Pack of cards: Houses crash, but not the prices

Once a property is occupied, no authority has the ‘guts’ to demolish it for fear of reprisals from the Aam Aadmi. This strategy is being replicated by builders across the city.

April 10, 2013 2:32 IST | India Infoline News Service
Mother Teresa once said. “The ache for home lives in all of us, the safe place where we can go as we are and not be questioned.” She wouldn’t have factored in tragedies like Mumbra, which led to the death of over 50 people. This should have been expected given the proliferation of illegal structures. The problem of illegal constructions is not isolated to mega cities but is a phenomenon being witnessed across India.

We must thank the pantheon of Gods of all religions - Hindu, Muslim, Sikh, and Christianity among others - that such tragedies do not happen on a far greater scale.

The building was illegally constructed by getting approvals through illicit means. It was built on marshy land without adequate structural support and was shockingly built by a scrap dealer turned builder. As per media reports, all it required for the building to get approvals was Rs 20 lakh, which was paid to corrupt municipal officials to conveniently look the other side.

Interestingly, the ingenious scrap dealer masquerading as a builder found a clever ploy for getting the property occupied. Once a property is occupied, no authority has the ‘guts’ to demolish it for fear of reprisals from the Aam Aadmi. This strategy is being replicated by builders across the city. There are many such buildings in the suburbs, which are yet to get their final occupancy certificate but continue to receive daily necessities like round the clock power and water supply - at a high price though. As the buildings are occupied, the local municipal authorities do not dare to demolish it. Sometimes, vote bank politics allows these structures to exist.

I am sure the media will lose interest in the next 2-3 days and move on to the next ‘big’ story or ‘breaking news’. Without doubt, I expect all people associated with this crime to get bail in the next 15 days. They will eventually be released and will continue their criminal ways in different jurisdictions.

Land records in India are yet to be fully computerised. Only a person who has stood in a queue to register a property knows the pain one goes through. In places like Singapore, every transaction is documented electronically. Home buyers have a fairly good idea of the price history of the property and see online everything – including approvals/ ownership details, etc.  So searching for a house is relatively easy. I reside in a building in which houses are being bought and sold without anybody knowing the price at which it has been bought. Prices are set, based on the desperation of the buyer or seller. There is no Index which tracks price movements across cities, only anecdotal evidence.

Given the economic slowdown that continues to unfold daily, it is a strange that real estate prices are not correcting. In contrast, our own stock markets are correcting because of lack of buying by foreign and domestic institutional players.

In one of my earlier blogs (Read: Real Estate - Who better than Mr. Deepak Parekh as a regulator), I had advocated the case for a real estate regulator. Despite the Mumbra tragedy, the government is yet to wake up to the enormity of the problem and put in place a real estate regulator. A regulator would put an end to the arbitrary powers held by municipal corporations, who by a stroke of the pen grants additional floor space index under the guise of parking or other such schemes for builders to profit. Since it’s easy for spoils to be made just by a stroke of a pen and the party continues. It doesn’t matter if the spoils are equally or unequally divided between the different stakeholders.

Just look at the tonnes of paper the government has wasted on setting up regulatory bodies for financial sector. There is Insurance Regulatory and Development Authority to administer the insurance space, RBI for banks, the Securities Exchange Board of India for mutual funds and broking business and so on. Roti, kapda aur makan are the three basic needs for all Indians. More people buy houses than they buy equities or insurance or mutual funds. Ironically, the plethora of rules governing financial instruments are much more stringent while there is no regulation for the real estate sector. In short, there is no protection whatsoever for people who have bought houses or for those aspiring to buy houses. In such an opaque system, all stakeholders namely the builders, politicians, and civic officials make merry.

Even if it spends 10% of that time and energy on setting up a real estate regulator, it will benefit the Aam Aadmi – a constituency the government claims to cater to.

A person looking to even distribute MFs or Life Insurance has to be of sound character and pass an exam and be qualified. However, anybody can wake up and declare himself a builder. Most builders claim to fame is not their capacity to execute big projects -- these they typically outsource it to the L&Ts of the world -- but their ability to secure permissions and land.

I sincerely hope the government spends more time in outlining rules for the real estate sector rather than generating additional rules for brokers, insurance agents and mutual funds distribution which affect a miniscule 5% of the population.

Until then, home is where the danger belongs.

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