Don’t blame the ‘Babus’ of town planning departments and city development authorities

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Another one bites the dust! Well, we are talking about the latest scam or scandal or irregularity or blunder or whatever you may call it in real estate sector in India. This time, it’s the Supertech’s Emerald Court project in Sector 93-A Noida on Noida – Greater Noida expressway.

What happened? The project was started in 2006 and permission for 15 towers of 11 storeys each was given. However, in 2009, 2 towers namely ‘Apex Tower’ and ‘Ceyane Tower’ of 40 storeys each were added to the project. That means addition of 857 new apartments.

So what? It all looks fine, where is the irregularity? Well, these two new towers violate the UP government’s 2010 apartment act. The 2010 apartment act which was being designed by ‘Babus’ says that builder should take permission from existing buyers before construction, and should also follow the maximum density norm (maximum number of people in one acre), FSI norm, minimum distance between two towers, etc.

So, were these guidelines of the ‘Apartment Act’ flouted? Yes, that seems to be the case and therefore Allahabad High Court has ordered to demolish these 2 towers of 40 storeys each.

So, whose fault is it primarily? Builder says, we will appeal in the Supreme Court against the judgment because project is legal and has all the necessary approvals from the Noida Authority? Whose fault is it then? Is it the fault of ‘Babus’ of Noida Authority? Nah….it can’t be, they work hard to make sure that whatever they design (2010 Apartment Act) is implemented by hook or crook. Then whose fault is it? It’s the customer’s fault you stupid…why did they buy these apartments? They should have done their due-diligence….isn't it? Hmm…..

Well, on a serious note, time has come for Courts to look at the role of the ‘Babus’, and if necessary spank them at their back side severely for allowing illegal construction.

Customers can not be taken for a ride by colluding builders and authorities. The babus who are supposed to protect the interests of home buyers are busy amassing tens or hundreds of crores of illegal property for themselves by taking advantage of their positions.

Since, 2011, these scams have been a common phenomenon:

In 2011, DLF’s Belaire project in Gurgaon met the same fate wherein charges of project delay, illegal construction of additional floors were raised by the Resident welfare association of the project.

In 2012, Noida Extension fiasco came to limelight wherein farmers agitated against the authorities for acquiring land at throw away prices and also changing the land use from industrial to residential. The matter was resolved after courts intervened in and farmers were compensated adequately.

In 2013, we had Campa Cola fiasco in Mumbai wherein illegal floors were built in late 1980s and were ordered to be demolished in 2013.

And now in 2014, we have the Supertech Emerald Court matter in Noida wherein again the court has ordered demolition of illegal towers.

So, will this continue in coming years? Will the ‘Babus’ pay attention to the sufferings of home buyers? Will the ‘Babus’ stand up and implement the laws and acts in all fairness? We will see….But, thankfully for the common man; all is not lost as long as Courts discharge their duties.

Greed on the part of the property developer is ubiquitous, but what explains greed of these Babus who in reality are supposed to keep a check on the greed of developers???

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It’s all about perception…isn’t it? And how is real estate sector in India perceived? Can the perception be changed? Let’s make it a New Year resolution :)

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Good bye 2013 and welcome 2014, Happy New Year to each and everyone out there. Last year was tough for realty sector in India with GDP slowing down, high inflation and interest rates, and lack of demand from end-users. Will 2014 be different? Yes, it can be. However, the perception towards real estate sector needs to change and all the participants have to do their tiny bit in bringing out the positive image for the sector.

Current perception towards real estate sector in India:
Well, what is perception? It’s nothing but how people from outside view the sector. And how do they view it? Just talk to any common man and one would get the answer. The sector is perceived to be entrenched in corruption, black money, political maneuvering, builder – politicians nexus, etc. If one were to draw a sketch of the real estate sector on people’s perception, this is how it will appear:

The perception is that builders, politicians, and bureaucrats are working for each other when it comes to realty sector. This nexus is so strong that, policies are made, tweaked to favor the rich and powerful builders. Look at what happened at Campa Cola compound in Mumbai. The project was approved in 1980s by the BMC. Builder not only constructed the towers as per the approved plan but also illegally constructed some additional floors. Now, who would believe that these illegal floors were constructed without the knowledge of BMC or some local politicians? And now citizens are facing the heat. Doesn’t the picture above clearly highlight the situation in Campa Cola Compound of Mumbai?

Let’s examine the role of each stakeholder in the real estate sector closely:

• Town planning department or the authorized government agencies:

The department is armed with civil services officials with foresight to develop the city and plan for increased urbanization. New areas are demarcated for future residential, industrial, and recreational growth within the city. The process of demarcating land, allocation it to developers, tax collection, etc. is perceived to be inefficient and corrupt. We as citizens have no idea on what basis or methodology these areas are demarcated. Real estate project approval process is so cumbersome and opaque that there is no way out but to bribe the officials to obtain project approvals on time. And therefore, what we get is increased cost of property and unorganized real estate development.

Our team members have been visiting the new upcoming areas in Delhi NCR region. Real estate development in these areas has been taking place for almost 8-9 years and all we found is ghost cities. The infrastructure including electricity, water, sewage, roads, waste management is nowhere to be seen and yet we find plethora of high-rise development of brick and mortar. Some of these developments are self-sustainable. One can imagine the cost of living in these self-sustainable townships. More importantly, what will happen to unauthorized slums in the region? How those living in slums will be rehabilitated? Or will urban class who has tasted global standards live in conjunction with slum dwellers? There seems to be no answer.

To our question of who will live in those new buildings? Many builders, brokers, and investors would respond by saying that there is such a dearth of housing in the country that customers would lap up whatever is offered to them.

• Real estate developers:

With the planning and foresight of government officials, builders would enter the fray and acquire land for residential, industrial, or recreational purposes. There is strong perception that if builders are loaded with sufficient funds, there is no way in this world that they can be stopped from developing those ghost towns. Market research, planning, and concrete data are all fancy words for builders with deep pockets. To say that there is an utmost disrespect for planning & research would again be an understatement. Promoted as world-class real estate, there is perception that quality of construction is compromised in most of the final product delivered to the customer. The builder's focus on maximizing the profit often results in squeezing of the room-sizes and cut down on the open areas.

The question to be asked is how it is sustainable for builders to develop these ghost towns. Well, when party is on, the credit is available on cheap rates and there is always this heavy component of black money entering into real estate sector. However, when credit availability becomes tight and there is supervision on black money component, things start to change. This is what seems to be happening today and there seems to be no respite for builders from huge debt levels, customers’ lack of interest, and high rate of credit availability.

Will the bubble burst? Well, as long as entering of black money into the sector is not prohibited or controlled, this can continue although at slower pace than what we witnessed during 2003-2007.

• Media:

No one can deny the positive role of media in today’s times. However, there are occasions when media is perceived to be doing the services for politicians – builder’s nexus. As soon as the builders announce their 'world-class' projects with fancy western names, the media related to real estate development will go gung-ho about new development in the city and how it will shape the future of the city. Glorifying articles with questionable data related to infrastructure development will be published which forces customers/investors in believing about the merits of investing in these new ghost towns. Articles about roads, connectivity, metro projects, and industrial development will be published on a daily basis to lure people to invest in these new cities where no one lives for years before people actually start to move in. That movement of people however can take upward of 10 years is another matter. Maybe that’s the foresight of government officials or builders who don’t mind delaying the project since everything is in their favor and customers are at their mercy.

Case in point is the Noida extension fiasco in 2011-12, and promotion of upcoming airport on Yamuna expressway which was eventually canceled, etc.

• Investors:

Investors with unreported cash or income are the first ones to invest in these ghost towns. Where else can they park this hard earned money of theirs but for the real estate sector? What happens is the money which should have gone to the government in form of taxes would now sit in these ghost towns. The government with right intentions could have developed the necessary infrastructure with tax revenues which could have led to an organized economic growth in the region. But those are fairy tale stories and happen only in utopian societies.

• End users:

End users with modest income who have been sitting on the fence for all those years finally give in. They start buying for homes from investors in secondary market involving white and black transaction. Why white and black transaction? Well, to save on ridiculously high stamp duty and registration charges. And they just hope that situations like Campa Cola do not happen to them.

So, this is all about the existing perception. Can the perception be changed?

Yes, after all, we are all part of one common society and there is contribution from each one of us.


What can the Town Planning department or government agencies do to change the current perception?

1. There is already an effort being made by the government in bringing the real estate regulatory act. Although a small step, but this is a welcome step.
2. Land allocation process should be made transparent by auction mechanism or whatever the best possible alternative is.
3. Upcoming infrastructure in the city should be presented in the public domain credibly so that everyone has the information about the city development and therefore can participate in the process of real estate investment. The idea is to curb insider information practices wherein some investors connected to the policy makers make windfall profits and rest languish.
4. Project approval processes should be streamlined and made transparent. There is a wider belief among experts that by doing so, real estate costs can come down by whopping 20%.
5. Construction laws should be looked and analyzed on regular basis to improve the city development and curb illegal construction practices.

What can builders to change the current perception?

• Sell projects only when all the approvals have been obtained
• Clear distinction between carpet area and saleable area
• Clear deadline for project completion
• Third party supervision of construction quality

What can media do to change the current perception?

• Continue to report facts accurately about city development and upcoming infrastructure.
• Highlight the wrong practices by any of the participants in realty sector.

What can end-users do to change the current perception?

• Be an extrovert buyer. Ask questions before buying in a particular project
• Make payments in cheque and pay the taxes accurately.
• Thorough due-diligence
• Coming together with other buyers and forming a group

There is no denying that perception reflects reality. Even a single step of correction can go a long way in changing the reality of realty sector and change the current perception.

Cheers

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