Vision of Life; by Sanjay: An Orphan Named Real Estate!

“Predicting rain doesn’t count. Building arks does.” – Warren Buffett

“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” – Warren Buffett.

Well, do I needed to introduce this name as it’s the only name came to my mind when the subject was “What’s wrong with real estate”! As my writing mentor Mr. Mukund Sangoram, who is a respected name in journalism called me to invite for a conclave about the issues (read problems) real estate industry is facing & the invite call went on for quite some time where he patiently listened to my frustration & I wasn’t frustrated for no sale or reduced margins or less demand for flats or any such thing but for the condition of real estate industry which has become like an orphan. Actually I have different word than orphan as heading but will share it ahead & controlled my urge to use it as title of sharing for gentleman reasons! The first & foremost question is does the government wants or say considers this real estate thing as industry? Because going by the policies or whatever you call them about real estate then I really wonder what has this business become over the years! It’s one of the most basic commodities actually as nobody buys a home for fun or just like window shopping fling which we are so used of in Malls or on Net Shopping but most people buy it for their use. Agreed for decades it’s been also considered as investment but then that’s again was not fault of the real estate or the builders but of the “Mai Baap” Govt only which allowed this business to turn in to a money making (read investment) machine by the policies! And now the very same govt is turning the real estate business in a mess & we are busy in finding areas of problems! I blasted out my list of issues to Mukund Sir & promised to be there on conclave but somehow due to some unforeseen issue I couldn’t make it next day to conclave, yet I listed out six main factors which I felt needed to be voiced, which I will be sharing here! Before that a brief back ground as suddenly why everybody is so concerned about real estate is something we need to ask first, because till just few years back, all seems like a never ending sweet dream with real estate, isn’t it? So what has happened that now everyone right from media to bankers to investors & yes even the flat buyers as well needless to say builders too are running like its Dooms Day for real estate ahead! Actually real estate never has seen the days which it is seeing now & for so long time as in every industry there was recession & there is recession, open news paper & you will see sales of automobile sector all time low & even the garment industry is facing same heat & so is white goods or electronic gadgets but then why real estate seems to be more panicked? Answer is real estate (of late) has not been making its product for the consumer i.e. end user but the investors & till the time the baton (read as flat) is getting passed from hand to hand to the end user, all was going fine. But suddenly if in 4 x 4 relay race the last lap runner doesn’t turn up the way remaining three will get baffled along with the organizers of the race, the same thing has happened in real estate. Here the last lap runner is the flat buyer who is not going to hand his baton to anybody but complete the race with it & now he is vanished! So the earlier three members which we can consider as builder, investors & all associated segments which includes suppliers, contractors, professionals like architects even media (big revenue comes from real estate ads) are confused how to complete the race & so are the organizers i.e. many departments of the Govt! This is the case with real estate as all segments are now stuck or confused what to do & that’s why suddenly everybody is sympathetic with real estate but the organizers, which they too will eventually for their own reasons!

On this background when it’s asked by media in presence of Hon minister of housing, that what the problems for real estate are, it’s like a patient is being asked by some expert doctor about his illness! Here we go…first the list of issues, actually there are infinite yet tried to zip file it!...

1.There must one single govt dept for real estate for all proceedings & policies. 2. Time bound making of development plans making as well implementation of the same. 3.No changes in policies once finalized & in case you change the policies then it won’t be applicable for committed i.e. sanctioned developments. 4. Govt must be responsible to provide supporting infrastructure for the development charges it takes from the builders. 5. Finance dept also to take real estate in confidence for making policies like GST. 6. Govt must remove every illegal structure (building) in time bound program & no illegal buildings will be regularized. Let's see how these factors as not being handled properly real estate has become a miserable thing!

1. To start with first acknowledge real estate as an industry, is the demand of all real estate association since long at which every govt has turned a blind eye & deaf ear, only god knows why! Nothing great will happen with the scene around yet recognition will be there mainly for nationalized banks which as of now look down at real estate (read builders) the way a guy looks at a dirty beggar at signal from his AC Mercedes! The finance rates for real estate are whooping 15% & above & with all other things such as processing fees & stamp duty on mortgage deals etc adds on! Also in most cases nearly 50% collateral is a must for any real estate loan, god knows which builder can afford such terms for loan! As well once acknowledged as industry there will be one govt dept to control is which as of now are more than ten & number is rising! Right from the "Thaliawa" i.e. UD i.e. Urban Development to Revenue to local bodies like PMC/PCMC to Town Planning, no one knows who actually runs real estate. And outcome is policies & more policies as agreed real estate is local business but then why can’t be there just one department which will deal with entire sanction process as well guide lines for the process & follow it! And then we have MSEDCL i.e. electric supply & Fire Dept & Water Dept & Irrigation Dept i.e. Blue Line-Red Line (flood lines) for NOCs’ & yes there is “Subka Bapp” is Environment Dept which supersede all, till now! Now if you are unfortunate to be a builder in city with Defense air ports then there is aviation authority also! These all depts’ makes their own policies & run them at their whim to which real estate has to succumb! This all affects the actual work time in just getting clearances & then every dept has its own egos to handle, that’s different story! So we must have only one dept which will decide fate i.e. everything related to real estate than above entire list!

2. And no wonder that with so many depts’ no development plan or land use policy ever gets executed in time by any of the dept! As if PMC is going take a development plant then it has to be approved by town planning & then UD. And on this DP, right from irrigation dept to environment dept to forest dept or even defense dept, can raise objection or put their NOC above this if they disagrees to the DP! And then if PMC sanctions the plan then irrigation or defense can cancel or disapprove it; this happens only in India! And as so many depts are involved right from making to executing the DP, delay is the only outcome! Result is the roads, play grounds, gardens, rivers, water bodies, schools, hospitals & many such reservations remains on DP only & in actual gets converted in to slums which some day (there again another dept i.e. SRA) may become another concrete slum with generating TDR! Need is there has to be a time bound execution of all the reservations shown in DP & again for that one dept is a must!

3. The main problem real estate is facing right now due to messing up of so many depts’ is nobody is sure which land (read) project is clear as today you get sanction from one dept & you start the work, you accept money from the flat buyers & tomorrow some other dept slaps a “Stop Work” notice on your project for violating their norms! And when you go to the dept which has sanctioned your plans they shrug their shoulders & ask you only to sort it out! And with due respect sad part is, media & judicially also blames the builder (read real estate) for violating the norms which he even don’t know in most cases! For e.g. at present in Pune there are many buildings which has been duly sanctioned by local body but now can proceed because of aviation noc which came in picture later, what fault of the builder in this! Same is true with cases where you bought a piece of land adjoining to river with residential zone & now irrigation dept says it’s in the flood line so no construction can be done here, what’s builders fault in it? Millions rupees are at stake & even the law doesn’t stand by your side but gets victimized with media trial or says its builders responsibility to check all such things, well if the govt’s one dept doesn’t know or follows some law, how the builder will know it in first place, but who cares! I don’t say build in river bed or don’t care about defense facilities but whatever you want to do, make one time policies & inform it to all in clear way, is it that hard to do? And if as a govt, you can’t do your policies in proper time, why the builder should suffer for your foolishness! In nut shell, no retrospective effect to stop the construction work once sanctioned by any of the govt dept, has to be the first policy of the real estate!

4. And with all sanctions, nocs’, permissions etc in place yet all these govt depts’ make themselves full proof by making the developers sign many undertakings & affidavits which says govt (read concerned dept) is not responsible for anything! Means, PMC is not responsible to make drainage lines for your project though it has sanctioned the plans with all premiums, PMRDA wont maintain the roads but it will accept development charges for plan sanction of the projects in area with poor road conditions, MSEDCL won’t build transformer room or lay HT lines but the developer will do everything & hand over the same to the MSECL, about telephone lines & BSNL, the lesser we say is better & lastly the registration dept will charge stamp duty but won’t take responsibility of legality or illegality of the document or the transaction, just great! & the list goes on & on! Point is, if the govt wants revenue from real estate & accepts money for the development then the govt only must provide every infrastructure for what it is charging the builder!

5. At present the major concern for the real estate is cash flow as with the policies from finance dept neither banks are giving finance or at non-affordable interest rates nor there is booking in ongoing construction work! Reason for later is there is zero GST on ready possession homes which is like final blow for the dying business! I really wonder what kind of logic has been applied for no GST on ready homes as then who will bear the GST burden which has been paid by the builder on every single item by which the home is build? And it’s not small, average it comes to nearly 12% of construction cost, so if the govt thinks home is essential commodity then cancel GST on any home, in making or ready possession, what difference it make but ending up only builders making losses! Same is applying income tax on unsold stock, a thing which is adding interest burden on builder govt is charging tax on it, how can you charge income tax on unsold inventory!, can you do this to Bajaj & Telco for their unsold vehicles? Fact is, finance dept give a damn to real estate issues & never really has involved the wise real estate people (there are such) in making any policy, which is a must or else there won’t be builders left in the business, to pay GST or any tax!

6. And last but not least, the cancer of real estate i.e. illegal constructions! I can show you neighboring buildings with sale rate difference of 305 to 40% only because one is legal with all due sanctions & another is illegal without any sanction! In this country law is for the person who follows it, is the bitter fact! And then the very govt which has all above depts’ & made hundreds of Laws & Acts (read RERA, MOFA) to control real estate, files affidavits in the court to regularize (read legalize) illegal constructions! Here, if you go for sanction then you have to go through a grind of all the process of getting clearances for many depts’ & still with all sanctions in place, any of above dept can stop your work but if you don’t go to any dept for sanctioning of your building then no dept can give you a stop work as they don’t care about your building as its illegal & one day eventually when you have sold all the flats with flat holders have taken possession, all the govt depts’ comes together & make your building legal, that’s what I call a Happy Ending!

Indeed for many things builders too have been responsible for the situation the business is in & one of the main reasons is greed but then the builders have paid for their greed, are they not! And what about govts’ role in making real estate die, as the govt also has earned a lot through real estate business or industry whatever you call it, what difference it’s going to make any way! And now we are searching the reasons of real estate business’s downfall; it’s like asking people around, how you are looking, when the mirror is right in-front of you! And on top of it when anything goes wrong in the city, may it be floods or traffic jams or pollution or reduction of green cover, for media & ngos’, builders are the best targets to hit!

Frankly going with all such attitude of the system (read govt & the society) the heading came to my mind was, “Real Estate Named Bastard” but I controlled my frustration & made it “Real Estate Named Orphan”, as orphan means a child without parents but a bastard means no one knows the parents of the child & so is real estate!