Tuesday, November 15, 2011

INDIAN REAL ESTATE SECTOR - AN URGENT NEED OF A REGULATOR

The Government of India has taken initiative to set up Regulators to regulate Capital Market (SEBI), to regulate Insurance Companies (IRDA), to regulate Telecom Sector (TRAI), to regulate Power Sector (Central and State level Electricity Regulation Commission). The Regulator of Financial Sector, Reserve Bank of India, has already been functioning effectively. The other regulators, as aforesaid have added significant value in development and regulation of the respective sectors. The Real Estate Sector is the backbone of the Indian economy as a large amount of development is taking place in commercial real estate as well as in the residential real estate, besides infrastructural real estate sector.

Major Issues

Real estate sector is facing a major challenge because of the following issues:

  • Agreements between Real Estate Developer and the customer are typically one sided and do not provide for any implication for delay or failure on the part of the developer.
  • A large number of Real Estate Developers commence the booking and sales of the real estate even much before obtaining possession, control and ownership of the land in question without an appropriate license/ permission to develop the real estate project being sold. The investors generally are left high and dry.
  • A number of projects are inordinately delayed.
  • In case of delayed delivery the developers try to coax the customers to seek refund with nominal interest with the view to profit by selling to others as over the period of time land prices escalate.
  • The money collected from sale of one project is diverted for acquisition of further land for some other projects using low cost money to hoard land with ulterior motive to gain there from, this also  delay implementation of the project.
  • Disclosures by the real estate developer are generally incomplete.
  • Compliance and documentation requirements are not clearly prescribed.
  • There is no grievance mechanism
  • The rate of interest for the delayed payment by the investor and rate of interest/ penal charges for delay in completion of the project and circumstances in which such interest/penal charges may not become payable, are not prescribed.
  • The property titles, land records, charges created on them and the agreement executed in relation to a particular property are required to become completely transparent and available for public inspection, something similar to MCA-21 platform. 

The real estate sector's contribution in the Gross Domestic Products (GDP) value creation, investment channelization and providing livelihood and employment is very significant. The role of real estate sector is crucial in economic development, and for meeting basic necessities and needs for the Indian society as well as for growth of business, commerce and industry. The aforesaid issues are few examples and there are number of areas and aspects about which the Regulator need to develop necessary framework and regulation to enable growth of real estate sector in a well structured manner to provide necessary protection to all stake holders. This will also provide tremendous support to the genuine real estate developers and will ensure that their risks and rewards are adequately balanced.

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