By Anuj Puri, Chairman - ANAROCK Property Consultants
As India embarks on another year of independence, the country's real estate sector has a lot to be grateful for, a lot to hope for - and still a lot to worry about.
Amidst the dual challenges of liquidity crisis and stuck projects that hang like persistent thunderclouds over the sector, we nevertheless inch closer to the ultimate goal of Housing for All by 2022.
From the viewpoint of stuck and delayed projects, the freedom to buy homes has turned into shackles for many. Over 1.74 lakh homes in 220 projects across the top seven cities are completely stalled. Housing worth over INR 1.77 lakh Crore is in limbo with zero construction activity.
The affected buyers exercised their freedom - only to see their hard-earned money imprisoned with scarce prospects of parole until recently.
Nevertheless, this state of affairs is not unilateral and countless more Indians have indeed successfully achieved freedom from rent. Though not nearly as fast as can be hoped for, housing sales are picking up. In sharp contrast to earlier years, the Government has now given affordable housing a distinct identity and several valuable incentives.
The year 2019 also saw rental housing being given its first tangible push. After decades of languishing in the dungeons of obsolescence, India's rental laws are being unfettered with an upgrade in the Draft Model Tenancy Act, 2019. Finally, the trust deficit between tenants and landlords can be bridged and both parties' rights and obligations are being clearly defined.
The most recent Consumer Protection Bill, 2019 promises to unleash a brand-new level of freedom to consumers - the freedom from misleading promotions. RERA had already clearly defined the acceptable from the unacceptable when it comes to real estate promotions, and this bill adds further muscle to consumer rights.
The era of misleading and/or inaccurate promotion of housing projects – including by celebrities - without fear of legal backlash is finally coming to an end.
And, finally, buying real estate in Jammu & Kashmir is actually something people from outside this long-disputed region will be at liberty to consider – once the dust of change settles.
However, for all the silver lining, the thunderclouds that overshadow the real estate sector on India's 72nd Independence Day cannot be dispelled by mere positive thinking. Real solutions are called for.
Way Out? The NBFC crisis in late 2018 hit the already-ailing realty sector hard and brought whatever optimism and growth the residential segment was beginning to see to a screeching halt once more.
With minimal customer advances, the construction of several projects got stalled. Despite developers having all necessary approvals as well as the will to complete them, lack of funds held the entire situation hostage. End of the line? Not quite.
The Government is taking a series of steps to bail out the NBFCs. Union Budget 2019 made several announcements in support of financially sound NBFCs, few as they may be, in these turbulent times:
To purchase high-rated pooled assets of financially sound NBFCs, amounting to a total of INR 1 lakh crore during the current financial year, the Government will provide one time six months’ partial credit guarantee to Public Sector Banks for first loss of up to 10%.
To allow NBFCs to raise funds in public issues, the government has done away with the requirement of creating a Debt Redemption Reserve (DRR), which is currently applicable for only public issues (private placements are exempt).
The Finance Ministry announced that the National Housing Bank (NHB) will infuse an additional Rs 10,000 crore in NBFCs to improve funds inflow.
In its monetary policy, the RBI has gone the extra mile to revive confidence in well-functioning NBFC entities. The single-borrower exposure limit for bank lending to NBFCs has been increased to 20% of the lender’s capital (as compared to 15% earlier). The RBI will also recognise bank lending to registered NBFCs for select purposes as priority sector lending.
The Law Awakens: Freedom without judiciary support is meaningless - citizens of a free country have the right to expect the law of the land to intervene on their behalf.
The Supreme Court verdict on the Amrapali Group case, cancelling the RERA registration of the group, was such an intervention. Appointing the National Buildings Construction Corporation Limited (NBCC) to complete the group’s stalled projects, the SC revived the hopes of thousands of homebuyers.
It is certainly not a 'template law' which can be slapped on all and every defaulting developer, and every case of stuck or delayed projects will need to be judged by its unique circumstances. However, this landmark judgement sets a precedent for developers to complete delayed projects and also cough up compensation for delays.
In previous years, strong political will was often highlighted as the most necessary catalyst for change in a country like India. It has arrived - Modi 2.0 has displayed a single-minded focus on many fronts, and not least of all in its promotion of affordable housing. There is little reason to second-guess this government's will to see its goals to fruition.
Nevertheless, developers face several roadblocks to adopting the affordable housing mantra wholeheartedly. Where will the necessary land in central urban areas come from? When will the basic infrastructure necessary to make the cheaper peripheral areas viable for affordable housing be built?
These are real challenges. Not surprisingly, of the total housing supply of 1,39,490 units in the top 7 cities in H1 2019, merely 39,840 units qualify for the Government’s incentives for affordable housing.
Pradhan Mantri Awas Yojana (PMAY) has set hard targets for the next 2 years. As per government's estimates, a total of 1.54 crore rural homes have been completed in the last five years. In the second phase of PMAY-G, during 2019-20 to 2021-22, 1.95 crore houses are to be provided to eligible beneficiaries.
With a fresh batch of over one lakh houses being sanctioned under the scheme, the cumulative number of houses sanctioned under PMAY-Urban has crossed 85 lakhs.
A series of policy reforms and schemes have pushed both supply and demand for affordable housing. With a total of 1.54 crore rural homes completed in the last few years, we may be a lot closer to the Government's target than it seems.
If RERA is implemented nationwide and the liquidity crisis is resolved, a lot more housing inventory will hit the market. However, the on-ground realization of the government's Housing for All by 2022 vision actually hinges only on three main factors:
· The release of government-held land in urban areas (recognition and delineation of non-essential land currently held by government bodies such as Department of Heavy Industries, Indian Railways, Ministry of Public Enterprises and Port Trusts.
· The unlocking of such lands for affordable housing will also bring down prices)
· The rapid development of support infrastructure (roads, water and electricity, sanitation and sewerage) in peripheral areas connecting them to cities' main workplace centres, and streamlining the housing projects approval process (single-window clearance, relooking at development control, amending Land Acquisition Rehabilitation Act, 2013.)
Rental Housing – ICU: When it comes to making Housing for All by 2022 a reality, rental housing can go a considerable way in bridging a deficit that homeownership cannot. The Model Tenancy Act 2019 is a major step in that direction.
Even after over seven decades of independence, India's rental housing market was stuck in a legislative rut that made tenant-landlord conflicts the order of the day. The Model Tenancy Act aims to salvage this situation by establishing a Rent Court and Rent Tribunal to hear appeals for matters connected to rental housing.
Ultimately, the increased attractiveness of rental housing will boost its stock and help students and white and blue-collar workers find homes in cities where they cannot afford to buy them. It will also bring investors - key players when it comes to rental housing - back to the market.
However, it remains to be seen how effective this key Act is on the ground. With land remaining a state subject, it is up to individual states to adopt the Central rules without too much dilution.
The RERA Effect: It was not the magic wand it was hoped to be. However, over the past two years, the Real Estate Regulatory Act (RERA) has brought more sanity - and the return of consumer power - than seemed possible in such a short time. The real estate sector is still struggling with it and the Act is very much work-in-progress in many states, but RERA nevertheless hangs like a sword of Damocles over a previously unregulated industry. Eventual compliance across the board seems inevitable.
According to the latest readings on the Ministry of Housing and Urban Affairs (MoUHA) website:
· As many as 30 States/UTs have notified rules under RERA; 4 North Eastern States (Arunachal Pradesh, Meghalaya, Nagaland and Sikkim are under process to notify the rules).
· 29 States/UTs have set up a Real Estate Regulatory Authority (Regular - 20, Interim - 09) (Lakshadweep is under process to establish its authority).
· 22 States/UTs have set up Real Estate Appellate Tribunals (Regular - 13, Interim – 09) (Andhra Pradesh, Assam Chhattisgarh, Goa, Himachal Pradesh, Kerala, Mizoram and Lakshadweep are under process to establish their tribunals).
· Regulatory Authorities of 24 States/UTs have operationalised their websites under the provisions of RERA. (Assam, Kerala, Lakshadweep, Manipur, Puducherry & Tripura are under process).
· 43,208 real estate projects and 34,182 real estate agents have registered under RERA across the country.
The incumbent government has envisioned India's real estate sector as attaining international standards of transparency and accountability. With political will not being a matter of debate anymore, the question is not 'if' but rather 'by when' real estate buyers and developers can expect to deal with the other with complete confidence, anywhere in a country where no corner of the market is left unregulated.
Consumer Protection Bill: This critical piece of legislature can strengthen the rights of homebuyers considerably. Among various favourable provisions, the bill - when it becomes law - will enable harassed homebuyers to file complaints with the District Consumer Commission or State Consumer Commission from anywhere. Earlier, complaints were very much jurisdiction-bound and could only be filed at the place of purchase or where sellers have registered offices.
Under the Bill, celebrities endorsing misleading real estate advertisements and promotions are also liable for legal action, as well. In a free country, consumers must be considered intelligent enough to know that celebrity endorsements have absolutely no bearing on a product's inherent worth. They are only indicative of how much money was spent on costly endorsements
Such funds are far better spent on improving projects, building the faster, and on intelligent marketing aimed at intelligent consumers. Developed nations already have strong laws protecting consumers from fraudulent advertising. It is high time that Indian consumers are given the same benefit.
Kashmir Opening Up? The government’s recent decision to revoke Article 370 and Article 35(A) is expected to have a positive impact on Jammu & Kashmir’s overall real estate market, which has been quite dismal so far. Property prices in Srinagar, for instance, still hover between INR 2,200 - 4,000 per sq. ft. – significantly low for tier 2 & 3 cities in the country.
On the one hand, locals will finally see an increase in the value of their properties. On the other, the really exciting prospect is the opening up of opportunities for Indians from outside J&K to finally invest in immovable property here. In fact, in his recent address to the nation, the Prime Minister categorically invited various industries - including Bollywood - to make investments across the entire region.
That said, it is still too early to gauge the real impact of this move on Kashmir’s real estate market - as of now, it is still a highly sensitive region and security concerns may keep property buyers at bay. Once it stabilizes, it will need the benefits of RERA-level regulation.
Since Jammu & Kashmir will now, for all practical and legal purposes, be viewed like any other state/UT in India, all rules and regulations of the Central government will apply there as well. As for RERA regulations, the region will have to formulate its own policies, which may not be similar to other hill states that have their own respective laws.
RERA will make a difference here only when real estate activity picks up and people come forward to deal in property. Like in all other states, here too RERA must give an equal footing to both buyers and builders and prevent unregulated real estate activity.
If rules are in place from the very beginning, there will be little scope for manipulations later on. Moreover, transparent transactions will help build confidence of investors and buyers. Meanwhile, Ladakh - a major tourist hotspot which attracts scores of tourists all year round – will very likely see an uptick in hospitality sector activity over the coming months.
Despite the challenges that remain, the Indian real estate sector - and the consumers that patronize it - have much to be upbeat about on our 72nd year of independence. For all that remains to be achieved, we repose our faith in a strong and determined Government that has proved beyond all doubt that it means business.
We have already crossed several important milestones that seemed unachievable in previous years. There is every reason to believe that we will cross the ones that remain. Jai Hind!
23 Jul 2019
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