Real estate is among those rare economic sectors in which the aam aadmi feels like a stakeholder?owning a home, or buying a better home, is always an aspiration. But, sadly, the two most common metaphors applicable to real estate are bottlenecks and red tape. Now, what developers and buyers have known and felt for a long time has been clearly articulated by a major player, Deepak Parekh, chairman of HDFC. His letter to shareholders deserves wide discussion and, rightly, he addresses everyone: developers, consumers, financiers and the government. The problem for developers is legal and procedural complexity. As many as 57 government approvals are needed for a residential project. Many of these fall under the remit of so-called environmental regulations. In the name of protecting the environment, bureaucratic discretion has proliferated. The time delays and cost overruns are inevitably passed on to consumers, who face additional problems. They are not offered any warranty by developers and any disputes have to be settled through civil courts, which often take decades to reach a final verdict. Plus, there?s a lesson from the US: the subprime crisis has highlighted the need to keep a watch on commercial lending for real estate; credit watch is necessary, especially when times are good.
Parekh has a suggestion to deal with all these problems at one go: a real estate regulator. Let?s look at the idea in some detail. For one, land is a state subject; so there will have to be a regulator in each state. Even if there is an apex national regulator, the problem of multiple authorities and time delays is not solved. In fact, it may worsen, given the problem of inter-state coordination. Second, there is the issue of competence?can a regulator regulate developers, government, consumers and financiers at the same time? Perhaps, it is sensible to make a beginning with something simpler. The government must reduce the number of clearances required and introduce greater transparency by reducing discretion. Financiers should be encouraged to follow sound prudential norms, learning from the US subprime crisis. That leaves consumers: perhaps the ministry of consumer affairs could bring itself out of oblivion to protect their interests. And let thinking evolve on the proposed regulator in the meanwhile.
