Given the rate of urbanisation and expansion of satellite cities, development activity in India is at an all-time high and is only expected to increase further in future, says Sachin Sandhir, Managing Director, RICS South Asia.
With over 600 million people expected to inhabit Indian cities by 2030, the shift to cities and urban agglomerations implies potential demand for quality real estate and extensive supporting infrastructure services in urban areas.
Despite this huge demand, with built environment (comprising real estate, construction and infrastructure) being the second largest employer in the country, the sector continues to be characterised by lack of regulation, transparency and a high degree of fragmentation. Resultantly, we grapple with numerous other challenges such as financial and liquidity constraints, loopholes in contract procurement and processing mechanisms, cost overruns, antiquated laws and policies, lack of enforcement and implementation of reforms etc.
All these aspects have collectively affected the ability of the sector to keep up with the evolving quality and complexity of real estate and infrastructure which has been advancing at a fairly rapid rate across global markets. Concrete steps need to be taken to reduce risk weightage of the sector in the eyes of lenders; improve credit worthiness to mitigate the lack of liquidity; and in the process instill consumer and investor confidence, thereby paving the course for a more reformed, regulated and transparent real estate sector in the future.
Therefore, gaining consumer confidence is an essential element in the creation of a healthy, transparent, efficient and competitive built environment sector. While state and central government agencies along with industry bodies, including developers, have realised the need to establish an effective regulatory mechanism, there is now a need to evaluate ‘successful models of real estate regulation and consumer redress’ and determine ‘which models work best’ in addressing and curbing fraudulent malpractices and safeguarding consumer interests in India.
Transparency is by far an essential and integral part of real estate practice. Not only does transparency serve as an essential tool for investors seeking international diversification of real estate assets, but also helps decrease some level of volatility in realty markets. The failure of creating ‘transparency’ thus far has damaged the development prospects of the sector and needs to be introduced on several fronts to have a holistic impact on all facets of real estate business and stakeholders.
In India, specifically, there has been a paucity of standardisation of real estate practices, due to which diverse approaches and processes exist. Differences in standards mean that there is less transparency in the system, which in turn is considered a risk. Resultantly such risks are viewed as ‘costs’ and are associated with higher costs of capital. The presence of globally accepted and relevant standards can help ease capital flow, a fact that several countries around the world have realised.
Given that markets the world over are intrinsically linked, realty markets too are becoming more global, advanced and efficient. Uniform standards across property and development lifecycles are being considered as important measures for efficient functioning of built environment markets the world over. In fact, standards even on a local basis have been realised to be extremely important by different stakeholders in the sector. Therefore, it is widely felt that awareness and introduction of internationally recognised and locally relevant best practices can contribute towards uniform practices and lend quality assurance and credibility to the sector.
Transparency also needs to be built-in with respect to government agencies and the development community. To this end, a reform in the building approval mechanism is crucial, especially given the extended timeframe within which a number of building regulation requirements and approvals are obtained, prior to which no development activity can take place. Therefore, a simple and efficient single window building approval process is essential in aiding the provision of quality development, especially in a country like India where there continues to exist a huge housing shortfall which requires supply to improve and also as infrastructural facilities continue to be strengthened.
From the customer’s standpoint, considering real estate is by far the largest investment that one will make during one’s lifetime, it is essential that developers disclose all relevant project information to potential buyers. It is only when developers make specific and true disclosures on the legal, financial and technical aspects of a property, that customers can make informed decisions on the same. We could look at adopting something similar to ‘The Home Buyers Report’, which is extensively used across the UK as a marketing tool to attract potential purchasers by providing them upfront information about a property’s condition and valuation before they even step foot in the property.
These reports help provide a holistic guide to the entire home buying process, right from choosing the property, to agreeing on the sale/purchase and financing the property, to the completion of the entire process. The report also helps identify problems with the property, ascertain the market value, help save money for consumers by ensuring one does not pay more than what the property is worth and whether it is structurally sound and if the property is actually worth the investment.
If the sector works collectively and effectively in adopting and implementing these and other practice standards which will aide in regulation and transparency, there is no doubt that we will move towards a more organised and robust built environment sector.