<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[No Regulations: Property rates at
Mumbai’s Bandra-Kurla Complex are among
highest in the world, but there is no
regulatory body to monitor the valuations
(Pic by Subhabrata Das)
It is not possible to turn the clock back but if the Royal Institute of Chartered Surveyors (RICS) had arrived in India just a trifle earlier, a lot of the distress the real estate sector is causing could have been avoided.
An autonomous, self-regulatory body that sets the standards and best practices in the real estate sector in many countries, RICS is set to change the way the sector functions in India, provided the government plays ball. A large part of the crisis the sector is seeing today is due to too little regulation, bizarre and unrealistic valuations and many unethical practices followed by developers. This was coupled with a huge amount of money flowing into the sector and projects being announced left, right and centre — many by builders of little repute.
“Little track was kept on how companies were being valued (when they were announcing IPOs), how land was being valued, whether the developer used the funds raised for what it said it would, whether the developer actually owned the land he claimed he did, and even on where customer advances collected were being deployed,” says Sachin Sandhir, managing director and country head of RICS in India, which launched operations in December 2008. As a result, more than one developer has delivered projects much later than promised and some have actually failed to deliver altogether. This has led to huge losses for both investors in real estate stocks and customers who have bought apartments or land in projects. “Everyone wanted to be a Rs 1,00,000-crore company or a Rs 50,000-crore company,” says Sandhir. “But investors were unaware that more often than not these claims were not backed by assets.”
Sandhir says the present crisis has made the finance ministry, the National Housing bank and the ministry of corporate affairs sit up and take notice of how things need to change if the real estate market is to be revived. “In a way, the timing for us to begin work in India is apt,” he says. The pain of the crisis will force the government to enforce certain standards and regulatory measures in the industry, he believes.
But what will make real estate companies agree to self regulation? Perhaps a diktat from the government and lenders will make the real estate companies fall in line. “If I am a developer and I need money and the bank won’t lend to me unless I meet certain standards, well, that will make me change,” Sandhir says.
In fact, experts say the real estate crisis and its full ramifications are yet to sink in since the banks have restructured many of the debts of the companies till end-June. “The government is aware of the fact that millions of investors stand to lose money. But the critical issue is to revive the sector. Thirty-three million people are employed in the industry and affordable housing is key,” says a senior finance ministry official.
RICS, which has 300 members in India, feels that if the government adopts its standards and practices or makes it the national regulator, it can bring about a lot of uniformity in the real estate sector. “We have been in the business for 140 years and operate in 146 countries. We know how to set things right,” says Sandhir.
But setting things right in an industry that has suffered from very loose morals and has been focused on making quick bucks — by hook or by crook — may be easier said than done.
bweditor at abp dot in
(Businessworld Issue Dated 12-18 May 2009)