In most state governments, this sector was the egregious epitome of political and bureaucratic corruption.
In public perception, the real estate sector is notorious, to say the least. Rather, a lot of persons will not hesitate to use all the bad words for the sector because of the many murky deals and developments associated with this otherwise economically-crucial infrastructure sector. It is because of the way it has been allowed to function.
In most state governments, this sector was the egregious epitome of political and bureaucratic corruption. When corruption is the norm or the necessary ingredient for state largesse, things will have to go awry. Real estate players could not have improved the climate. It is though true that many of the players also concentrated on maximising their profits, even at the cost (perhaps cheating) of plot/flat owners (perhaps a better word is applicants since most never became owners!).
During the heydays, one could hear a number of incredible stories of rags to riches in the ensuing fashion. A so-called estate developer will go in for an agreement to buy a piece of land. On the basis of this agreement, he will sell plots or flats and gets money, usually more than required for buying the land. A part of the sum received will be used to take the requisite permission (licence). Usually, this person will sell the project, basically land plus licence, at this juncture, making a clean killing. He was nowhere interested in constructing and giving the plots or flats to the applicants (by the way, most of these applicants were also investors). The actual end-users, who were really second or third purchasers, usually have no agreement with the initial licence holder and thus the court case anyway was between second or third purchaser versus second or third developer. Most of the bureaucratic (police included) and political patronage was available to the latter with his deft art of greasing the palms where it matters to him! Wherever, though in a rare number of cases, the association of purchasers also became powerful to flex their muscles to get the needful done from the developers.
The period was such that it was almost criminal to think that land prices can go down at any point of time. Therefore, when it actually happened, the world changed to such an extent that there was no contingent planning by any stakeholder (the government, the politician, the bureaucrat, the developer, the licence getter, the investor, the purchaser) for such a scenario. The scenario, however, varied from state to state, depending upon the degree of opaqueness in the licensing methodology and the degree of corruption in the system. The worst hit was the end-user buyer of plot or flat who, in a large number of cases, had invested all his savings (and even borrowings) with the investor/second or third-hand developer and was not getting anything in return.
It is surprising but true that the government withdrew itself from the scene, thinking that the two warring factions will sort out the things at their own level. A few issues did get sorted out, though in the process the end-use purchasers suffered the major part of the cost of settlement. Finally, as problems started compounding, the government intervened, surprisingly on the pleas from developers or on the directions of the court. These interventions till date have been half-hearted and without taking the views and concerns of the ultimate sufferers, i.e. the end-user purchasers.
To cut the story short, it is not an option for the government not to intervene in the matter. The pain of end-users has become palpably unbearable. Courts have passed many orders requiring state intervention. It is difficult for the developers to face unruly crowds. There are job losses due to stoppage of construction and issues concerning non-payment of wages to the employees working at these construction sites have piled up. Also, micro and small enterprises which acted as suppliers and low-end contractors are stuck with all their money and have become desperate, and the dues of state governments are mounting. However, even in this scenario, most state governments are indulging in the die-hard policy perfected by them, which is plain rent-seeking; hence, no comprehensive policy could come up.
What is desired is that the state interacts patiently with all the stakeholders. The mainstay of the policy shall be to help the end-users to get their dwelling units and to see that the planning process of the state does not suffer. At the macro level, the aim should be to give a kickstart to the sector as such, which is required, as a large sum (more than Rs 10 lakh crore) is held up in such projects, and many industries and the Prime Minister’s ambitious Make-in-India initiative is dependent on this sector. It has, however, been observed that the concessions being given or announced are not in the interest of end-user purchasers, but the developers’ lobby.
The need of the hour is proper implementation of the Real Estate (Regulation and Development) Act, 2016. Unfortunately, many states do not give positive vibes while finalising the rules. The independence of the functioning of the Real Estate Regulatory Authority (RERA) has been compromised. Almost all states have taken over power to appoint the staff to these bodies. Their promotion is also with the approval of the state government. In such cases, it might become difficult, if not impossible, for RERA to deliver the results it is expected to deliver. Obviously, it will be impossible for even an ace swimmer to swim in turbulent sea with his hand and legs tied up. The selection of personnel as chairmen and members of RERA will also highlight the intentions of the appropriate governments.
KK Jalan is Former Central Provident Fund Commissioner, EPFO, and Former Secretary, MSME.