Is Indian realty sector in need for a makeover?

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Is Indian realty sector
in need for a makeover?

With 11 First Information Reports (FIRs) filed against three real estate developers- Unitech, Pal Builders and Vigneshwara developers, for cheating home buyers, the stark reality of real estate has once again come to limelight.

The police has registered five FIRs against Pal Builders while three FIRs each have been filed against both Vigneshwara Developers and Unitech separately.

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However, realty players are now questioning the reasons behind the agonizing delays that have cost them a fortune as well as their goodwill in the market.

Tedious approval processes adding to realty players’ woes

“Reams of newsprint have been dedicated to discussing the sufferings of consumers in the Indian real estate sector. Particularly, homebuyers’ woes related to late delivery of projects, deviation of housing projects from promised quality, additional payments due to change in apartment area and inadequate protection of their rights have been well-documented. The question that invariably arises is whether the developer is at fault, or whether larger market forces beyond the control of developers are at play,” said Anuj Puri, country head for JLL India.

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According to Puri, the tedious and prolonged procedure for getting innumerable approvals adds to the time taken to complete a project. He explained that any delay in obtaining approval required before the launch of a project to the delivery of it.

“Delays here will cause cascading delays in delivering the project as per the promised time. Before a project is officially launched in the market and offered to buyers, there are myriad approvals that a developer needs to obtain from the state and central agencies and ministries. In any business, the longer raw material is held, the higher is the holding cost – which, in addition to interest costs in case of borrowed funds, causes an increase in the overall price of the finished product,” he explained.

Commenting on the issue of rising costs, Puri noted that at present, a builder has to get 57 different permissions to actually start a project, which takes up nearly two years. “During this time, the cost of acquisition or even just holding the land for a project rises. Builders already have to cover external and internal development charges, license costs and often charges for change of land use from various departments, which have also risen. Cost of construction has gone up by more than 50%, as well,” he added.

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Changing norms behind skyrocketing project costs

Besides the cost incurred on myriad of approvals, sudden changes in the real estate norms also result in the skyrocketing costs of the projects. “There are readily recallable examples of how abrupt changes in regulations governing real estate development can work against both developers and buyers. The revisions made in the DCR regulations in the Mumbai Metropolitan Region a couple of years ago caught the industry unawares, and added to development costs by about 15%,” he highlighted.

Nevertheless, industry players have admitted that there have been instances where a developer has deliberately delayed the delivery of a project. “Yes, there are many cases, wherein it has been found that a builder deliberately delayed the project as the revenue generated in one project, has been used in launching another project,” said a residential property broker requesting anonymity.

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The challenges for the real estate buyer do not end here. Even after getting the possession of the property, a home buyer can see stark differences between the promised quality and the quality delivered by the developer.

“A change in the apartment area after buying from the developer can occur if a change in project plan is necessitated due to a design or approval issue. A deviation of up to 10% is usually acceptable – for a higher deviation, a customer must definitely seek legal recourse. That said, project deviations can also happen because of structural deficiencies of the overall system, wherein rules are being made by the governing authorities in a reactive manner rather than on a proactive basis,” stated Puri.

Any recourse for home buyers?

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So, what recourse does a home buyer have? According to industry players, a consumer can any day approach the consumer court for redressal of his grievances. However, experts believed that the current legal recourse is not adequately equipped to offer complete protection to real estate buyers.

“The Real Estate Regulation and Development Bill - long languishing on the policy drawing board and still under consideration by the government – was intended to offer vastly enhanced protection to buyers. However, after the most recent revisions to RERA, it seems that it will in fact now be less protective towards buyers. While the bill aimed at providing an alternate redressal mechanism, the new provisions are talking of no recourse to other consumer forums. This can, in fact, lead to pressure on this regulatory body in terms of an increased log of cases, though it will reduce instances of multiplicity of suits,” asserted Puri.

Until complete protection is not offered to home buyers, buying a property continues to remain a murky affair. As of now, Prime Minister Narendra Modi’s dream to provide affordable housing for all by 2022 will remain a distant dream!