Reins for realtors

S Anand,a resident of south Delhi,bought a flat in Greater Noida in 2006.

Written by Praveen K Singh | Published:March 21, 2009 11:56 pm

S Anand,a resident of south Delhi,bought a flat in Greater Noida in 2006. Even after paying 95 per cent of the cost of the apartment he has not received possession,which was due in April 2008. In addition,the developer has taken advance maintenance charges for two years,even though the contract cited that only one year’s charge was to be levied.

Vijay Kumar,a resident of Rohini,invested Rs 60 lakh for 1,000 sq ft in an IT Park at Manesar in Gurgaon which was yet to be developed. Later,Kumar learnt that the developer was not entitled to sell or lease space to individuals. It was only supposed to develop the space and rent it to IT companies,according to the terms under which land was allotted by Haryana State Industrial and Infrastructure Development Corporation. The cash-starved group sold space,illegally as it later turned out,because it needed to raise money for the project. The group has amassed several thousand crores from investors with the promise of handing over developed space in three years. Though the deadline has passed,buyers have not been allotted space. The group is also refusing to refund buyers’ money,saying that investors might re-invest it in the group’s other upcoming projects.

Anand and Kumar’s cases are only the tip of the iceberg in a sector where regard for customers is scant. In the absence of a regulatory authority,such malpractices go unchecked.

Contrast this with the financial sector. If you want to buy an insurance policy,only an insurance agent who has undergone training and been certified by the Insurance Regulatory Development Authority can sell it to you. Similarly,intermediaries in the share market and mutual fund industry have to abide by Sebi guidelines. However,no equivalent body exists in a sector where people make the most significant investment of their life — a house.


A number of stakeholders feel a regulatory body would bring greater accountability to a sector that sorely lacks it. Sanjay Verma,executive director,Cushman & Wakefield says: “Given its size,direct and indirect contribution to GDP,and potential for job creation,it’s vital that the realty industry gets a federal regulatory body.” He adds that care has to be taken to ensure that the main responsibilities include providing guidance on policy framework,resolution of stakeholders’ concerns,and consumer rights protection.

Advantages of a regulatory body are many. Sachin Sandhir,MD & country head,Royal Institution of Chartered Surveyors,India,says,“The regulator would monitor the implementation of projects. This would minimise the gap between what is promised and what is delivered. Introducing licensing of developers would also eliminate fly-by-night operators. As disclosure standards improve,developers would not be able to indulge in practices such as diversion of funds from one project to another. Regulation of the profession of property valuation would ensure that valuations are based on a set of uniform standards. This would address the issue of prices rising to unaffordable levels because of poor valuation practices.” According to him,all this would instil greater confidence among customers and investors.

Mittal says that the regulator would issue and renew licences. It will also rate developers,architects,contractors and real-estate consultants. It will lay down guidelines regarding brokerage that can be charged,and how purchase and rental deals are to be conducted. And it will put an end to practices such as pre-launches.

Sandhir has an alternative suggestion. “Until a regulatory body is set up,a pre-requisite for which would be enactment of the model regulatory bill for other states to follow,we can look at establishing a state-level arbitration body or ombudsman or an autonomous self-regulated body formed by industry associations,” he says. R K Mittal,CMD of CHD Developers,says,“There is a dire need for a regulatory framework and enhanced transparency. Such a body would help the sector evolve into one that is professional and well organised.” A task force constituted by the Ministry of Housing and Urban Poverty Alleviation also recently recommended setting up of a regulator.


Some developers contend that the sector is already regulated by several authorities,and one more regulator would only add to the number of approvals and permissions they have to obtain,and the red-tapism they face. Navin M Raheja,MD,Raheja Builders,says, “A number of bodies are already working on regulatory issues: the courts,consumer forums,Monopolies and Restrictive Trade Practices Authority,and other administrative authorities. Disputes could be solved through them.” He suggests that the existing regulatory bodies in states,such as DDA,DTCP,GDA and JDA should be armed with additional powers to resolve disputes in their region. “The current authorities should come up with provisions that deter unapproved projects and activities.” Some developers argue that having one more regulator would add to the level of corruption,the cost of which would eventually have to be borne by customers. Raheja says,“The benefit of a regulator would be that certain issues are technical in nature which can only be understood by technically qualified real-estate professionals. The regulator could also be used by some buyers to create redundant issues that would result in unwanted disputes.”


Since the issue of having a regulator first came up,real-estate associations within the country have been advocating self-regulation. R R Singh,director general of trade body National Real Estate Development Council suggests that the sector should form a self-regulatory authority in order to avoid government controls. “With representation from stakeholders such as the Ministry of Urban Development and the Ministry of Housing and Urban Poverty Alleviation,real-estate developers,and agencies such as the DDA,this body could regulate the sector,” says Singh. The government,however,is of the view that if there was effective self-regulation within the industry,malpractices would not have existed.


In 2007,the Ministry of Urban Development decided to set up a regulatory body for Delhi. For this,it decided to develop a model Real Estate Regulator Bill. However,since land is a state subject,the real-estate sector in states cannot be governed by central legislation. So it was decided that once this model legislation was in place in Delhi,the Central government would persuade all the state governments to emulate this. However,this bill is yet to be tabled in the Parliament.

Pointing to the practical problems involved in setting up a regulator for the real estate sector,Kumar Gera,chairman,Confederation of Real Estate Developer’s Associations of India,says,“Having a regulatory authority in India may be difficult because land being a state subject,there are widely varying rules,regulations and mandatory requirements from one state to another. Laws relating to land conversion,holding and transfer of land and buildings also vary from state to state. We therefore need clarity about what the precise role of a national regulatory authority would be.”

A few states have their own legislations aimed at regulating the real estate sector. One example is the Haryana Regulation of Property Dealers and Consultants Bill,2008,which stipulates that no property dealer can practise without a licence.

One hopes that the new government that takes office after the elections gives priority to passing the model legislation required for setting up a regulator in Delhi,and the states then follow suit with regulations and regulators of their own. l