Now real estate sector needs reform: Vinod Behl

The Supreme Court ruling banning real estate transactions on the basis of power of attorney and making sale deed compulsory for property sale is a welcome step that will make secondary market transactions fool-proof. It will check the evasion of stamp duty and black money dealings no doubt. But there is still an urgent need for an overall reform of real estate that is facing a credibility crisis among consumers and investors alike.

More so now since the real estate sector that witnessed momentum and recovery last year after the recession of 2008-09, is once again experiencing a slowdown due to prohibitive property prices and rising interest rates. High property valuations are playing spoilsport.

The anomaly between valuations and circle rates has not just been leading to high property cost in the secondary market but also encouraging black money transactions. It is heartening that some state governments are engaged in bridging the gap between market value and circle rates with a twin objective of checking the flow of black money and evasion of registration fee and stamp duty in property transactions. What's further needed is uniform rationalisation of stamp duty by the states.

High property valuations are having a negative impact on the flow of foreign direct investment in real estate that has dropped to 2.97 percent from the total of Rs.121,000 crore in 2010-11. Foreign investors are wary of ambiguous policies and lack of transparency in real estate transactions especially in the absence of any regulator.

The high land prices, rising input cost, costly debt and speculative pricing in some markets have resulted in slow sales. So much so that it has even adversely affected the affordable housing market.

Today residential property accounts for 80 percent of real estate market in terms of volume, growing at about 35 percent annually. And low-cost housing forms a predominant part of it. As much as 99 percent of the shortage of 24.71 million housing units is for homes that will satisfy the needs of people in lower income groups and economically weaker sections. So, progressive policies and reforms aimed at providing affordable housing are much needed. The government particularly needs to ensure that there are sufficient incentives for developers to promote affordable and low-cost housing.

The most difficult task before the government is to meet the unprecedented challenge of making developed land available at affordable cost. To bring down property costs, policy initiatives aimed at promoting innovative building designs, construction materials and technology are required. The government also needs to look at outdated floor area ratio afresh and tune it to current needs.

Considering that taxes on residential construction are as high as over 30 percent, the government also needs to look at duty structures in the housing sector to ensure that middle-income group housing and below is not a revenue resource for it. Similar is the need to re-look the restrictive policies, archaic municipal laws, negative rent control acts and low rental returns in order to promote rental housing.

There's also urgent need to facilitate real estate funding considering that affordable finance is next most critical input for housing and infrastructure services. Policy initiatives to develop debt market for housing, fully integrated with financial market could be of much use.

Several real estate reforms relating to liberalisation of foreign direct investment rules, computerisation of land records, public-private partnerships and urban renewal have helped to bring in much-needed professionalism in the sector, thereby speeding up real estate growth. The Jawaharlal Nehru National Urban Renewal Mission has effectively catalysed the process of urban renewal by augmenting civic infrastructure and effective delivery of basic services through sound governance.

All these ongoing reforms need to be speeded up by removing legal, financial and administrative barriers and new reforms are to be initiated to take real estate and infrastructure to the next level.

Today there is complete governance deficit when it comes to managing the affairs of real estate, especially as there's no regulatory body for the sector. This is diluting the efficacy of reforms. There's an immediate need to regulate real estate by introducing the proposed Real Estate Regulation Bill without any further delay.

A balanced legislative measure will go a long way in making real estate transactions transparent, fair, accountable and safe, in turn making realty an attractive asset class for both consumers and investors.