If India wishes to stay ahead in the economic race, there is a strong need to improve the regulatory environment to facilitate real estate development, the recent Ernst and Young report says
Commercial real estate was one of the worst-hit segments due to the recession, as demand from the IT/ITeS industry, which accounts for approximately 70-75% of the total demand for CRE, decreased significantly. This led to low absorption rates and high vacancy levels, with oversupply being witnessed in most micro markets. Office rentals declined by 30-40% from their peak levels in 2008. Overall, on a pan-India basis, the report says, the demand for office space is expected to total 180 million square feet by 2013, with seven major Indian cities - Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, the NCR and Pune — catering to 75% of the total demand.
But India scored low on the regulatory framework due to factors like unclear titles and the absence of a real estate regulator in the report.
It ranked fifth after China, the US, the UK and Singapore. China emerged as the best investment destination for real estate investment on account of fast economic growth leading to huge unmet demand for housing sector. But, the other three markets, the US, the UK and Singapore scored better than India on the composite index mainly because of their superior regulatory framework in the real estate market.
The report said a growing economy and favorable demographics, including a large young population, are the two strongest growth drivers of the Indian real estate market. Cities, the engines of the economic growth, are to a large extent defined by real estate development within them. The efficiency of business establishments and quality of life for countries' human resources are largely determined by the quality of real estate, the report points out.
Accelerated progress, both socially and economically, needs an environment conducive to growth, which can be fostered by good
real estate practices. If India wishes to stay ahead in the economic race, there is a strong need to improve the regulatory environment to facilitate real estate development, the report says. To make India a better market for investment in the real estate sector, the report suggested a slew of measures.
Creation of a regulatory body for real estate, The ministry of housing issued a draft Model Real Estate (Regulation of Development) Act (RE Act) in September 2009. The objective is to establish a regulatory authority for the development of colonies, residential buildings, apartments and other properties. As land, housing, the registration of chartered engineers and matters related to building bylaws fall under state jurisdiction, the ministry is presently framing legislation only for Delhi. The RE Act is a model act, proposed to be individually adopted by different states of India (with modifications where required).
The report said, while the objective of the RE Act is noble, the industry's practical and peculiar nature needs to be factored in while finalizing the legislation. It asked to ensure that the regulatory authority serves as a facilitator and not a hurdle or an additional approval body. This authority should play a significant role in organizing and lending credibility to the real estate sector by addressing sensitive issues like the procurement of quality material, project management, architecture, achieving a disciplined workforce, marketing and estate management, the report suggests.
Infrastructure status to housing , Foreign direct investment norms of minimum area of 50,000 sq metre and minimum capitalization of $10 million/$5 million should be relaxed in case of affordable housing.
Streamlined approval process, In India, more than 52 approvals are required for housing and real estate projects, which can take up to two years to clear, as several agencies are involved in providing clearances. As housing is a state subject, each state has its own set of clearance procedures. The concept of a procedural merger encouraging a single contact point for related clearances does not exist. In this backdrop, the report suggests the development of a time-bound, streamlined clearance process.
Prelaunch money , To avoid fly-by-night operators, compulsory licencing regulations for developers should be considered, the report says. The report also suggests the development of a mechanism to regulate the pre-launch money. In the pre-launch, developers sell a substantial portion of projects even before taking clearances from various authorities. Delays in getting clearances from authorities and inability of developers to deliver projects for which the pre-launch money has been collected may adversely impact consumer confidence. Therefore, the report suggests that developers should not be allowed to sell their projects unless they have the possession of land and concerned authorities have cleared the project plans.
Calculating the area of sale for a unit, Presently, there is no standard method of calculating built-up area in India. The definition of built-up area should be clearly laid down, stating whether the term refers to super builtup area, carpet area or any other accepted definition. As the calculation of built-up area is currently not standardized, the same unit can be sold with different area calculations. The adoption of standard area-measuring techniques, like those prescribed by the Building Owners and Managers Association International (BOMA) and the Royal Institute of Chartered Surveyors (RICS), which creates the Code of Measuring Practice, may be considered, the report says.
