FICCI-E&Y study says 82% of developers feel the need for a regulator  

November 12, 2009

The Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young (E&Y) have said in a report that about 82% of developers in the country feel that a real estate regulator should be established, similar to those that regulate the stock market and the telecom industry, as long as it creates a platform for fair practice, helps in standardising rules and regulations across states and facilitates fast-track dispute settlement. 

In a report titled, ‘Staying real in India: What makes Indian real estate resilient and an exploration of opportunities?’, FICCI-E&Y said that the rest of the developers were apprehensive that it (the proposed regulator) could well turn out to be another bureaucratic hurdle. They believed that taking care of the rights of a consumer could be achieved by the setting up of a fast-track consumer court or tribunal instead, as they believed that the sector was already over-regulated, the report said.

According to the survey report, the sentiment over the real estate sector was optimistic, with 77% of the respondents across the country believing that the pain was short-lived this time. The market seemed to have recovered faster than most expected.

Interestingly, 64% of the respondents believe that it was the market sentiments that fuelled the slowdown. However, many warn that the quick recovery, frantic buying and new launches could once again cause a real estate bubble and advise cautious planning.

The survey said that the real estate segment seems to be one of the worst-hit sectors across all geographies in the economic slowdown, given the peculiarity of the sector. In addition to high taxes, transaction costs continue to remain high across geographies and need rationalisation. In India too, stamp duties need to be consolidated with GST with an appropriate credit mechanism to provide an impetus to the sector. "Green shoots seem to be visible and it is encouraging to note that a majority of the stakeholders are optimistic and believe that the sector is on the threshold to recovery. The residential segment appears to have emerged as the most attractive and resilient asset class,” said Ganesh Raj, partner and national leader for real estate practice, E&Y.

The residential segment is the most resilient asset class and is leading the way to recovery. The mature markets of Delhi and Mumbai saw the high-end residential segment continuing to be relatively strong compared to the rest of the country, though sales had considerably slowed down, the report said.

Most respondents were ambivalent about the term 'affordable housing' and emphasised that it was relative—what is ‘affordable’ in one city is clearly in the premium range in another and factors like execution risks, input cost of land and construction need to be contended with.

With regard to Tier II and Tier III cities, the survey has come out with some interesting findings. It found out that the belief in expanding to medium and small cities is on shaky grounds currently, with most developers focusing on Tier I cities. North India is the one region that still expressed a desire to move to Tier II cities which could be attributed to the development of belts like the Kundli-Panipat belt.

Some investors on the other hand are wary about working in Tier II and Tier III markets in the short term. They believe fundamentals in these markets with regard to economic activity and consumer base will take some time to mature, the survey pointed out.

According to the report, Delhi continues to be the preferred choice of developers and investors in the real estate sector, with Mumbai coming in at a close second position. The key factors that have helped Delhi retain this rank are the fast-paced improvements in physical infrastructure such as the functional metro railway, modernisation of the international airport, road-widening projects, and dedicated efforts to make the ring roads signal-free, the report explained.

Mumbai, a close second, scored better on the business environment index although the pace of infrastructure development in the city has been slower, pushing it down by a notch in the ranking among 30 cities across the country.

Dr Amit Mitra, secretary general, FICCI, said, “The economic growth in the country is boosting industries like life sciences, logistics and warehousing. Development and environment must co-exist—that is the route that we must strive hard to imbibe and adopt. These emerging concepts are today giving a whole new meaning and dimension to real estate development in the country." -Yogesh Sapkale [email protected]