REAL ESTATE SECTOR: Problems and Regulations

The real estate sector in India is growing at a rate of about 20% per annum and this sector has been contributing to about 6-7% to India’s GDP but it is not able to balance the supply-demand continuum. The demand for housing has been increasing exponentially from last one decade. Inspite of Government’s efforts through various schemes, it has not been able to cope up with the increasing demands. Taking advantage of the situation, the private players snatched the control of real estate sector with almost no concerns for the demand of the consumers. 

Issues and challenges in real estate sector

Issues faced by customers

• Delay in Projects: The major problem consumer facing is delay of projects which may happen due to various reasons like court intervention in land issues, finance, approval etc. The consumer had to suffer because customer is paying rent where resides and paying EMI for home loan at same time due to delay of projects.

• Further there is little or no provision for necessary compensation from side of government.

• Fraudulent advertisement to sell product is quite popular and frequent in real estate. The main reason for flourishing fraudulent methods is absence of any regulator and standard guidelines.

• Further builders pays only 2 to 3% interest in case of default from their side but when customers default (like refuses to buy) then they have to pay around 16 to 18% which is unfair.

Issues faced by Real Estate Industry

The key challenges that the Indian real estate industry is facing today are: 

• Approvals and Procedural difficulties: There are almost 50 approvals or more need to be taken for starting a real estate project and further these approvals are required form different govt departments or authorities. This is one of the major causes of delays and high amount of corruption in real estate sector. Consequently corruption and delay cause inconvenience to customers only.

• Lack of clear land titles: The land titles are not clear because of poor record keeping and division of land in many parts till independence. The slow pace of modernization of land records is further aggravating the problem.

• Speculation in Land and Real Estate Prices: The prices of land and real estate in India has increased exponentially in last decade and causes overpricing of commercial or residential property. In recent times, the real estate is the most favorable destination for investment in India and far ahead than equity or gold. Further real estate agents or brokers buy or sell property frequently with their own investments and cause of surging prices in property.   

• Sources of Finance: Finance is the key for development of any industry. Due to poor image of Real Estate sector, banks are becoming reluctant to provide loans and making regulation tougher to avoid the bad loans. Alternate sources of finance are very costly and ultimately impact total cost of the project.

• High Input Cost: The real estate is a capital and labour intensive industry; thus rise in cost of labour and construction material due to inflation poses many problems to real estate industry. Further real estate builders many times raise a question about unfair practices in cement industry for rise of price more than 50% in quick time.

• Further government intervention of building minimum 20% affordable housing putting extra burden on developers and ultimately on the rest 80%.     

• Real estate is the most famous sector for soaking the black money without any ambit.

• High taxation like stamp duty, VAT etc. and land acquisition are other major challenges faced by real estate sector.  

All the above issues can be verified by the facts that more than 30% of houses and commercial spaces are lying vacant in major cities like Mumbai or Delhi despite being so much demand in real estate sector.

Thus to handle the above issues government of India has launched Real Estate (Regulation and Development) Bill. It seeks to regulate contracts between buyers and sellers in the real estate sector to ensure consumer protection, and standardisation of business practices. It establishes regulatory authorities at the state level to register residential real estate projects.

Major Features of the Bill

• The Bill regulates transactions between buyers and promoters of residential and commercial real estate projects.

• Real Estate Regulatory Authority (RERA): All States and UTs must create a RERA within one year of commencement of this act. The two or more states may go for one RERA and one state may have more than one RERA. A RERA must ensure registration of all real estate projects, contracts b/w buyer & sellers and compliance of obligation under project or contracts.

• There shall be at least one Real Estate Appellate Tribunal in each state to hear complain against decisions of RERA.  

• The bill says that registration for project less than 1000 Sq Meters is not required. 

• The 70% of collected amount from buyers must be deposited into a separate account and this amount should be used only for the purpose of construction.

• On registration, the promoter must upload details of the project on the website of the RERA. These include the site and layout plan, and schedule for completion of the real estate project. In case a buyer incurs a loss because of false advertising, and wishes to withdraw from the project, the promoter must return the amount collected, with interest.

• The Bill allows RERA to make recommendations to state governments regarding measures to improve the approval process.

Some Issues in the Bill

One may question Parliament’s jurisdiction to make laws related to real estate as “land” is in the State List of the Constitution. However, it may be argued that the primary aim of this Bill is to regulate contracts and transfer of property, both of which are in the Concurrent List.

Some states have enacted laws to regulate real estate projects. The Bill differs from these state laws on several grounds. It will override the provisions of these state laws in case of any inconsistencies.

Standing Committee Recommendations

• Exclusion of certain projects: The bill currently restricts regulation of real estate projects for more than 1000 Sq Meters or 12 Apartments only. But committee is of view that it could lead to the exclusion of a large number of small housing projects. This limit should be lowered to 100 square meters and three apartments. 

• Registration of all real estate agents: All real estate agents should be required to register with a RERA and not just those facilitating the sale of a project covered by the Bill. 

• Single window system for project approvals: At present bill allows RERA to advise on approval procedure but instead of it a new provision should be inserted to allow RERAs to particularly give directions on single window system for providing licenses and clearances for real estate projects. A time limit should be specified for state and local authorities to issue completion certificates.


However an all India real estate bill is necessary for uniform standards throughout the country and it is a good step in the right direction but also require focus on other matters like finance or land etc. 

For example in a recent step government allow to set up Real Estate Investment Trust (REIT). REIT is a very good step for financing of real estate projects and helpful for reduce dependency on banks. REIT is many times compared to mutual fund or in other words, many small and large investors are allowed to acquire ownership in real estate ventures and sometimes allowed to operate the real estate projects as well. REIT shall have to be registered or listed on exchanges and after that raise funds from IPOs. 

Similarly, Modernization of land records, land acquisition and GST should be put on priority for growth of real estate sector.