Tag: Real Estate | Page 5

12 May, 2017

RERA: There’s no way home prices will go up anytime soon

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The Real Estate (Regulation and Development) Act, 2016 (RERA), came into force on May 1, 2017. After this those who make their living in the real estate industry have been suggesting that real estate prices will go up in the days to come.

The logic being offered is that this will be because of compliance costs of RERA which the buyers will ultimately have to pay for.

Given that India does not have any data which agglomerates real estate prices at the country level, those connected with the real estate industry can get away with such statements, because no one else has any idea anyway.

Data from PropEquity Research shows that unsold home inventories stood at close to 4.72 lakh units in the top eight cities across India, as on March 31, 2017. These are homes that have been built but not been sold.

During the period January to March 2017, the inventory of unsold homes came down by 3.12 per cent. Despite this fall, the unsold inventory overhang continues to be huge, across the country. Data from PropEquity suggests that overhang is 60 months in Noida, 43 months in Mumbai, 38 months in Chennai and 30 months in Bengaluru.

If this unsold inventory has to be sold, the home-prices cannot go up from where they are, RERA notwithstanding. The fact that so much inventory has accumulated in the first place tells us very clearly that people are not buying homes to begin with. The only reason for this is that homes across urban India are fairly expensive in comparison to the capacity of people to pay.

This is obvious from the rental yield (annual rent divided by the market price of the home). Typically, the rental yield currently varies between 1.5-2 per cent. This basically means that in order to buy a home right now, one has to pay 50 to 67 times the annual rent. This tells us very clearly that it makes more sense to rent a home and at the same time that home-prices are very expensive. Of course, rental housing comes with its own set of issues in India, with insecure landlords being the biggest one.

Data from PropEquity suggests that property prices fell by 1.7 per cent for January to March 2017. This is clearly not enough. If this inventory overhang has to clear, prices need to fall further. What will force the builder’s hand further is that with RERA in place, new launches to raise finance for previously delayed projects or to pay off debt, will not so be easy, anymore.

A careful look at home loan data of 2016-2017 also suggests that home-prices have fallen.

In 2015-2016, only 16.8 per cent of the home loans given by banks were given to the priority sector. A housing loan of up to Rs 28 lakh in a city with a population of 10 lakh or more, which finances the purchase of a home with a price of up to Rs 35 lakh, is categorised as a priority sector housing loan.

In 2016-2017, 23 per cent of the home loans given by banks were given to the priority sector. This basically means that banks are giving out more sub Rs 28 lakh home loans for financing more homes worth less than Rs 35 lakh, than they were in the past.

This basically means that home-prices have either come down or builders are building more of sub Rs 35 lakh homes. Either ways, this is a good trend. It is not so obvious given that no agency agglomerates real estate prices in India at a national level. But the home loan data from banks clearly suggests this.

Last week, Keki Mistry, the bossman at HDFC, the largest housing finance company in the country suggested that given the low interest rates and the time correction of prices that has happened, it is a good time to buy a house.

Of course, for a home loan lender, it is always a good time to buy a house. What does Mistry mean by time correction of prices? He basically means that even though home-prices haven’t fallen much in absolute terms, they have fallen once we adjust for inflation.

It is worth re-stating here that if the builders have to sell off their unsold inventory of homes, they need to cut prices. Even if they manage to hold on to the current prices, they will not be in a position to increase prices, over the next few years. Hence, the time correction of prices is likely to continue. Given this, those who want a home to live-in and are in a position to continue to wait, should do that.

As far as interest rates are concerned, what Mistry forgot to mention is that home loans have a floating rate of interest, which keeps changing. Hence, over the 15-20 year term of a home loan, interest rates can and will vary. And given this, low interest rates initially, does not make much of a difference in the overall scheme of things. What is needed are lower home-prices.

The column originally appeared on business-standard.com on May 9, 2017

10 May, 2017

The State of Real Estate, Six Months After Demonetisation: Falling Prices, Desperate Builders & Return of Black Money

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Housing and real estate is one area in India where writing anything is very difficult given the lack of data. Nevertheless, a few inferences can be made from the little data that is available.

In the last edition of the Letter we unveiled the Indian Economic Thermometer (IET). One of the inputs into the IET was retail loan growth. A major constituent of retail loans are housing loans. As of March 2017, housing loans formed around 53 per cent of the total retail loans given by banks.

By tracking the total amount of housing loans given by banks, we can make a few inferences regarding the state of the real estate sector in India. So, let’s take a look at Table 1. It shows the total amount of home loans given by banks during the course of a year, over the last few years.

Table 1:

	Total Home Loans (in Rs crore)	Increase/Decrease with respect to the previous year
2012-13	59,647
2013-14	81,900	37.3%
2014-15	89,935	9.8%
2015-16	1,18,245	31.5%
2016-17	1,13,323	-4.2%

Source: Centre for Monitoring Indian Economy.

Table 1 makes for a very interesting reading. For the first time in five years, the total amount of home loans given by banks during the course of a year, has fallen. The total amount of home loans given out in 2016-2017 was around 4.2 per cent lower than the total amount of loans given out in 2015-2016. This is another data point that shows the largely moribund state of the real estate sector in India.

One point that needs to be kept in mind is the fact that home loans are also given out by housing finance companies. The trouble is that regular data on the home loans given by housing finance companies is not available. And this is ironical because housing finance companies are regulated by the National Housing Bank(NHB), which is a 100 per cent subsidiary of the Reserve Bank of India(RBI). It is worth asking that when the RBI can put out month on month data on loans given by banks, what is stopping the NHB?

The latest data I could find on this front was as of March 31, 2015 and that is really not of much help more than two years later, given that we are trying to look at the current state of home loans. In 2014-2015, housing finance companies gave out home loans worth Rs 75,488 crore. During the same year, banks gave out home loans amounting to Rs 89,935 crore. This means that in 2014-2015, housing finance companies gave out around 45.6 per cent of the total home loans. In an ideal world, this data should not be ignored. But given that we don’t have access to it, there is nothing really that we can do about it.

Getting back to the point. Let’s get into a little more detail into the home loans given by scheduled commercial banks during 2016-2017. Let’s look at March 2017. During the course of the month, banks gave out total home loans of Rs 39,952 crore. This basically means that 35.3 per cent of the total home loans given out during the course of the year, got disbursed during one month, which happens to be the last month of the financial year.

What is happening here? Before March 2017, Rs 18,900 crore worth of home loans were disbursed in September 2016. This amounted to 17 per cent of the total home loans disbursed during the course of the year. Hence, between the two months, more than half of the home loans disbursed during the year, were disbursed.

It is well known that builders have got a huge amount of unsold inventory with them. This inventory has been in various stages of construction. At the same time, the builders have been trying to sell this inventory for a while now, by offering a better price as well as goodies on the side.

As some of this inventory has achieved completion stage, it has become slightly attractive for homebuyers given that people prefer buying finished homes these days in comparison to under-construction ones. Also, with builders wanting to show good year end numbers they have gone easy on the price in the month of March 2017, is what bankers tell me.

There is another phenomenon at work. These days people don’t apply for a home loan just at the point of time short-listing and buying a home. They apply for it in advance and get the loan sanctioned but not disbursed. The moment they get a good price for a home, they get the loan disbursed. That is another explanation for a jump in home loan numbers in March 2017.

Also, once people buy a ready to move in new home, there is activity in the secondary home market as well. They may want to sell the homes they were living in, and that also leads to more people taking on home loans. This phenomenon is likely to play out more in the coming months, if the basic assertion I am making turns out to be correct.

Another point mentioning here is that between November 2016 and February 2017, banks barely gave out any home loans. During the period, the banks gave out home loans worth Rs 8,851 crore. In March 2017, they gave out total home loans of Rs 39,952 crore, which was 4.5 times the home loans given out in the previous four months.

A major reason why people weren’t taking on home loans between November 2016 and February 2017 was demonetisation. There simply wasn’t enough currency going around. With this, the real estate transactions came to a standstill because without currency it wasn’t possible to fulfil the black part of the real estate transaction. Those who owned homes(builders and investors) were not ready to sell homes, without being paid for a certain part of the price, in black.

By March 2017, nearly three-fourths of the demonetised currency was replaced.

This basically means that by March 2017, there was enough currency in the financial system for the black part of the real estate transactions to start happening all over again. Also, the Rs 2,000 note makes this even more convenient.

This availability of currency ensured that the black part of any real estate transaction could be easily paid, which had become difficult between November 2016 and January 2017. Once the black transactions became possible, real estate started getting bought and sold again, and this in turn ensured that home loans started to be disbursed again.

Between builders desperate to end the financial year on a good note and currency finding its way back to the financial system, people started taking on home loans again. The interesting question is whether this revival in home loans will continue. For that we will have to wait for the home loan data of April 2017.

The big question here is that are real estate prices falling? If you listen to what the real estate industry has been saying you would feel that real estate prices have either not been falling or will not fall more.

Ashutosh Limaye, Head-Research & REIS, JLL India, told ET Now that “prices have come down but by and large prices are holding.” Or as Getamber Anand told Moneycontrol.com: “I feel prices in most markets have bottomed out and stabilised with little or no margin for further reduction.”

Let’s look at some data to see if this is true. As I mentioned earlier, real estate data is not easy to get. The simple way to figure out whether prices are going up or down or are flat, would be to look at the prices at which deals are happening. But given that there is no such data at an agglomerated level, one has to try and look at this in a slightly different way.

Every bank has to carry out what the RBI calls priority sector lending. What kind of lending gets categorised as priority sector lending in case of home loans? As per a RBI circular dated April 23, 2015, a priority sector housing loan is defined as: “Loans to individuals up to Rs 28 lakh in metropolitan centres (with population of ten lakh and above) and loans up to Rs 20 lakh in other centres for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres should not exceed Rs 35 lakh and Rs 25 lakh respectively.”

This is how priority sector home loans continue to be defined. Hence, housing loans of up to Rs 28 lakh in a city with a population of Rs 10 lakh or more, and financing the purchase of a home with a price of up to Rs 35 lakh, is categorised as a priority sector housing loan. In other centres, a priority sector housing loan is a loan of up to Rs 20 lakh used to finance the purchase of a house with a price of up to Rs 25 lakh.

Let’s look at Table 2. It shows the priority sector loans as a proportion of total home loans given by banks.

Table 2:

	Total Home Loans (in Rs Crore)	Priority Sector Home Loans (in Rs Crore)	Proportion
2012-13	59,647	1,349	2.3%
2013-14	81,900	34,800	42.5%
2014-15	89,935	20,386	22.7%
2015-16	1,18,245	19,890	16.8%
2016-17	1,13,323	26,082	23.0%

Source: Centre for Monitoring Indian Economy.

What does Table 2 tell us? We are interested only in the years 2015-2016 and 2016-2017, when the definition of priority sector housing loans was the same. What we can see is that in 2016-2017, nearly 23 per cent of the loans given out were priority sector home loans. In 2015-2016, this figure was at just 16.8 per cent. In absolute terms, 31.1 per cent more priority sector home loans were disbursed in 2016-2017 than in 2015-2016.

What does this mean? It means that banks have financed more homes with an official registered price of Rs 35 lakh or lower in metropolitan cities and Rs 25 lakh or lower in other centres. We use the term official registered price, simply because a black component always gets paid in cash, over and above the official price.

With banks financing more homes of Rs 35 lakh or lower in metropolitan cities and Rs 25 lakh or lower in other centres, it basically means that either prices have come down or more homes have been built in that segment (which builders like to call affordable housing). Hence, more homes have become available in the sub-Rs 35 lakh segment in the metropolitan centres and in the sub-Rs 25 lakh segment, in other centres.

In fact, in the month of March 2017, when the maximum amount of home loans were given out in comparison to any other month during the last financial year, 28 per cent of the loans were priority sector home loans.

Given this, home loan data does suggest that home prices have fallen. Of course, there is no way of figuring out to what extent have the prices fallen. The answer would be different for different parts of the country.

But how does all this work at a personal level? One technique of driving down the price is to keep talking to the representative of the builder over a period of time, keep him interested and keep driving down the price. Of course, this needs a lot of patience and depends on how desperate the builder is to sell what he has already built.

The column originally appeared on Equitymaster on May 10, 2017

9 May, 2017

Six Months After Demonetisation Cash is King Again and Questions Still Remain

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On November 8, 2016, the prime minister Narendra Modi announced his government’s decision to demonetise Rs 500 and Rs 1,000 notes, to an unsuspecting nation. The decision came into effect from the midnight between November 8 and November 9, 2016, and suddenly rendered 86.4 per cent of the nation’s currency in circulation, useless.

It’s been six months since then and more than four months since December 30, 2016, the last date for depositing the demonetised Rs 500 an Rs 1,000 notes, into bank accounts. But even after this period as far as the government is concerned, a few basic points remain.

a) How much demonetised money finally made it into bank accounts? When demonetisation was first announced, this number was shared regularly. Nevertheless, the last announcement on this front from the Reserve Bank of India(RBI) came on December 13, 2016. As of December 10, 2016, Rs 12.44 lakh crore of demonetised currency had made it back into the banks.
Given that Rs 15.44 lakh crore worth of currency notes had been demonetised, nearly 80.6 per cent of the currency had found its way back into banks, nearly three weeks before the last date to deposit demonetised notes into bank accounts.
Neither the Reserve Bank nor the government has told the nation how much money eventually made it back into the banks. This is an important question and needs to be answered.

b) The initial idea behind demonetisation was to curb fake currency notes and eliminate black money.
As far as fake currency goes the minister of state for finance Arjun Ram Meghwal told the Lok Sabha in early February 2017 that the total number of fake notes deducted in the currency deposited into banks after demonetisation stood at 2.46 lakhs. This amounted to a total value of Rs 19.5 crore.
As mentioned earlier, the total value of demonetised notes had stood at Rs 15.44 lakh crore. Given this, the proportion of fake notes deducted is almost zero and can be ignored. Hence, as far as detecting and eliminating fake notes was concerned, demonetisation was a total flop.
How did it do as far as eliminating black money is concerned? The hope was that the black money held in the form of cash will not make it back into the banks, as people wouldn’t want to get caught by declaring it. But by December 10, 2016, more than four-fifth of the demonetised notes had already made it back into the banks. Since then the government and the RBI have not given out any fresh numbers. It’s surprising that it has been more than four months since December 30, 2016, and this number is still not out in the public domain.
Also, it is important to point out here: “High denomination notes are known to facilitate generation of black money. In this connection, it may be noted that while the total number of bank notes in circulation rose by 40% between 2011 and 2016, the increase in number of notes of Rs.500/- denomination was 76% and for Rs.1,000/- denomination was 109% during this period.”
If high denomination notes facilitate generation of black money, then why replace Rs 1,000 notes with Rs 2,000 notes. Given that a Rs 2,000 note is twice the value of a Rs 1,000 note, it makes black market transactions even more easier. It also makes storage of black money in the form of cash easier, given that it takes less space to hide the same amount of money.
Again, this is a basic disconnect in what the government planned to achieve through demonetisation and what it eventually did. No effort has been made to correct this disconnect.

c) The government has still not offered a good explanation of what prompted it to demonetise. There has been no similar decision taken by any other country in a stable financial situation like India currently is, in the modern era. The best that the government has done is blamed it on the RBI. As Meghwal told the Lok Sabha in early February 2017: “RBI held a meeting of its Central Board on November 8, 2016. The agenda of the meeting, inter-alia, included the item: “Memorandum on existing banknotes in the denomination of Rs 500 and Rs 1000 – Legal Tender Status.””
Anybody who has studied the history of the RBI would know that the RBI would never take such an extreme step without extreme pressure from the government.

d) Other than eliminating black money and fake currency notes through demonetisation, in the aftermath of demonetisation, the government wanted to promote cashless transactions. As Modi said in the November 2016 edition of themann ki baat radio programme: “The great task that the country wants to accomplish today is the realisation of our dream of a ‘Cashless Society’. It is true that a hundred percent cashless society is not possible. But why should India not make a beginning in creating a ‘less-cash society’? Once we embark on our journey to create a ‘less-cash society’, the goal of ‘cashless society’ will not remain very far.”

How are things looking on that front? Look at the following table. It shows the volume of digital transactions over the last few months.

Month	Volume of digital transactions (in million)
Nov-16	671.5
Dec-16	957.5
Jan-17	870.4
Feb-17	763.0
Mar-17	893.9
Apr-17	843.5

Source: Reserve Bank of India

While digital transactions picked up in December, they have fallen since then. The total number of digital transactions in April 2017 is higher than it was in November 2016. Nevertheless, it is worth asking, whether this jump of 25 per cent was really worth the trouble of demonetisation.

e) Falling digital transactions since December 2016 tell us that cash as a mode of payment is back in the system. There is another way this can be shown. Between November 2016 and February 2017, banks barely gave out any home loans. During the period, the banks gave out home loans worth Rs 8,851 crore. In March 2017, they gave out total home loans of Rs 39,952 crore, which was 4.5 times the home loans given out in the previous four months. It also amounted to 35 per cent of the home loans given out during the course of 2016-2017.

A major reason why people weren’t taking on home loans between November 2016 and February 2017 was demonetisation. There simply wasn’t enough currency going around. With this, the real estate transactions came to a standstill because without currency it wasn’t possible to fulfil the black part of the real estate transaction. Those who owned homes (builders and investors) were not ready to sell homes, without being paid for a certain part of the price, in black.

By March 2017, nearly three-fourths of the demonetised currency was replaced. This basically means that by March 2017, there was enough currency in the financial system for the black part of the real estate transactions to start happening all over again. Also, the Rs 2,000 note makes this even more convenient.

To conclude, six months after the declaration of demonetisation it is safe to say that demonetisation has failed to achieve what it set out to achieve i.e. if it set out to achieve anything on the economic front.

The column originally appeared on Firstpost on May 9, 2017

9 May, 2017

Mr Mistry, When It Comes to Buying a Home, the Price is More Important Than the Interest Rate

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Keki Mistry, the bossman at HDFC, India’s leading housing finance company, recently told The Economic Times, India’s leading business newspaper: “In my view, it is the best time to buy property. First, by virtue of the fact that interest rates are significantly low. Since 2008, we have not seen rates as low as this. I don’t believe rates will go down any further. Second, property prices haven’t gone up in recent times so one would believe there is time correction of prices.”

Asking Mistry if it’s the right time to buy a home is like asking Nandan Nilekani about the privacy concerns around Aadhaar. Or asking RBI governor Urjit Patel if demonetisation has been a success. Or asking me, if freelance writers should be paid more.

The answers in all the three cases will be a definite yes. Mistry is in the business of giving out home loans. And for him, it is always the right to give out home loans, as long as he takes a margin of safety into account and lends out only a certain portion of the price of the home being financed through a home loan.

Nevertheless, it is important to try and understand what Mistry is really saying here. The first point he makes that interest rates are low, and he doesn’t really see them going down anymore. Mistry might be right about this. Interest rates have been low because of the deluge of money that has come into banks because of demonetisation.

Mistry further says that home prices haven’t gone up in recent times and there has been a time correction of prices. And hence, this is the right time to buy property.

What does Mistry mean by a time correction of prices? Let’s say that a home was selling at Rs 50 lakh in a suburb of a big metropolitan city a few years back. Even today, it is going at the same price. Meanwhile, the price of every other thing has gone up. Once we factor in this inflation, the home has seen a time correction of prices, given that the purchasing power of Rs 50 lakh today is really not the same as the purchasing power of Rs 50 lakh, a few years back.

Given this time correction of prices, buyers should not wait any further and buy homes. This is basically what Mistry is saying.

The trouble is this makes little sense. As always there are several nuances that are involved here. First and foremost, there is the black part of that needs to be paid while buying homes across most parts of the country. It is difficult to generalise the proportion that needs to be paid in black, given that rates vary across the country. But let’s say around 20 per cent of the price of the home is to be paid in black. This works out to Rs 10 lakh (20 per cent of Rs 50 lakh).

Hence, the official price of the home works out to Rs 40 lakh (Rs 50 lakh minus Rs 10 lakh). A housing finance institution like HDFC will not finance the entire thing. HDFC’s average loan to value ratio at the origination of the home loan is 64 per cent. In this case that would mean a loan of Rs 25.6 lakh. (64 per cent of Rs 40 lakh). This is roughly around the average home loan size of HDFC at Rs 25.7 lakh.

Hence, HDFC will finance around Rs 25.6 lakh of the cost of the home of Rs 50 lakh. The buyer has to finance the remaining Rs 24.6 lakh. This basically means that the buyer needs to finance nearly half of the cost of the home. And that is the real equation that the buyer needs to take a look at.

This basically means whether the buyer has Rs 25 lakh of savings which he can use to buy a home of Rs 50 lakh. If he has the money he can buy the home. If he doesn’t, he can’t, irrespective of where the interest rate on the home loan is.

What about the low interest rate that Mistry was talking about? How much difference does it make? The EMI on a loan of Rs 25.6 lakh at 10 per cent per year for a period of 20 years would work out to Rs 24,801. This would have been the case a on a new home loan, a few years back. Now at 8.5 per cent interest, the EMI would work out to Rs 22,303 per month or around 10 per cent lower.

Hence, the lower EMI does help. But the basic question still remains; whether the prospective buyer has a savings of around Rs 25 lakh. Actually, the savings need to be more once we take brokerage, the cost of moving, making the home liveable enough, etc., into account. But for the ease of calculation we will leave all that out and just concentrate on the price of the house.

Now compare this scenario to where the price of the home over the last few years has fallen by 20 per cent and is currently going at Rs 40 lakh. Assuming a 20 per cent black part, the official price of the home works out to Rs 32 lakh. Of this HDFC would lend around Rs 20.5 lakh (64 per cent of Rs 32 lakh). Hence, the buyer would need around Rs 20 lakh to get the deal going.

This meant that anyone with savings of around Rs 20 lakh could carry out the transaction and buy the home. This requires Rs 5 lakh lower savings than the earlier example. In this situation, the prospective buyer is more likely to buy than the earlier one.

The point is similar to the one I have often made in the past, if people need to start buying homes again, the home prices need to come down. Lower interest rates just don’t help enough. And this is something Mistry needs to understand.

To conclude, it is safe to say that if 20 per cent of the price of a home being bought needs to be paid in black, then the buyer needs to have half of the price of the house as savings. Only then can he go ahead with the transaction and buy the home.

The column originally appeared in Equitymaster on May 9, 2017

3 May, 2017

Why The Real Estate Act Will Remain Ineffective Until The Builder-Politician Nexus Is Broken

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In the first half of Vidhu Vinod Chopra’s 1994 release “1942: A Love Story,” there are a series of characters saying: “Shubhankar Da aane waale hain (Brother Shubhankar is about to come)”. The movie is based around the freedom struggle and the hope every time the lines are said is that the man called Shubhankar will come and set everything right.

Shubhbankar, played by Jackie Shroff, does come, just before the interval shot. Things become messier after his arrival, though eventually, like in all good Hindi films, everybody lives happily ever after.

Dear Reader, you must be wondering why am I talking about a 23-year-old movie which everyone has forgotten about by now, except for its marvellous songs composed by RD Burman.

Well, The Real Estate (Regulation and Development) Act, 2016, or RERA for short, has come into effect from May 1, 2017.

And it is expected to play the role of Shubhankar in the real estate sector in India. It is expected to come and set everything alright, at least that is the impression that has been given by many real estate experts in the media. But how correct is that?

RERA is basically a central Act. Given this, state governments do not need to pass separate Acts in order to implement it. But land is a state subject and given this the rules needed to implement the Act, need to be formulated and notified by the state governments. Many states are yet to come up with these rules.

As rating agency ICRA points out in a research note: “Except Uttar Pradesh, Gujarat, Madhya Pradesh, Maharashtra, Andhra Pradesh, Orissa, Bihar and the Union Territories, most have missed the deadline to notify its rules under the… Act.”

This tells us how serious the various state governments are about implementing the Act. Over and above this, the RERA mandates that every state set up its own real estate regulator. It so happens that Madhya Pradesh, Maharashtra and Rajasthan, are the only states up until now to have set up a real estate regulator. “Certain other states have set up interim regulatory authorities (as permitted under the Act),” ICRA further points out.

Also, as a newsreport in the Mint points out, Maharashtra is the only state that has set up a website where the real estate developers can register to set up new projects under the RERA.

Given that most states haven’t gotten around to setting up the real estate regulator and a website, this is something that will take time as they go around meeting the physical infrastructure and human resources requirements of the regulator as well as the website. And given this, RERA will not actually be implemented across large parts of the country, for some time to come.

Also, states which have formulated the rules to implement the RERA have diluted them in comparison to the rules framed by the union government. Take the case of Gujarat. Only projects launched on or after November 1, 2016, come under the aegis of the Act.

On the other hand, the central government Act defines ongoing projects as projects “for which the completion certificate has not been issued” on the date of commencement of the Act. This essentially allows many projects which are still work in progress not to come under the RERA.

Haryana, another state ruled by a BJP government, has done something along similar lines to help keep ongoing projects outside the ambit of the RERA. Projects which have applied for a part completion certificate or an occupancy certificate will not come under the RERA, if the certificate is granted. This, as was the case in Gujarat, is another ploy to get around the central government Act’s definition of an ongoing project.

In Maharashtra, a new nomenclature called proposed plans has been introduced and proposed plans instead of sanctioned plans can be submitted to the regulator. In the case of RERA only the term sanctioned plans has been used and only sanctioned plans can be submitted to the regulator.

As per the RERA any changes made to the sanctioned plans needs the written consent of allottees in the project. As the bare Act points out: “Any other alterations or additions in the sanctioned plans, layout plans and specifications of the buildings or the common areas within the project without the previous written consent of at least two-thirds of the allottees, other than the promoter, who have agreed to take apartments in such building.”

In case of Maharasthra, the usage of the term proposed plan is basically being seen as a way of getting around the written consent of the two-thirds of the allottees, if the builder goes around making changes to the project.

Over and above this, the Maharashtra rules point out that a phase of a project “may consist of a building or a wing of the building in case of building with multiple wings or defined number of floors in a multi-storeyed building/wing”. This has again been done to give flexibility to the builder to operate in the way he wants to, without following the letter and spirit of RERA. It allows the builders to keep developing projects on a piecemeal basis, something that they excel at.

In Delhi, the rules allow the builder to give details of only those legal cases where courts have already given a deicision. He does not have to provide details of cases which are still on. This directly contradicts Section 4.2 (b) of RERA which essentially states that the builder needs to provide: “a brief detail of the projects launched by him, in the past five years, whether already completed or being developed, as the case may be, including the current status of the said projects, any delay in its completion, details of cases pending, details of type of land and payments pending.”

In the time to come more such dilutions will keep coming out. The trouble right now is that operational rules of all states are not available in English and hence, it’s difficult to get a pan India perspective.

So, the question is why are state governments diluting the implementation of the RERA? The simple answer lies in the fact that there is a nexus between the builders and the state governments. Currently, the regulations governing the real estate sector vary from state to state and are inherently complicated. Given this, anyone wanting to be even a marginally serious player in the real estate business, needs to be in the good books of local politicians. This also explains why there are no pan India real estate companies. Forget pan India, there are no real estate companies which operate through an entire state.

The politicians also see real estate to be a cash cow which helps them generate money to fight elections as well as enrich themselves. This explains why regulations governing the sector continue to be complicated. In many states, the politicians are builders themselves though they have other individuals fronting for them. In such a scenario expecting the RERA to be implemented properly is nothing but day dreaming. For politicians, it makes sense if RERA is not implemented in letter and spirit. Given that politicians benefit from builders, a diluted RERA is their way of a quid pro quo.

If RERA has to be implemented properly the nexus between the politicians and the builders at the state level needs to be broken. And for that to happen, one of the first things that state governments need to do is get rid of change in land usage regulations that are currently in force. Only once this happens will things start to roll.

To conclude, Shubhankar Da may have been effective in 1942—A Love Story, RERA in its current form will become yet another regulation which won’t achieve much.

The column originally appeared on The Huffington Post on May 3, 2017