Real estate Bill, a damp squib
We need an omnibus watchdog to address the sheer criminality in urban housing
Jun 10, 2013
Source : Business Standard


DELHI: The Real Estate (Regulation and Development) Bill, 2011, focuses on the contractual relationship among three parties: promoter, the allottee or buyer, and the regulatory authority. The Bill essentially seeks to secure the rights of the buyer against unscrupulous actions by the promoter.


But the moot issue is: Should regulation of the housing sector end here?


There are at least five crucial dimensions to urban housing that do not fall under the ambit of the proposed ‘Real Estate Regulatory Authority’. First, housing involves acquisition of land, where the rules of the Land Acquisition (Rehabilitation and Resettlement) Bill (LARR) should come into play. Second, a housing project should not be situated on environmentally sensitive land.


Third, the water use of a housing cluster should be based on the principle of greater common good. Four, black money transactions in housing can be controlled by taking the requisite steps under the Income-Tax law; five, access to housing could be restricted to genuine buyers, as opposed to speculators.


Some of these aspects are addressed (certainly not the last) by a multiplicity of bodies, such as the municipal corporation; autonomous bodies dealing with surface water, ground water, lakes and sewerage; the revenue department of the State government; and the Income-Tax Department. In the case of foreign or NRI investment in housing, the RBI can be added to the list. Powerful interest groups take advantage of the absence of a single window for clearances.


We need a single housing regulator – and a legislation – that addresses all aspects. Alongside, the Real Estate Appellate Tribunal envisaged under the new Bill should be expanded in scope to address a wide range of grievances.


That would enhance the accountability of the state vis-à-vis the citizen and enable one set of citizens and organisations to enforce its rights vis-à-vis another – going beyond builders and buyers to sellers and buyers in ‘secondary market’ deals, buyers and banks, builders and landowners, builders and environmentalists, and home owners and communities over share of water and civic amenities.


It is true that a composite regulator will straddle the domain of the Central and State governments, but these issues can be sorted out if the need for such a body is accepted in principle.


Policy blindness


The draft Twelfth Plan document and the Planning Commission’s Steering Committee reports on urbanisation and environment have not said a word on the many-pronged crisis that is housing, leave aside look for solutions. We all know that black money in real estate fuels much of the economy, the political process and crime. When the Government writes reams about everything but this publicly recognised fact, and passes a Bill that only addresses buyers’ rights vis-à-vis builders, it is ignoring the rhinoceros in the room.


Hence, the need for a comprehensive regulatory framework. The fact that this has not been attempted points to the influence of vested interests – in government, politics and business. Therefore, what we are offered is a Bill that seeks to isolate the rights of one set of stakeholders, the home-buyers (only in respect of the ‘primary market’), so that the rest can carry on as usual.


Once buyers are ensured of their rights vis-à-vis the builders, they are unlikely to get worked up about the social and environmental effects of housing projects. The incentive to know whether the necessary clearances have been sought is less when the regulatory framework is fragmented and weak. A composite, effective regulator may instil a sense of enlightened self-interest.


Speculation, Black money


How can such a regulator deal with black money – a feature of both secondary market transactions between retail buyers and sellers and primary market deals between builders and landowners? As has been proposed in these columns, the Income-Tax Department should purchase property at the guidance value where the black money component is high. This would act as a deterrent to black deals. The guidance value would converge with market value.


It is worth considering whether biometrics or DNA fingerprinting can be used to curb the number of plots or houses purchased by an individual. To ascribe the housing prices to the gap between housing demand and supply alone is to overlook the number of properties purchased as an investment. Banks have recklessly encouraged retail finance in housing, as opposed to commercial real estate, being unmindful of their role in distorting the demand-supply equation. A composite regulator, with an RBI representative, can oversee these aspects.


A crackdown on black money, and on purchase of property as investment, can bring down prices by releasing housing stock. The Planning Commission Steering Group’s report on urbanisation has suggested that to “avoid land hoarding, a vacant land tax should be formalised for all land, including government land”.


Ignorance about water


The Plan documents’ silence on water entitlements is disappointing. The Government seems to believe that proper pricing of water will take care of unregulated use. Imposing a higher price on a scarce essential good is to deny access to the poor, even as the rest manage, anyway. Besides, the market for water seems price inelastic, if one were to go by the willingness of upper middle class residents to pay through their noses for water tankers. The price of an apartment does not seem to be affected by water availability, either because residents are able to pay more for water (whether that continues in an economic downturn remains to be seen!) or because water scarcity is widespread.

The real problem is that, like land, access to water is determined by the logic of ‘might is right’. Use rights over water are not codified. When builders set up high rises near an aquifer such as a lake bed, they tap into the groundwater virtually for free.

This affects the availability of groundwater to surrounding populations – a possibility that the municipality overlooks when giving a licence to a builder. Except for feeble curbs on borewells, it is accepted that land ownership brings with it the unlimited right to use the water below it as well.


Therefore, groundwater levels have receded even in Bangalore which gets rain for half the year. The water tanker business is run by thugs who prevent residents from digging their borewells in areas where they (the thugs) source or distribute water!


Civil society

To complete this circle of criminality and injustice are retail buyers and sellers who, content with their ‘dream homes’ and nearby malls, have shut their eyes to what goes on around them.

The Hindu (June 3, 2013) reported large-scale diversion of wetlands adjoining the Bellandur lake in Bangalore for apartment complexes, malls, offices and parking space. While the lapses of numerous authorities are obvious – strengthening the case for a composite housing regulator – what is sad is the retail investors’ disregard for environmental violations.

Without public awareness and pressure of the sort that we saw for the Lokpal Bill, a composite housing regulator will never come into being.

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