Indian Real Estate Sector

[Singha]

what will happen is unauthorized colonies and 'old type cities' will try to cluster closely around these smart cities and try to leech on their infra (roads, elec, schools) without paying anything extra.

on a micro scale we see it in blr itself whenever a big builder develops some roads and put up a huge complex, many small builder buy parcels of land next to it and try to bask in the reflected glory. they use agile and scrum and move fast..usually their basic apts are ready for occupation long before the anchor complex of the big builder.

[Theo_Fidel]

Smart cities was more about fiber/internet/communication type infrastructure IIRC.

It is not meant for roads/water/sewer etc. The only program meant for cities was JNNURM and that was shut down. The great thing about the program was that it demanded tax increases and local finance contributions before financial closure. Madurai city raised several taxes specific to infrastructure and had to improve collections to 90% to get JNNURM funds. But now it appears our cities have been abandoned to their own devices. The successful areas will prosper, the poorly run dark areas will wither on the vine. Time to cut your losses as a nation I guess…..

[SaiK]

if we are not smart about land space, hygiene, sanitation, sewage, energy, water, air quality, roads, infrastructure, traffic, policing, regulations, structures, materials, engineering, technology, ... what good is having a smart data cable or smart IT system?

[Theo_Fidel]

While we are at it can I put in a plug for folks to use tempered glass in all their windows/glass doors/etc in desh. Family has had a second terrible tragedy where a child ran into a glass window and was cut to pieces. Brought dead at the hospital. Yes I understand it is more expensive but please reconsider....

[SaiK]

why not fiber glass? toxic?

[Theo_Fidel]

Fiberglass is not transparent. Best you can do is translucent sandwich panels, but that is quite heavy and a very different system. Poly-Carbonate is transparent but also very expensive, it also does not do well long term in heat & dust. It becomes soft and abrades quites rapidly. Tempered glass is the cheapest and works perfectly for this application.

[Aditya_V]

While we are at it can I put in a plug for folks to use tempered glass in all their windows/glass doors/etc in desh. Family has had a second terrible tragedy where a child ran into a glass window and was cut to pieces. Brought dead at the hospital. Yes I understand it is more expensive but please reconsider....

Good point, reducing glass everywhere.

Condolences to your family, losing young children at such an age must be really painful.

[Javee]

Double glazed toughened glass with uPVC (Fenesta) is what I used for my house, slightly expensive, but for our conditions, works better than wood. When I refurbished I wanted to retain the wooden french doors, but looking at the way the carpenters work these days, I figured Finesta is a better choice. I'm planning to change my windows to this combination, as it is easy to maintain and lasts longer.

[Theo_Fidel]

Javee that is good to hear. One wishes it were standard for all human level glass in India. Esp. if the premium is not so high. UPVC (Vinyl windows in USA) are excellent and will easily last 40-50 years even in Indian climate. Toughened glass needs to be standard.

Aditya, thanx for the condolence. It was sad tale and the parents are a wreck....

[Javee]

I hear you TF. The day we installed a glass shower door (Sep last year), I was inside the bathroom, inspecting the fittings, the entire door crashed on me with a flash and a loud pop. It was toughened glass and I came with a small scratch on my back. Upon searching I found that I was indeed lucky because if it was not a toughened glass, I wouldn't been alive. It was amazing to watch glass break in to pieces, no sharp shards, just octagonal pieces.

[member_22733]

From here: viewtopic.php?p=1792170#p1792170

This was in response to my letter to the PM about
1. Forcing all jewelry shops to use card/cheque for transactions above 20k INR.
2. Removing transaction/service charges on use of ATM cards.
3. Making cheque as a mode of payment for all real estate transactions mandatory .

Unless above are done all talk about black money is just lip service.

How does (3) solve the problem? Part of the deal will go through cheque, part will go through cash in a suitcase.

[negi]

^ Sir beauty of Indian system is everything is before the gobmint but they do not want to add up the various pieces and find out the golmal.

1. Paying in cash is virtually impossible unless the gobmint pandu turns a blind eye which is the case today , reason being if you pay cash your property value on paper goes down so let's say property was 80 lakhs and you pay 30 lakhs in cash you still need to get 50 lakhs , if you take loan from bank bank will ask for proof of rest of the payment being made, so how will you show the payment proof of rest of the money ? Only way it might work is builder now undervalues the sale and shows that it sold the flat to you at 50 lakhs . Now this is where open daylight robbery happens if a builder has say 100 units to sell and he has to pay ST and VAT to gobermund on all 100 of them the gobmint can easily catch a golmal if all 100 are being sold at different rates not everyone is going to buy a 80 lakh apartment by paying 30 l in cash , some might pay in white too. The transactions are being captured against the builder's TIN so everything is in the system.

2. Now let's say builder has found a way to still fudge the books and manage to collect cash and yet keep records clean by maintaining required funds in bank to show to the gobmint , question is what will the builder do with the black money stockpile if the market itself was forced to use white ? I personally know how hawala in India and Bangalore works, go to any jewelry shop the locker which they have backdoors has a truckload of cash , now what they do is use it to generate more money , how ? Builder A in Blore has say 10 crore in cash stockpile and he now wants to dispose that money , a part will be done in form of cash payments to workers and staff but remaining has to be moved somewhere else this is where jewelry shops come into picture they charge 1000-4000 INR per lakh for moving money within India, you give them a crore and their contact in other city will deliver 1 crore to your destination , there is no physical movement of money and it's fast and reliable. Now if you force jewelry shops to use cards or cheques their cash stockpile and ability to move money will dwindle.
Currently if you go to your home branch and wish to deposit say INR 10 lakhs in cash they happily oblige after you give a letter saying that you sold your car/property with a PAN and money becomes white. Banks should start levying a charge of about INR 5000 per lakh of cash being deposited in their banks under an individual's name , corporate accounts can be handled separately . Bangalore's landlords are collecting their rents in cash , deposit the same in banks under their wife's or mother's name and refuse to share their PAN with the hapless tenant , they are not only evading tax but also injecting cash into the black money market.

If banks stop accepting large cash deposits or start levying a meaty fine on those we will make a decent dent on source of black money.

I have dropped an email to RBI chaps and suggested that they should evaluate a directive about levying INR 10000 as maintenance fees for every lakh being deposited in cash, this will discourage people from asking for payments in cash the chain will be broken, today a builder with a 10 crore cash stockpile disposes of it in form of payments to workers, hawala via jewelry shops if the smaller fish are penalized for taking cash they will force bigger fish to issue cheques instead.

[arshyam]

^^Excellent post Negi saar, didn't know about the jewellery store connection. Personally, I think the black money stashed abroad is a bogey, the problem is within the country - land and jewel sales accounting for a bulk.

[a_bharat]

Why can't govt simply replace/ban Rs. 500 & 1000 notes and give a time of say 1-2 months for citizens to deposit old notes in banks -- Aadhar-linked accounts? Deposits greater than Rs. 50,000/- will have to be accounted for in IT returns, or, some flat tax of 20% can be levied, no questions asked. Brings in a lot of money into the banking system.

[negi]

^ 500/1000 is not a big amount banning them is an extreme step and will work only in an ideal system. Unorganized sector and daily wage workers are paid in cash only and they are about 30-40% of India's workforce or even more .

Besides above will hurt the people at the lowest base of the pyramid and will be counterproductive, we need to put in measures to hit the top of the food chain i.e. jewelers , builders , businessmen, petrol bunk owners and raw material dealers who deal in cash.

If you book a railway ticket or even a movie ticket chootiy@s ask you to pay a convenience charge of INR 50 or more on online transaction but if you go to the platform or to cinema hall and pay in cash or card they do not levy that charge , I for one don't know who is the mofo who came up with such an absurd rule.

In every jewelry store be it Bhimas , Abaran or PC they will say saar x% charge on card transactions, not only cash transactions are free of charge but they will reduce the making charges for you if you pay in cash . Fat kats walking into jewelry stores with suitcases and paying in cash is a normal thing .

It is the big and powerful ones who encourage use of cash since they deal in huge volumes a small time grocery shop owner cannot afford to give anyone a discount if you pay by cash instead of card .

Some small clinics and Doctors in Bangalore also ask for payments in cash for obvious reasons, landlords take payment in cash and do not give their PAN card to tenant so latter gets screwed from two sides and former makes an additional income and does not even declare it . All these can be stopped only when banks stop taking huge amount of cash deposits from individuals or levy a hefty charge to discourage them from doing so.

[Vikas]

Negi, Most of the Black money never enters into the Banking system. It stays behind iron gates and lockers. I know upteen number of people who sold off their properties and then kept the 'Black' cash component in bank lockers till they bought next set of property and paid this cash as black money.

[negi]

^ Well point is at some point in time it gets back into the system , which is mostly via big volume dealers i.e. jewelers and builders you go after them you force people to move to cheque/card .

[putnanja]

In places like Bangalore, you can't undervalue a property too much. The government fixes base prices for property on a per sqft basis for each area. That is typically around 10-20% less than market value (at least it was 10 years back, not sure now). So you need to show that much amount at least as value when registering. The government did this so that people won't undervalue property and pay less property tax. But yes, that 10-20% margin is still there.

The problem with cheques is that it is not real time like credit card. The store needs to wait for it to be cleared before they will give you the goods. Like negi said, many shops charge you 2-2.5% as transaction costs as that is what the credit card companies charge them (thats how credit card companies/banks/visa/mastercard/amex etc make money). Government doesnt want to pay that, thats why in railways, you need to pay extra charge. But along with it, many shops will offer you more discounts if you pay in cash, and this happens in even big electronics stores etc, not just neighbourhood shops.

If govt wants to bring in cashless transactions, they need to change cheque system to that like debit cards, where it is real time. And also reduce the credit card transaction fees. Visa/Mastercard won't reduce it, but since RuPay is supposed to be cheaper, they should offer less transaction fee to merchants.

[a_bharat]

^^
Credit Cards usage should be distinguished from that of debit cards. Debit card payments should have zero or very small transaction fee as there is no credit risk associated with debit card payment.

[negi]

Putnanja I am not talking about 1.5-2 % charge that is hardly a big component and most of the merchants eat that, I am talking about additional charge on top of that for example if you buy a ticket for movie on internet you pay a convenience charge of about INR 50 now that is a huge amount for 2 tickets worth 550 INR.

Coming to guidance value of a property that is again a big joke , so this November Govt. revised guidance rates but the market rates are still at least 50% more than that figure.

[Sachin]

A quick question to the real-estate experts here. I have a flat (purchased on a loan from a bank), in which at the moment I am the sole owner. The original sale deed, is off course kept in the bank custody. I now want to include my wife also as the co-owner, for all legal purposes.
1. How can this be done? I don't know if a sale deed can be modified as the sale has already been completed years back.
2. What would be the other document, which can be used to clearly state that in the flat, my wife is also a co-owner.
3. In the land revenue records, it is shown that I own "partial and inseparable" (??) share on the land. Should I make a correction there, to make it "I & my wife"? And in doing this, should I get any approvals from the bank which has given me the loan.

I do have motive for doing this. If I do this, my wife can avail a bank loan and much cheaper interest rates, which the current bank cannot any way give. The current bank (where I have the loan) also knows this. So they may try to scuttle my plans.

[disha]

A quick question to the real-estate experts here. I have a flat (purchased on a loan from a bank), in which at the moment I am the sole owner. The original sale deed, is off course kept in the bank custody. I now want to include my wife also as the co-owner, for all legal purposes.
1. How can this be done? I don't know if a sale deed can be modified as the sale has already been completed years back.
2. What would be the other document, which can be used to clearly state that in the flat, my wife is also a co-owner.
3. In the land revenue records, it is shown that I own "partial and inseparable" (??) share on the land. Should I make a correction there, to make it "I & my wife"? And in doing this, should I get any approvals from the bank which has given me the loan.

I do have motive for doing this. If I do this, my wife can avail a bank loan and much cheaper interest rates, which the current bank cannot any way give. The current bank (where I have the loan) also knows this. So they may try to scuttle my plans.

More pooch for you., yes the bank has the sale deed - but how come they force you from not shopping around for a better mortgage and while you refinance you can always add your wife as a co-borrower and hence as a co-owner in the new mortgage.

And what has sale deed to do with co-owning the property?

[Sachin]

More pooch for you., yes the bank has the sale deed - but how come they force you from not shopping around for a better mortgage and while you refinance you can always add your wife as a co-borrower and hence as a co-owner in the new mortgage.

The bank may not really use open force, but this bank is noted for delaying the process of handing over any thing, if it comes to pre-closure of loans. I don't think legally, they can stop me from doing that, but they can kind of delay things by going on go-slow mode.

And what has sale deed to do with co-owning the property?

I don't have that answer, and hence I asked for the experts . The actual procedure I wanted to know is:-
1. Can I make my SHQ the co-owner of the flat, which is currently in mortgage with the bank.
2. Do I require any approvals from the bank, if I wish to modify any other official documents (Katha, or Land records etc.) maintained at the Registrar office etc.
3. The procedure to get my wife the co-owner in the flat in all aspects. I understand each state would have subtle variations in how this can be done, so that is okay.

[Rupesh]

I don't have that answer, and hence I asked for the experts . The actual procedure I wanted to know is:-
1. Can I make my SHQ the co-owner of the flat, which is currently in mortgage with the bank.
2. Do I require any approvals from the bank, if I wish to modify any other official documents (Katha, or Land records etc.) maintained at the Registrar office etc.
3. The procedure to get my wife the co-owner in the flat in all aspects. I understand each state would have subtle variations in how this can be done, so that is okay.

1.Yes. Approval from bank will be required.
3. By a Gift or Sale Deed. You may have to pay stamp duty.

Try asking in http://www.magicbricks.com/Real-Estate-Forum

[A_Gupta]

http://www.livemint.com/Politics/NL7EbL ... ergen.html

A three-letter word is standing in the way of India and China opening up their real estate investment trust markets, which together could generate as much as an estimated $55 billion of listings: Tax.

Penghua Fund Management is putting the finishing touches to a trust with REIT-like characteristics, which will be the first of its kind to list in China as early as September. Indian Prime Minister Narendra Modi’s government in February announced tax changes in its budget to allow developers to set up REITs (Real estate investment trust) and help boost construction.
...
...
Removal of double taxation and a waiver of duties while injecting assets into the trust are needed for REITs to attract investors, Singapore-based Tiong said.

Property-broker Cushman and Wakefield Inc. estimates that India could reap as much as $20 billion of potential listings and China as much as $35 billion.

[negi]

Sachin is this property under construction or you already have taken possession and also registered the property in your name ? If it is the former then it is very easy , get a NOC from builder that states that it is ok to add your wife's name to the assignment letter , give that to the loan issuing bank and ask them to add her as a co-owner. They should agree to this with additional processing fees. Once this is done you can use new agreement to get a better loan rate from another bank in your wife's name . However if the property is already registered then it might be tricky as it involves the gobermund.

Btw if I am not wrong isn't the difference a bit too small ? My current loan rate is 10% however if I would have taken it in wife's name it would have been 9.9 % so only a 0.1% difference , so financially alone this is probably not worth all the hassle.

[kenop]

Case:
A x sqft row house (plot area 2x) built 20yrs ago is being sold at the market rate (P) for a new flat for same area (x sqft)
Additional info:
1. Good locality
2. The price of a plot of same area will be available in the market at P/2. No guarantee that a plot IS available in the same locality.
3. That makes the construction cost = P which is exorbitant by any standards (definitely considering it is 20yrs old)
Doesn't look like a good case to purse.
Correct ?

[negi]

^ Depends on multiple factors

1. Is the per square feet rate at par with the current trend for the city ? The real estate mkt has slumped in last 6 months.
2. You said row house so is it the corner one and specially the one which does not meet the main road but is at end towards the boundary wall of a gated complex (I assume this is a row house within a gated complex) ? Does it have extra open spaces adjacent to it as against the other houses in the same complex ?
3. 5 years down the line will a high rise come up within 30-40 meters from this house and block the sunlight on your terrace/balcony ?
4. The current house can it be re-innovated and used again or you wish to bulldoze the entire structure and make a new one from scratch ? If it is the latter factor in the real cost of breaking it down and disposing the junk. Add that to your construction cost 'P'.

Lastly for your point '2' "The price of a plot of same area will be available in the market at P/2. No guarantee that a plot IS available in the same locality."

Do you see this place retaining it's central or good location in next 15-20 years ? I mean if you are in a metro then chances are that in next 10-20 years a lot of new areas will become equally well connected if not better are high so if you are getting a plot of same area at 'P/2' you might want to actually buy either a bigger plot for P or buy the same sized one for P/2 and keep the money for construction or investment . Again it all depends on the locality say if the choice was between say Vasant Vihar in Dilli vs some place in Noida or say Jayanagar first 4 blocks or HSR 2nd block vs some place in Sarjapur or E city then you would want to stick to your first choice .

[Sachin]

Sachin is this property under construction or you already have taken possession and also registered the property in your name ?

It is already got completed, and I have taken possession.

give that to the loan issuing bank and ask them to add her as a co-owner. They should agree to this with additional processing fees
....
Btw if I am not wrong isn't the difference a bit too small ? My current loan rate is 10% however if I would have taken it in wife's name it would have been 9.9 % so only a 0.1% difference

Unfortunately my gambit failed. My SHQ works in a public sector bank. And for employees they have a lesser rate of interest, and that too simple interest. So I tried to get my wife also as the co-owner. For that, the original documents from the current bank had to be received and re-registration done. The current bank by then knew what I was up to. That I would close the loan with them, and then move the loan to SHQ's bank. And when they knew that I had to make my wife the co-owner, they flatly refused. SHQ's manager then sheepishly tells that she assumed that the flat had both of us as co-owners. After burning my fingers, I used my own channels to get more information. The bank does gives out loan to its employees at lesser interest rates and simple interest, but even the house/land purchased cannot be that of a close relative.

[kenop]

^ Depends on multiple factors

1. Is the per square feet rate at par with the current trend for the city ? The real estate mkt has slumped in last 6 months.

Current trends

2. You said row house so is it the corner one and specially the one which does not meet the main road but is at end towards the boundary wall of a gated complex (I assume this is a row house within a gated complex) ? Does it have extra open spaces adjacent to it as against the other houses in the same complex ?

It is in the middle of its row. Some space in front and rear. Parking space can take a sedan and a scooter.
All the plot are in the range of ~1200 sqft with built-up area ~1200 leaving 600 odd sqft area on the front and back.

3. 5 years down the line will a high rise come up within 30-40 meters from this house and block the sunlight on your terrace/balcony ?

No

4. The current house can it be re-innovated and used again or you wish to bulldoze the entire structure and make a new one from scratch ? If it is the latter factor in the real cost of breaking it down and disposing the junk. Add that to your construction cost 'P'.

If it was a plot with each house having space around, one could have done whatever one fancied.
There are common walls as the complex was constructed by the builder (houses were sold not plots)
Theoretically, buying same size plot in the same area at current market rates and building would be cheaper than the price of this built unit.

Lastly for your point '2' "The price of a plot of same area will be available in the market at P/2. No guarantee that a plot IS available in the same locality."

Do you see this place retaining it's central or good location in next 15-20 years ? I mean if you are in a metro then chances are that in next 10-20 years a lot of new areas will become equally well connected if not better are high so if you are getting a plot of same area at 'P/2' you might want to actually buy either a bigger plot for P or buy the same sized one for P/2 and keep the money for construction or investment . Again it all depends on the locality say if the choice was between say Vasant Vihar in Dilli vs some place in Noida or say Jayanagar first 4 blocks or HSR 2nd block vs some place in Sarjapur or E city then you would want to stick to your first choice .

It will remain central for long time.
The idea was to fund this transaction by selling a flat in the same locality for A and taking a loan of A/2.
A friend says it is better to buy a plot/row house 5+ km away from this location and still get a better (new) house built on bigger plot. He is in the process of selling his 25y old house on a ~5000 sqft plot for a price that seems to discount his construction (effectively getting paid for the land at market rate).

[Bade]

305 cities and towns identified for building homes under ‘Housing for All by 2022’ mission
Read more at:
http://economictimes.indiatimes.com/art ... aign=cppst

Of the cities and towns identified, 74 are in Madhya Pradesh, 42 in Odisha, 40 in Rajasthan, 36 in Chhattisgarh, 30 in Gujarat, 34 in Telangana, 19 in Jammu & Kashmir and 15 each in Kerala and Jharkhand. The other states that have signed the MoA include Andhra Pradesh, Bihar, Manipur, Mizoram, Nagaland, Uttarakhand.

[Bade]

Virupaksha wrote:
There should be low wealth tax (0.5-2% at most) and moderate inheritance tax, with minimal loop holes.

vera_k wrote:
Wealth tax is on the books. But it is not enforced very well.

As a technical matter of implementation, all property owners could be served notices to pay wealth tax based on circle rates, unless they can show the property is self-occupied or rented out. But given the corrupt bureaucracy, that will simply enrich government officers.

It would be better to invest in IT systems to detect who has property that is not being productively used by correlating utility bills and rent receipts. Over time that will start bringing more revenue and also make more homes available to rent.

^^^ The cost to rent is more than leaving the units empty in India. When compared with the US rental market, the returns are nowhere close to 5% ROI to enable a tax rate of 1%. In most tier-2 towns the rents are low more like 1% of unit cost to own.

Some form of inheritance tax can be imposed to check RE hoarding perhaps.

[Theo_Fidel]

Not to mention the cost to repair when the renters damage your house. Home insurance refuses to pay as the law does not require them to. I had lakhs worth of damage done and took months to get the damge repaired, since then one more unit in chennai has been off the market..

[Bade]

That too and the time taken to get repairs done. In my limited experience renting my old home in the US, the turn around time was 2 weeks only. The old tenants (UG students) even fixed the minor repairs themselves to get their security deposit back and found for me tenants at no cost for the next year since no one wants to rent to UGs for fear of partying. As long it pays my mortgage fine for me.

Renting in India otoh is a pain in the rear.

[negi]

^ What nonsense tell me how much deposit do you guys take for renting your house in the USA ? In Bangalore we pay 10 months rent in advance , in Mumbai it is about 3-6 months same is the case in Chennai. In USA the max advance I ever paid was 2 months rent and you get your rent back if there are no damages , here forfeiting one month rent is a norm.

[negi]

The rentals for a 2bhk unit in a good complex in Bangalore are north of 20k INR per month figures are similar for Chennai , South Bombay is out of reach and navi mumbai the figures are similar for a complex with good amenities . These properties were launched at around 30 or at most 40 lakh per apartment .

[Bade]

In the US it is one month's rent as security deposit. In India it is two to three months too at a minimum. This is due to the damages done by renters in India, more as an insurance.

[vipins]

Real estate bill: All changes by Rajya Sabha panel accepted

The developers pay only 2-3% interest in case of default on their part but the consumer pays 16-18% interest for his default. The committee said in its report: "The interest rate payable by the promoters as well as by allottees shall be same in eventuality of any default by either of them." The select committee not only reinforced the penalty provisions of up to three years' imprisonment proposed by the government but also introduced imprisonment clause for a realtor failing to abide by the ord ..

[Suraj]

All You Wanted To Know About The Real Estate Bill

So what does the Bill have to offer? The real estate market in India is an excellent example of information asymmetry where one side has much more information than the other. In this case, the real estate promoters and the real estate agents have much more information than the home-buyers. Even getting something as basic as the going price of an apartment in a given area is very difficult.

These consumers were unanimous in their submission that they have no means to know about the real status of the project for example whether all the approvals have been obtained, who is holding the title of the land, what is the financing pattern of the project and what has been the past record of the builder etc.? As a result, they invested their money without having any information about the project. In many cases, they were not given what was promised to them and in almost all cases the project was delayed.

The Bill seeks to tackle this information asymmetry and the fact that the real estate sector does not have any single regulator regulating it. The Bill talks about setting up of a real estate regulator (Real Estate Regulatory Authority to be very precise) in every state and union territory. A real estate promoter needs to register a project with the real estate regulator before he starts selling or advertising it.

Projects with the area of land proposed to be developed exceeding five hundred square metres or where more than eight apartments are to be developed, need to be registered with the real estate regulator of the state they are based in.

The application to the regulator needs to be accompanied with details like the real estate projects already launched by the real estate promoter in the past five years. It also needs to be mentioned whether these projects have been completed or are still under development. If the projects have been delayed, the reasons for the delay need to be mentioned.

Over and above this an authenticated copy of the approvals and commencement certificate from the competent authority also needs to be submitted. Other important details like land title, the layout plan for the proposed project, the location details of the project, also need to be submitted to the regulator.

After an approval is granted by the real estate regulator, the real estate promoter will have to upload all these details on to the website of the real estate regulator. Any advertisement of the project should have the precise link to the project details as well.

At the time of booking and issuing an allotment letter to the buyer, the promoter needs to make available to the buyer, the time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation and electricity.

Many real estate companies over the years have sold homes without the basic amenities in place. In some cases, housing societies have even lacked a water connection and have needed to get water delivered through water tankers almost on a daily basis for years. The Real Estate Bill hopes to correct this. It also hopes to correct the information asymmetry that prevails in the sector up until now.

The Bill also allows any real estate buyer to file a complaint against the real estate promoter or real estate agent with the real estate regulator in case any violation of the provisions of the Bill as and when it becomes an Act.

A major problem with the sector has been a delay in the delivery of homes. One of the major reasons this happens is because real estate companies announce a new project, raise money and then use that money either to complete an earlier project or pay off debt.

This has led to a situation where many projects have been delayed endlessly given that the trick of starting a new project and raising money doesn’t seem to be working anymore. The Bill seeks to correct this situation. The real estate promoter needs to maintain 70% or “such higher percent, as notified by the appropriate government” of the amount raised from the buyers of homes, in a separate bank account.

This money can be only used for the cost of construction and can be withdrawn by the real estate promoter in proportion to the percentage of completion of the project. This is one of the major clauses in the Bill and if implemented correctly can bring huge relief for the buyers. Further, up until now the buyer while buying a home had no clue about what exactly was the area that he was paying for. The Bill defines the term carpet area exactly as –

….“carpet area” means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment…

Again, if implemented well this clause can bring huge relief to home buyers.

and
One Reason Why The Real Estate Bill Is Likely To Fail

Among others, AW Rabi Bernard of the AIADMK and Naresh Agarwal of the Samajwadi Party dissented to the report submitted by the Select Committee of the Rajya Sabha to which the Bill had been referred to in May earlier this year.

Agarwal in his dissent note said that-

Central government cannot enact any law on the subjects relating to the States and if it does so, it would be treated as interference in the jurisdiction of the states.

Bernard makes a similar point in his dissent note when he says that the central government should have sent the Real Estate Bill as a model bill to the states which could have then enacted their own bills to regulate the real estate sector. Bernard also said that the Bill casts undue responsibilities on the state government. If cooperative federalism is the way forward, then this clearly is not a bad idea.

The broader point which dissent notes of both Bernard and Agarwal make is that real estate is a sector which needs to be regulated by the state government. In fact, the Bill envisages the same thing. It calls for a real estate regulator (the Real Estate Regulatory Authority to be very precise) to be set up in every state and union territory. And ultimately the success of the Bill as and when it becomes an Act depends on how seriously the respective state governments implement it.

Further, the Select Committee of the Rajya Sabha met the real estate promoters during the course of deliberating over the Bill. In their submission to the Select Committee the real estate promoters were critical on “the delays caused in obtaining the various approvals before starting any real estate project”. Some of the real estate promoters pointed out that it took years to obtain necessary approvals. This ultimately delayed the project and added to its cost as well.

The promoters also told the Select Committee that they should not be held responsible for delays in handing over homes on account of inaction or delayed action of the state governments.

While I have no soft corner for real estate promoters but this is indeed a genuine problem that needs to be sorted if home-buyers need to receive homes they have bought on time. As a recent news-report in the Mint pointed out-

Developers need about 54 to 60 approvals before starting to build, a process that can stretch on for years. They need permissions ranging from an “Ancient Monument” approval to ensure that no monuments of historical significance are near the proposed project, to clearance from the Tree Authority, which must ascertain how many trees, if any, will be cut as a result of construction.

The Select Committee of the Rajya Sabha in its report talks about single window clearance from the state government to facilitate development of the real estate sector. And how will this be achieved? Section 32(b) of the Bill talks about the real estate regulator in order to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector, should be making recommendations to the appropriate state government on creation of a single window system ensuring time bound project approvals and clearances for timely completion of real estate projects.

I guess there is nothing beyond this the Real Estate Bill can really do. So it ultimately boils down to the state governments whether they are in the mood to give a single window clearance for real estate projects.

Its passage is delayed:
Government decides to postpone passage of Real Estate Bill to next year

The real estate Bill, which had cleared all hurdles including parliamentary committee scrutiny and Cabinet approval, won't be passed in the ongoing winter session of Parliament, delaying one of the government's key reform initiatives.

Facing formidable opposition in the Rajya Sabha and persistent disruptions, the government has decided against moving the amended Real Estate (Development and Regulation) Bill in the current session and will seek to get it through parliament next year, said people aware of the development. The government wants to use the remaining two days of the session to push through other crucial legislations that are not controversial.

The real estate Bill is likely to be challenged by the Opposition, even though the government has sought to incorporate its suggestions.

[vina]

In India, the loan risk is entirely in the hands of the bank issuing the loan, and therefore you have the 9-10% rates. Even the US would have much higher rates without the backstop and guarantee provided by GSE.

Not entirely true. You do have the NHB in India. But yes, the market is not as deep as the "Agency" securities in the US. But notice, that this entire US structure was controversial to say the least even before he 2008 meltdown and people were warning (including my B. School prof who was pretty vocal about it) the status of the "Not Sovereign " status of the the agencies, and the issue of picking up the credit risk of non sovereigns and the attendant consequences of the "agency mismatch" problem. All that was prescient and was shown up starkly in the 2008 crisis.

In addition the US RE market has huge homogeneity (atleast within areas), have far fewer "issues" (in terms of just legality of title and asset , and ownership thereof) , is very organised and hence amenable to securitisation.

In India, there are very few assets like that .Though you do and can securitise the lending portfolio of Housing Finance institutions .