Bottom Line: The understanding of best practices is very archaic in the Indian real estate. The intent is even more conservative and the sector has miles to go before they can look forward to adopt some of the globally accepted best practices.
The year 2016 has forced the developers to introspect and hence some of the credible real estate companies are trying to evaluate the ways & means to avoid being in the news for all the wrong reasons.
Facts speak for themselves. There are scores of cases being fought by home buyers in the consumer and civil courts. As a matter of fact, the data available with Track2Realty shows real estate complaints are among the top four legal issues in the country.
In the year 2016, the overt consumer activism, social media outcry, media trial and judicial intervention forced the sector to change its tune to best practices on the face value. The 2017 will define whether the chasm between the lip service and the practices on ground is bridged.
Best practice is something that the sector never bothered to adopt. But the slowdown and nose-diving sales graph throughout the year (a backlog year after the year) are clearly forcing the developers with no choice but to stop sulking and blaming market conditions for poor sales and start accepting the hard truth. Before the developers expect market conditions to change, they have to change their own outlook first.
- No one has ever heard of the much-publicised entry barrier to become a CREDAI member
- Most of the builder-buyer agreements are heavily loaded in favour of builders and the buyer does not get to see the agreement draft till one has paid the booking amount
- The home buyers’ disillusionment is reflected with the rise in the number of complaints that has challenged the growth of the sector
- Delivery delays, mismatch in area, changes in structure or designs in a project and developers going back on other promises have been quite common
Privately some of the developers admit there is neither any incentive for developers to adopt best practices nor are there penalties for those who do not follow such practices. A section of analysts also point to developers’ facing challenges in adopting the best practice in the sector.
Issues like multi-partner projects; inability of the developer to execute large projects because of their organizational limitations; leverage on finance – personal equity versus project cost; delivering large projects without competent team of vendors; and huge finance cost are some of the issues that force the developers to compromise the professional integrity.
Harjith. D. Bubber, M.D & CEO, Rivali Park maintains that with the changes in policies coupled with demonetization & RERA and other initiatives by government in 2016, 2017 may well be a game changer for real estate. With demonetization there will be less of cash available in circulation will have a positive effect for developers who only deal in cheque transaction which in turn ensure transparency in transactions.
“With RERA coming in effect developers will be forced to disclose all the required details of their respective projects on public domains, that will help buyers to have all required information before taking the decision – again, transparency. Strict rules on timely delivery, not diverting funds and other such rules getting introduced real estate will witness lot of best practices in coming time,” says Bubber.
JC Sharma, VC & MD, Sobha Limited agrees that home buyers expect developers to be transparent in their dealings, deliver their units on time and with the best quality of construction. The general perception in the market is not very positive. Some of the best practices that the developers should adopt are improved quality, customer-centricity and transparency. It is imperative that the focus should be on corporate governance, accountability and timely delivery of projects.
“In order to win the trust, full-disclosure policies should be adopted, making all information regarding project approvals, registration and process easily accessible. Another practice that is still evolving and has gained the attention of leading real estate companies is Corporate Social Responsibility (CSR). There is also an increasing level of consciousness among the developers to construct green buildings in order to protect environment. These practices will not only strengthen bonding with various stakeholders but will also win their immense trust,” says Sharma.
Parth Mehta, Managing Director – Paradigm Realty asserts that real estate developers have shifted gears and accepted new challenges. Managing multiple projects across cities, region, organization of centralized process for the flow of material resources and hiring qualified professionals envisioning development and growth be it in areas of project management, engineering or architecture.
“The influx of money into SME’s and startups across various sectors will lead to job creation. With a growing rate of increased transparency, thanks to RERA, Higher GDP growth, Salary growth, a lesser tax will lead to the high propensity to spend which will eventually lead to better affordability and timely project delivery by maintaining an equilibrium in the market,” says Mehta.
2017 can be the defining year after some of the key policy changes being rolled on the ground. The developers are left with no choice but take lessons from streamlined markets abroad and introduce comprehensive disclosure norms. For instance, US home buyers are entitled to receive a number of disclosures during the course of the house purchase. These disclosures give a home buyer a somewhat transparent and fair picture of what he is getting into. On the other hand, Indian home buyers sign agreements that are one sided. They even get unpleasant surprises in terms of hidden costs.
The year ahead awaits for an eco system that empowers the buyer with equal terms and conditions as those enjoyed by the builder. This will definitely change the outlook of buyers about the sector and its practices. Today, the reality is that despite liberal payment plans and discounted deals in the market, people are yet not ready to trust the developers. They have burnt their finger in the past due to various hidden clauses and arm-twisting after making the first payment.
By: Ravi Sinha