicated tribunal.   The ideas, in short, are impressively utopian, but surely there are loop holes?  

Yes there are. The biggest one is to do with the threshold itself. The proposed minimum plot size of 4,000 square metres to be covered under the legislation leaves out all the smaller developments. It also tempts developers to apply for sanctions of areas less than the threshold that would bring it under the ambit of the new law being proposed.

Besides, many redevelopment projects and stand- alone developments are easily below this 40,880 sq. ft. minimum. A developer could be tempted to apply for segments below 4,000 sq.m. under different names and configurations to dodge this law.

After all, the builders can’t be thrilled with this. They have been putting in the seed capital and then working with free funding from the buyers. Now they can maybe access bank funds for which they have to provide collateral and pay interest. Their affairs will be watched. Their books and cash flows will be scrutinised. How can they turn an anything- goes business into a nice neat one? But the Government intends to try.

But, says the investor fraternity who gain from the builders and their “soft launches”, the media watch-dogs who run TV programmes on real estate and sell print supplements full of advertisements, the experts who opine and write, all this is going to put up the prices.

Those who own property already are not displeased at all. More regulation is good they think and good we bought when it was cheaper and not regulated so much. The aspirant and the arriveste however will have to fork out more.

Regulation will restrict. Ergo, corruption will prosper. And even if it doesn’t, prices will be enhanced for all this, along with FAR commitments, building bye-laws, material cost escalations, inflation and taxes doing their bit too.

But says Mr. Ajay Maken, the Minister I/C, it will check fraud and those builders who don’t build what they promise at all, and merely abscond with the swag, and/or declare bankruptcy after having abstracted it.

It will stop builders from using collections to start multiple projects and delay the completion of them all. It will compel them to finance their projects more substantially thus giving them the incentive to complete them on time.

It will make them own up on the actual floor area of flats and confess all the hidden charges.

Overall, the consumer will be protected maybe, but at a price. But first such a bill has to run the gauntlet of massive vested interest in order to turn into law.

(738 words)

June 7^th, 2013

Gautam Mukherjee