I had a discussion on the state of real estate with my good friend, Anand Tandon, and I have realized that a real estate regulator will do a world of good for the sector. Financial services industry is very well regulated. Banking has Reserve Bank of India, Broking, Mutual Funds and other capital market products have SEBI and Insurance has IRDA and Commodities has FMC as regulators.
India is an under banked country and even more so, when it comes to capital markets. The individual money invested in stocks is significantly less. If you look at the average mutual fund folio in India, it is very small. But the average price you pay to buy a house now runs into lakhs. For a lesser investment, we have stringent regulation both for the manufacturer and distributor as compared to real estate. More people will buy houses in India or at least aspire to buy houses than stocks and bonds and mutual funds.
Look at real estate and there are no standards. What you see and what you get is completely different. Different builders have different definitions of carpet, built up and super built-up. Even the definition of foot seems to be changing from suburb to suburb, builder to builder. There are no penalties for not delivering what was promised in the marketing stage.
On the other hand in broking, if the broker does not transfer shares in 24 hrs, there is regulatory action. If mutual fund NAVs are not declared on time there is regulatory action. There are avenues to air your grievances on the website whereas no such information or facility is available in real estate business. You got out and buy a house you don’t know the carpet area you will finally get.
If I can give an analogy, real estate is stuck in the past, the way stock broking was done in the 90s – opaque and closed club. Brokers used to operate in a ring, prices were opaque and investors were damned. With the advent of screen based trading and information explosion, prices became transparent. One of the reasons why exchange volumes in India have gone up is because of proactive and progressive steps taken by SEBI and exchanges and depositories. Every broker will have his own stories to tell about SEBI but heart of heart, everybody acknowledges the good work done by them. There might be some minor issues, but on a very macro level, SEBI, NSDL and NSE have transformed the face of Indian capital markets. That is what led to the huge boom in trading volumes. Still, they have not been able to penetrate deep into Indian mass unlike USA, but that’s a different story.
Contrastingly, in real estate, there is nothing called as delivery. You pay money and the builder tells you 2012 and then 2012 can become 13 or 14 or 15 and there is nothing you can do against this. Prices are not transparent and even size of flats are not transparent. There are hidden charges like maintenance, which itself for some of modern complexes, can make a hole in the pocket. Spiralling prices are putting houses beyond the reach of the common man. A vast majority of Indians are still stuck at the ground level of Maslow hierarchy and want roti, kapda aur makaan.
There is no better candidate than Mr. Parekh who has seen and built an institution like HDFC. He has seen the real estate markets from close. Since, he is no longer having executive responsibilities in HDFC, there is little conflict as well. Given his professional acumen, personality, reputation and charisma, he will be able to get the ball rolling also in the corridors of both Mumbai and Delhi. This is the urgent need of the hour as more people in India aspire to buy houses than they ever aspire to buy stocks and bonds.