Govt sets real estate regulation law moving Assetventures

Low interest rates, a resurgent stock market and growing confidence in the economy is boosting the real estate market in India but analysts are warning that a sharp increase in prices could put investors off.

‘The residential market, including the premium segment, has rebounded quicker than expected.

We are seeing 2007 level prices again and a robust demand for houses in the $1 million range,’ said Anuj Puri, chairman of Jones Lang LaSalle Meghraj.

According to property consultant Ashok Narang the demand is coming from both investors who want to let out their properties and people who want them as homes.

‘Projects in the suburbs are doing very well and buyers have started flocking to even under-construction projects where bookings are taking place. Earlier, banks were reluctant to lend to buyers for incomplete projects,’ he said.

However, he warned that if prices spurted too fast, the market would slow down once again.

Aditi Vijayakar, executive director of Residential Services at Cushman & Wakefield, agreed.

‘The ideal graph should be gradual,’ she said.

Many major developers have already put up their prices this year and the rest of the industry is concerned.

‘If residential realty rates rise at this juncture it will take the market back to a scenario of stalled sales, similar to what was prevalent during the end of 2008,’ warned Pankaj Kapoor, CEO of real estate research firm, Liases Foras.

And realtor Ramprasad Padhi feels that there is not yet a significant revival in the market that could warrant price increases.

‘The marginal improvement in sales has been mistaken by some builders as signs of the next wave.

In reality, it has been a combination of pent-up demand and accumulated stock being disposed off at lower prices,’ he said.

Potential buyers, he says, will and do find the new increased prices unjustified.

’ But developers seem determined to test the market.

‘At present price increases seem to be limited to certain mid to high end projects, in preferred locations.

If the trend percolates down to a wider spectrum of market segments and locations, we may see prospective buyers once again display circumspection and hesitation to buy,’ said Pawan Swamy, MD (west India) at consultants Jones Lang LaSalle Meghraj.

India is at least a year away from the next real estate upswing, according to Chaitanya Parekh of the Soham Group.

‘In the second half of 2008, several developers started reducing the sizes of the units they offered, aiming for a different customer profile.

Now, if there is any increase in the price, the whole objective will be lost,’ he said.
After dragging its feet on the issue for two years, the state now looks the most serious it has ever been about enacting legislation to regulate the housing sector.

The proposed law, called Model Real Estate (Regulation of Development) Act, has made little progress so far due to opposition by the builders’ lobby, but now, under pressure from the Centre, the state has set it in motion.

Sitaram Kunte, principal secretary (housing), said: “This will be a mechanism to tackle home buyers' grievances and prevent cheating by developers.” He said the draft forwarded by the Centre is being studied by the state, which will make revisions and table it before the state Cabinet, which will take the final decision.

For years, there has been a demand for watchdog legislation along the lines of the Securities and Exchange Board of India, which regulates the country’s stock markets.

Consumers have accused developers of cheating them by delaying handing over of flats, arbitrarily increasing rates, and illegally chargingfor parking space etc. “We need some checks and balances. Today, anyone can become a builder; there is no accountability at all,” said lawyer Vinod Sampat.

Builders have opposed regulation saying it will impede growth of the sector. “Our industry works on demand and supply — there’s no way to control prices. We buy land in the free market at current rates and sell flats according to existing conditions,” said Sunil Mantri, president elect, Maharashtra Chambers of Housing Industry, an apex body of builders.

Real estate experts have cautioned that care should be taken while framing the law. “Existing laws are enough to tackle consumer grievances; unfortunately they are not being implemented. Care should be taken to ensure the new law does not become a toolfor harassment,” said Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, a real estate cons