The Union Cabinet has finally approved the draft Real Estate Regulation and Development Bill. Of course, the Cabinet approval in itself means little, since the Bill will have to be brought to Parliament for passing. And the way things are shaping up on the political front, it appears that this Bill too, will be bequeathed to the next government at the Centre for actual action.

Nevertheless, it is a beginning. And an encouraging one, since the Government has finally worked up the nerve to take on the powerful real estate lobby, which has managed to stall the Bill from progressing for nearly seven years now. For a sector which is not even formally recognised as an ‘industry’ — in fact, such recognition is one of the key demands of the sector — this is quite a feat.

The reason is not far to seek. The real estate sector is arguably the largest generator of unaccounted money in the economy. Since elections are the largest spending area of unaccounted money, it stands to reason that the links between the real estate sector and the political class are powerful, deep — and hidden.

This has been at the heart of the problems plaguing the real estate sector, particularly in the residential or housing part of the business. Commercial real estate is struggling with its own set of problems, largely of its own making — vaulting optimism, greed and an inability to recognise or acknowledge economic realities being only some of them. But outright fraud, misrepresentation, mis-selling and failure to adhere to contractual obligations — the bane of the residential sector — are a little more difficult to pull off in the commercial sector, since the buyers there have deeper pockets and are better represented professionally when it comes to protecting their interests.

Home buyers in India are an orphaned lot. Predominantly urban and middle class, they do not have the clout to get the political class to look after their interests, even nominally. And while they make up impressive numbers in the aggregate, the scattered nature of buyers, and the limited means at their disposal, have ensured that they remain isolated targets, easy prey for the sharks that infest the real estate waters in India.

The new explosion

The numbers tell their own tale. Organised real estate development in the housing sector, particularly the development of new townships and housing agglomerations by the private sector, is largely a post-2000 phenomenon. Spurred by a reviving, post-reform economy, growing urbanisation, and the creation of millions of well-paid jobs in the IT/ITES sector led to the creation of an entirely new class of urban consumer demand. With a little bit of policy help — notably, opening up of bank lending for home purchase, and the tax breaks given to the middle class home buyer, there was an explosion of new development.

These were good times for the real estate sector. Demand surged to such an extent that it far outstripped supply. Housing shortage in urban areas, estimated at 15.1 million units in 2001 by CRISIL, is expected to rise to 21.7 million units by next year.

And the situation is not going to improve anytime soon. According to CRISIL Research, housing shortage in India is estimated at 78.7 million units at the end of 2014.

Builders have reaped the windfall. Housing prices doubled in just two years between 2006 and 2008, one of the sharpest increases seen anywhere in the world, even in the midst of an extraordinary global bull run.

Policy easing during this period opening up the real estate sector for foreign investment, further fuelled the demand, as global money rushed to cash in on the insatiable hunger of the ‘ aam aadmi ’ for his very own roof over his head. Despite the consequent demand-supply mismatch, which led to a slump in both offtake and prices through 2009-10, has still only slowed the gold rush marginally. Over the past decade, average urban housing prices have risen more than 25 per cent year on year — as high as 30 per cent, according to some estimates. This has made any property buyer a paper millionaire overnight, while pushing new housing beyond the reach of most middle-class aspirants.

‘Affordable’ housing

The real estate sector, of course, claims that it has learnt its lesson, and that it is now focusing on ‘affordable’ housing. But the developer’s definition of ‘affordable’ is driven solely by price. It does not include ‘liveable’ among the parameters.

Hence, many of the so-called ‘affordable’ developments are also languishing for want of buyers, located as they are in far-flung areas where the basic infrastructure for urban living, as well as transportation and connectivity, is still a far cry.

Meanwhile, the Government’s policy focus has stayed firmly on the rural voter, sorry, buyer. CRISIL Research, for instance, expects housing shortage to decrease due to the Government’s thrust on improving rural housing by providing houses to the homeless under various development schemes and by enabling slum redevelopment programmes in urban areas under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), as well as the several financial incentives provided in various Budgets for rural housing and financing of such houses.

As a result, in the area of housing, the traditional urban-rural divide has been reversed. The overall housing shortage in India is likely to decline to 75.5 million units by the end of 2014. And for the first time in history, the total housing shortage in rural areas will be less — and even lesser as a percentage of population — than the total housing shortage in urban areas.

Resale market ignored

This is not a bad thing in itself. But with rising urbanisation and concentration of economic activity around already mega-sized urban agglomerations, the demand for urban housing is only going to grow. The proposed regulation does take into account some of the issues faced by retail home buyers, but leaves out many. For instance, the entire resale market is out of the ambit of the draft Bill. It is also not clear whether matters already in dispute can be referred afresh to the proposed new regulator, and so on.

It also does not address the issue of the role played by the Government itself — specifically, state and local governments — in the sector. Hundreds of buyers, for instance, are stranded in the NCR region alone, because the courts cancelled the forcible land acquisition by the UP Government.

Buyers who invested in projects located on such forcibly acquired land parcels, projects which at the time of sale had all the statutory paperwork in place like land deeds, approval of the civic authority, and so on, have been left high and dry. Will the new authority help them?

There are many more such issues, but the most glaring one is the absence of a proper policy for urban housing. Just because urban home buyers do not fit some imaginary, socialist construct which politicians can convert to electoral capital does not mean that they have become, to borrow some newspeak from novelist George Orwell, ‘unpersons’.

They too deserve policy attention and support. And it is high time the Ministry of Urban Development stopped behaving like its Orwellian counterpart!

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