Realty woes; reality bites

Realty woes; reality bites

Real estate continues to lurch from one crisis to another and while a few companies or executives can be blamed for the problem of the day, the continuing woes of lenders, buyers, and the companies themselves point to larger structural issues that need to be addressed.

Few businesses in India are as opaque as real estate. Archaic land use, titling, and tax laws result in real estate companies operating through tens of subsidiaries, some of which hold their land banks, and others which develop their projects.

The fact that they dabble in land, the currency for much of the political corruption that ails India, means that real estate companies have to manage an environment which is far from conducive to transparent functioning. This cascades into a similar environment for buyers. Some developers encourage, even insist on part- or all-cash transactions. Worse, it also cascades upwards, which means that if there is hot money in the system, it invariably finds it way into real estate companies.

And the absence of rules and regulations hurts everyone in the system, including the buyer who often has no recourse should a project be delayed (sometimes forever). This also means that definitions can vary from developer to developer, making it next-to-impossible for buyers to compare properties or even understand what they are really buying. Then, it’s hard to ignore the near-total absence of proper land titles in India and the impact this has on the real estate business.

The structural issues explain why this is a business prone to excessive volatility, and vulnerable to frauds and scams. Some of the issues that make real estate as opaque a business as it is in India can be easily addressed. For instance, a grouping of developers can easily arrive at industry standards. And better disclosure norms and consumer protection laws can protect buyers. Other issues aren’t as simple. The government would rather ignore the titling issue. And there seems to be no way to prevent the two-way flow of money between politics and real estate. After all, in a business with as many structural constraints as real estate, political patronage is a competitive advantage. Now, if only it were sustainable.

How can real estate in India be made less opaque? Tell us at