Need of regulatory authority for Real-estate in India?

May 30, 2009 at 2:52 PM Leave a comment

Introduction

The major reason for the failure of US government in containing the spread of Subprime crisis was the absence of a regulatory authority, which could have made a systematic study of real-estate fundamentals and thereby could have possibly assisted in the recovery of the entire economy by providing inputs. White-House-For-Sale

 

Today the entire world has seen the impact that one nation can have over the others and despite the collapse and recovery of global markets, every nation in its best interest is putting in consistent effort to recover the depression in the economy.

 

In India RBI for Banking, IRDA for insurance, NABARD for agriculture, SEBI for stock market, UGC for education, TRAI for telecommunication or any other sector which is open for business, Government agencies like the above mentioned have played an important role over the years in setting up the fundamental rules for successful functioning of these businesses while protecting the consumer interest of the people. However there are still many major sectors, in which the government intervention is felt, needed, debated, discussed but still never implemented especially in the case of real-estates.

 

Cutting the long story the government must pay an immediate attention in stabilizing real estate sector through a formation of a regulatory authority that can be a competent body to control and regulate the real-estate related concerns like taming the prices, discouraging monopoly and other unfair practices in business.

us subprimeThe private players in the real-estate in order to fill their kitty are elevating the price of real-estate properties to sky-high in the name of investment, making it impossible even for a common man or even an institution to afford for a dream property without depending on the cash lending institution like banks and others.

 

 

Subprime Crisis in the case scenario in India

 

Though the economic analysts are of the view that the global depression of 2007 will have a lesser impact on Indian economy, with all due respect I would defer from being so optimistic as the possibility of private companies (one of the major employers) resorting to job-cuts is still a very much a possibilities in India, if not a reality.

Most of the pillar industries and others in India are very much dependant of foreign collaboration and FII or other international investment. So if foreign investors pull out with their investment from India, the Indian companies might have to resort to job cuts to reduce expenditure. Job cuts will raise the number unemployed individuals in the country who may eventually turn defaulters towards the banks; more over this will also see an impact on DDI (Domestic direct investment).

sub prme crisis usaThe banks with little option may have to resort to repossession of properties from their clientele for default in payment and this practice may extend all over the nation (on case to case basis). When people are not interested in real-estate possessions it will bring the property prices to a rock bottom or being optimistic to their fundamentals. In any case the economy of the entire nation will feel the crunch as land is an essential and heavily invested factor of production.

 

Significance of a Regulatory authority in Real- Estate Sector

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  • A regulatory authority can either be government represented body like the RBI (Reserve Bank of India) or Independent body like the AMFI (Association of mutual funds in India). 

 

  • Irrespective of any structure the organization must be empowered to outline a framework and structure to its members.

 

  • It must also educate its members as well as the common man in a proper manner to take an informed decision.

 

  • The regulated body must also be able to impose sanctions on a member for non-compliance to its rules.

 

  • It must also be able to keep the price of the properties at constant and fundamental values. Recognition must be giving for the price range fixed by this regulatory body, so that the competition and competency is not affected at the same time speculation on real-estate deals is averted.

 

  • Mandatory eligibility criteria must introduced at entry level so that land sharks and land grabbers along with opportunistic traders have less scope for creating unwarranted speculation in the real-estate sector.

 

  • It can also function as an advisory council for the governments both at state and central level assisting them in the formulation of economic policy.

 

  • Just like any other regulatory body it must encourage, entice and affiliate its member for following the best business practices in the industry.

 

  • The Body must function on par at corporate-levels and must professionally its operations.

 

  • Over a period of time it can also undertake studies with its international counterparts so that the bar of standard can also be raised at the same time this regulatory body gets a world over recognition.

 

 

Impact and Conclusion

  

16slde6Despite of the corporate existence in the country, real-estate still is among the unorganized sector due to the absence of a code of conduct in the business. Organized business sectors provide transparency in business transaction as there is a systematic procedure for dealing at every phase; hence there is a less scope for illegal operations to take place. But the realtor price has sky rocked due to the loophole in the systems; moreover every other person involved in illegal or anti-national practice invests a great deal of “Black money” in properties as it is regarded as a “Blanket investment”. Institutional involvement in asset misappropriation was also seen in the case of former Satyam Chief Ramalinga Raju’s account. Such kind of investment goes unnoticed by the government authorities while scrutinizing an individual, group or an institutional account because of manipulative paperwork’s. But a ordered regulatory system can easily fill all such kind of escape routes for the undesirable transactions.

 

Realtor has become a safe haven for the presence of “Land grabbers” or “Land Sharks” who form an unconventional medium between the buyers and seller. These anti social elements can be totally erased from the realtor system due to assessment and accountability from the regulated body.

 

The implementation of this system can impact the overall economic system as well, on one hand the industries can retain their profit margin regardless of reducing the cost of production, and on the other the consumers will have a less burden of inflation as a result of cheaper commodities.

 

If and when a regulatory body for real estate comes into existence, Indian economy can have a faster revival since the price of the real-estate and infrastructure directly corresponds with the cost of the output. Further when the price of the land comes back to the fundamental levels it will also boost the industrial expansion and provide alternate job-opportunities for common man.

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Dr. Binayak Sen. – When Silence speaks…….

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