Who really killed the realty sector?
According to a news item in a leading English daily, over three lakh dwelling units have been delayed for delivery for as long as up to eight years. No wonder the poor consumers are crying out for justice, having paid their entire savings plus substantial borrowings to acquire a roof of their own. Sadly, they have nowhere to go. The builders have no penalties and holding them to account would take a lifetime and an unaffordable expense. Actually, owning a house in our country needs two life spans; one to pay for the dwelling because it needs the whole life’s earnings, and the second one to acquire its possession because the builder is under no legal compulsion to deliver on time and for sure will not deliver in the promised time.
All the cards are stacked against the buyer. It all starts with tempting, glossy, and seductive advertisements showing a paradise is about to be created in a barren desert, where you the buyer will want for nothing. Entertainment, sports, club dining, easy access to airports, railway stations, schools and colleges, nothing is kept back for the abiding bliss for the buyer to reside in. The intending buyer walks into this mirage of promise with hope and anticipation. But once hooked into the flesh, the buyer begins to loose blood, and the builder who drinks it, is the winner all the way. The agreement is drafted by the clever legal minds padded with fat retainers from the construction company and locks the consumer-buyer into one-sided obligations with the builders responsible for nothing. Indeed nothing at all. Quality controls do not exist, neither do timely deliveries, nor even penal consequences. Cost overruns are to the consumers account, time overruns are to the consumers account, for poor quality of construction you can lump it and non-completion of collateral facilities, again no penalties on the builder.
The builder’s community has been united in stonewalling any regulation that will protect the buyer against this kind of commercial exploitation and sometimes even extortion. The willing complicity of the enforcement agencies enhanced by the complicated redressal mechanisms to the extent of making them ineffective, expensive and dilatory, all combined to the extreme disadvantage of the buyer. Almost never has a project been delivered on time in the real estate development history in our country. “Brochures ki Minaar” is how a real estate analyst is reported to have described the state of this sector, lamenting the pile of unbuilt flats. As per a report of the PropEquity, average delay is two to three and a half years in the NCR region and this accounts for 90 percent of the units. The story is not too different in other parts of the country.
Affordable housing is a slogan for political mileage and not for the buyer. The promise of a certain cost is a mirage. There are a number of add-on charges for illusory facilities starting with the price of the unit being quoted on a super area basis. Right from the word go, it is obvious that the buyer will get 30 percent less area than the one he pays for. The variation between the super area and the usable area is generally at least 20 percent going up to 30 percent. To add to the pain, as and when the flat actually gets delivered to the buyer, he is presented with an additional bill on account of the super area having increased mysteriously. Never will the usable area increase. It will always be the super area where only the builder stands to gain. The pain does not end here. There are EDCs and preferred location charges and now not to forget the VAT and the Service Tax liabilities which the government has piled on to make housing affordable. If you have paid all these and waited for ten years after booking, you will be the proud owner of a shell, in which you will have to put in cupboards, kitchen equipment and shelves, and toilet fittings. It is everything you need but cannot really afford.
The reality is now stated to be in a slump. The unsold inventories have mounted and the builders are offering discounts on declared prices. Some misguided souls are being led to believe that it is now a buyer’s paradise and the slump has bottomed out. Believe this at your own peril. New project releases have declined for sure. The reasons vary, depending upon whom you ask. The builders say that delay in receiving clearances from government agencies is the prime cause of time and cost overruns. Analysts say that poor management, increasing cost of construction and poor cash flows by the builders, are responsible. Nobody pins it on the greed of the builders which grows on the buyers lack of choices, and having taken their money, it is used to acquire another project or another land bank for the next round of home seeking suckers to be robbed of their peace and earnings. Construction technology and practices have advanced considerably and 50 plus floors-buildings are getting completed in two years or less. But not here in our land, because delays do not cost the seller. Besides, there is no pressure to pay back loans in time and banks will not enforce their collaterals being ever willing to restructure the tenures to the advantage of the building companies. Better still, they will add the dues to the increasing pile of NPAs as there are no penalties on the lenders either for bad loans. An invocation of the judicial process by the buyer will need a lifelong commitment to be seen to finality. So hasten slowly is our mantra to bliss to keep in step with our revered Hindu rate of growth! There is also the insurance of the builders who work on over 200 percent margins. As real estate is the largest absorbent of the cash economy, the prices will never crash except by small percentages up to 20 odd percent or so.
There are many structural afflictions in the realty segment. We want affordable housing. The buyer wants it and the government says they want to provide it. But it does not happen. The land supply is poorly managed, the urban development and management is without a holistic vision. The deck gets stacked from the beginning. Lands appurtenant to city limits get acquired by the political-business nexus with the state machinery responsive to the needs of the power elite. The land use for commercial use gets granted on a favour to favour basis and a hungry market eagerly absorbs the stock. Why can we not have a land use policy perspective for different cities, so we know where developments will happen. Why quality infrastructure for civic amenities does not get created so that people can build the kind of houses they want to live in.
We need an ethical regulator with a simple set of laws to administer in a fair manner. India’s urban story is in the doldrums. The basis of Smart cities has to be a competent civic management. Real estate development has to be an integral part of this competence profile. A fair deal for the buyer and a severe punishment for the wayward developer in acceptable time frames is the only way ahead.
(The views expressed are strictly personal.)