Saturday, April 19, 2008

Regulatory Authority Needed in Real Estate

One of the most discussed topics among home buyers these days is whether there should be an authority in the housing industry on the lines of the SEBI, IRDA and FMC, the regulatory organizations of equity, insurance and commodities markets.

Builders and developers seem to have unbridled sway over the housing industry, which in fact is an asset class in itself. While trading in all other asset classes are regulated, it is surprising that the companies in the real estate business have absolutely no overseer.

It is not that regulatory authorities have a lot of bite, but over time they mature and do in fact regulate the market to a great extent. Have we not all seen how the BSE functioned, before Sebi came in to existence? There were always the usual threats, as there were by the brokers in those days, but they later all cooped up and went about doing their business.

Today, the real estate business looks like a concerted effort by all builders to hold prices, while acquiring cheap land from government. For the builders, this is certainly be as good as it gets -- they have become the new East India Companies of India.

Properties in Mumbai are being parceled off by the government to builders who are financed by foreign money. No harm in this, but when the end-result is properties being sold for speculation to those living abroad, who have no desire to occupy these flats, but who in turn rent it out to the hapless local masses, then something in the cycle is detrimental in nature. This trend has started to kill the city, and eventually will kill the market too. However, unless checked before it is too late, the entire city would have paid a hefty price.

These days, a person earning Rs 1 crore a year, cannot think of buying a 1000 sq ft home -- forget mentioning the word "decent" -- in South Mumbai, where properties of these sizes retail for Rs 6-9 crore at the lowest end. In places like Malabar Hill and Napeansea Road, one square feet costs Rs 1 lakh! Today it is cheaper buying a 2000 sq ft ranch in California than owning a hole in Mumbai.

If the city is out of bounds, affordability now means that affluent salaried families have to move out of the suburban limits completely. This means traveling hours to their places of work, but remaining marooned on the fringes of the city. A similar situation was seen in Japan, in the 1980's, the dismal consequences of which are very visible even today.

Truly, in comparison, the Indian home buyer was better off during the days real estate was fragmented with the underworld running the show. In those days, you would pay off black money to the builders, but were able to afford an apartment in a specific quarter of the city.

These days, the goondas are wearing suits, ties and slick shoes, carrying notebooks with Powerpoint presentations, and holding the people of the city at ransom. Ever since the realty industry has got organized and corporatized, it has slaughtered home buyers. Homes have become stratospherically unreachable in every corner of the city. In fact in the same area, homes can cost widelydifferent, without an iota of change in surrounding infrastructure. When a TV star cannot afford to buy a place in Mumbai, one wonders who is it that is buying homes in Mumbai.

We will need to see some quick and dramatic action by the government in setting up a regulatory commission for real estate. Builders are now saying that this will force them to take money in black. Is this not ridiculous that a builder-developer can actually accept this with impunity, that if the government brings in a regulatory commission, it is willing to commit a crime against the nation.

Really speaking, black money is accepted even today. The full check payments exist only for far-flung townships outside of the city. So, nothing really has changed. So, as far as the home buyer is concerned, it is high time we see a housing industry regulatory commission. If SEBI, IRDA, and FMC have done a good job in their respective industries, there is no reason why one cannot make a difference in the housing industry.





Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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