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Is it lack of transparency or greed which has worsened the real estate scenario?

real estate

by Akhilesh Kumar,

Owing largely to the liberalization of the Indian economy, home loan interest rates dropped to a record low of 7.5 percent in 2004. Prior to this, Real Estate investment was a preserve of the rich only. In due course of time, falling interest rates attracted people from middle and lower income groups to invest in property. Thus, the average age of the Indian home buyer dropped from the late 50s to mid-20s. Consequently, the Indian Real Estate market grew exponentially, both in terms of size and price before coming to a grinding halt in 2008.

The Lehman debacle and the subsequent foundering of global economies cannot be discounted as contributing factors. But from the perspective of the Indian realty market, experts recognized that the Indian Real Estate growth story had reached a stage at which it needed to mature.

The Indian Real Estate market, like many other sectors, lacked transparency and a strong regulatory framework within which to operate. These factors on the one hand, and the personal greed of buyers and sellers on the other, worked in tandem to create a dilemma in the market that proved to be a bane.

The sudden boom in the realty sector had presented an excellent opportunity for individuals looking to make a quick buck. Builder licenses were relatively easily available from the municipality. Many jumped in as brokers, property dealers and real estate agents in the same way. Oftentimes, buyers threw caution to the wind by the lure of cashing in on an exponential return on investment. Thus, matters of real estate litigation mounted in Indian courts and threw the sector into disarray.

A lot of black money was also being parked in the realty sector to be encashed as and when the need arose. Also, the sector being more sensitive to non-amenable lending norms saw the highest price appreciation. These factors lead to a misleading demand assessment and a correction was therefore anticipated.

In 2016, the Real Estate Regulatory Bill (RERA) was passed. It aims at revamping the way this sector works across the board. Developers, investors, buyers, lending institutions, property consultants, and brokers have all been brought under its purview. The act seeks to protect the rights of the consumer and thus boost consumer confidence. It fixes responsibilities of the developer with respect to quality, timely delivery of their projects etc and intends to adopt international best practices.

Recently, India’s tier I cities ranked 36th in JLL’s biannual Global Transparency Index. Tier II and tier III cities ranked 39th and 52nd respectively. Improved market fundamentals, policy reforms and liberalization of FDI in the realty sector, strengthening of information in public domain, digitization of land records and opening up of REITs were major contributing factors. India’s low score in the transaction process is expected to improve during the 2016-2018 assessment period, due to the RERA act.

In short, there are sunny days ahead for Indian reality.

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