The financial sector offers a different picture where regulators have been established to provide the investor protection against the malpractices of product promoters and brokers. The average investor parks a significantly lower proportion of savings in financial sector and products as compared to real estate.
While the Union government aims at making the real estate regulator a reality, which would also lay down guidelines for brokers.
Even as that is under process, the industry has come together to bring about some standards in brokerage operations. The earliest entrant in this field have been big banks and housing financing companies that have established subsidiaries in this space.
HDFC has an arm HDFC Realty and ICICI Bank has established ICICI Home Search who help prospective buyers choose a property and also verify if the developer whose properties they list have all the paperwork in place. There is, however, a limitation to their business model since they operate mostly in the primary segment (new constructions) and account for a small percentage of the brokerage industry.
Of late, there are global real estate service providers who have entered the Indian property brokerage market in a big way and have spread across various cities, and whose products are aimed at the average property buyer.
One such company is RE/MAX, that has completed five years of operations in India. It is an American company that operates in over 90 countries through its franchise model, bringing local real estate brokers in its network and providing them with upgraded training and skills at running professional brokerage operations.
Another recent entrant is Century 21, also US-based, that operates in around 75 countries. Other brokers operating on the franchise model such as Coldwell Banker Real Estate and Keller Williams Realty, both American companies that are making their push towards India.
The industry needs several changes. While brokers need to serve the interest of the consumer as against that of the developer, it is important that they are provided training and the government makes it mandatory for them to be certified and gives them licence to operate as real estate agents, said Sam Chopra, chairman, RE/MAX India.
The business model
According to industry estimates, there are close to 30 lakh people across the country who deal in the buying and selling of real estate, but only a handful of them have any sort of training and in the absence of mandated certification, choosing a broker is mostly a huge leap of faith. Usually the best brokers in most markets have offered good service and their reputation has been mostly through word-of-mouth.
The way real estate is getting sold in the market is not correct. There is no credibility of the broker and there is no relationship with the customer. Also, the agents are not adequately paid by the brokers, said Sandeep Singh Katiyar, CEO, Century 21 India.
RE/MAX and Century 21 operate on a similar model. They work towards bringing brokers across the country into their franchise network, provide knowledge, technology, branding and access to various markets for their clients. RE/MAX currently has a network of over 100 brokers across 35 cities in the country with plans of doubling it over the next two years. The company also runs a real estate academy where it has trained 2,000 brokers till date.
Century 21 plans to have a network of around 60-70 brokers over the next two years and then expand it to 350 in five years.
We provide the brokers with soft skills training, marketing, knowledge of the real estate industry and the market, provide them with customer relationship management tools and also create websites for them, said Katiyar.
On revenue front, these companies charge a one-time fee from the brokers for joining the network and then a monthly fee. They, however, do not look for a share in the commissions earned from a transaction.
But, in a bid to empower agents and attract good talent, they do push the brokers towards paying a higher share of the commission to the agents as against the traditional broker who gives a minority share of the brokerage to the agent. Under this model the agent gets anywhere between 60-90 per cent of the commission from a deal while the broker keeps the remaining 10-40 per cent.
We are looking to empower the agents and they can get up to 90 per cent of the deal commission, said Chopra.
What do they offer
Professionalism is one quality that is missing from this huge industry and global franchise owners working with a huge network hold out that promise. While that may be important, the fact that a broker is operating within a franchise model may give the desired comfort to the customer that he is not dealing with a local broker but with an organisation that has global footprint.
Since these real estate companies have a global presence and have network of local brokers in those geographies, they have the ability to serve the needs of an individual looking to purchase a property abroad or in a different city.
While there is hardly any protection for the consumer in the real estate sector barring the consumer forums or the courts, industry experts say that franchise owners can bring in international best practices and through their large network and customer base, can force the developer to honour their commitments. Another area where they bring their expertise is due diligence, which is not within the capacity of the individual home buyer.
We have already boycotted some developers and even forced them to refund the buyers for misrepresentation. We approve our broker network to sell a particular project only after doing the complete due diligence and if the builder commits a wrong, we do not approve their project in future, said Chopra adding that he asks developers to show all the papers of the project as a part of the due diligence.
Industry experts feel the entry of such franchise companies does bring about an impact in the market while engendering best practices though it cannot be a substitute to good legislation.
What experts say is that the real estate regulatory bill should address certification and licensing of brokers, in the manner that financial sector brokers follow rules and guidelines brought out by various regulators such as capital markets regulator Sebi and the insurance regulator Irda.
It is important that there is an examination for individuals who can be certified as realty brokers and there is a provision that they may lose their license or may face penalty if there are serious complaints against them, said Katiyar.
Some feel that the government also needs to keep an eye on the reason for sharp rise in the real estate prices. Underwriting of real estate is leading to hoarding of flats by large players who are creating an artificial scarcity of properties and jacking up the residential real estate prices. The government will have to look into this issue as this is on a rise, said Chopra.