wanted: full disclosure

In 2006,Anjali Ghorpade booked a flat with Nishiland Construction in Vashi,Navi Mumbai. She was impressed by the advertisement....

In 2006,Anjali Ghorpade booked a flat with Nishiland Construction in Vashi,Navi Mumbai. She was impressed by the advertisement in a newspaper that promised a high quality of construction and an array of furnishings. Last year,when she got possession of the flat,she was utterly disappointed. The flat actually fell far short of the dream home promised in the advertisement. Unfortunately,Ghorpades is not the only such case. In the absence of any regulation for misleading advertisements,buyers are routinely promising the moon and then delivering sub-standard houses.

In case of most of the products in the market today,you can see,touch and feel them,satisfy yourself about their features,read reviews,and in many cases,test-use them,and only then decide to purchase them. But in case of real-estate products,the situation is quite different. Here investors have very little to go by beyond the glossy advertisement,a site visit,and a tour of the sample flat (decorated with expensive furniture and fixtures,all shrewdly calculated to impress). With so little information,investors are expected to pay up money in advance for a product that will be delivered 12 months to two years later.

According to PSN Rao,founder-chairman of National Association of Realtors (NAR-India),A home buyer visualises most of the things that he is going to get. Whether his dreams are going to become a reality depends more on his luck and the developers goodwill than anything else. A flat with a forest attached,a house with sky and stars above,and so on these are not merely catchy lines in advertisements; they are downright misleading. He adds that in the absence of any law on compulsory disclosure,advertisements tend to take customers for a ride. Real estate is perhaps the most expensive one-time purchase that a buyer is going to make in his lifetime. The outcome of that purchase cannot be left solely to chance.

INFORMATION GAP

Only if complete information is available regarding the legal,financial and technical matters pertaining to the residential project can a customer make an informed choice. Unfortunately,a regulation in this direction is conspicuous by its absence. Neither are the developers statutorily required to make specific and true disclosures,nor are the customers aware of the enquiries they should make before taking a decision. The result: quite often the developer has not even bought the land for the project. All he offers is glib promises,and based on them customers risk their lifes hard-earned savings, says Rao.

Earlier,in a bid to protect property buyers,the Supreme Court of India had asked the Central and state governments and the Union law ministry to come up with guidelines on mass media advertisements by real-estate operators and builders. However,no law has been framed in this regard yet.

BUYERS WISING UP TO IT

Some degree of awareness is beginning to permeate into the sector. Recently,buyers have formed groups and have successfully presented and obtained remedy for their grievances from some of the countrys leading developers. Sanjay Dutt,CEO-Business at Jones Lang LaSalle Meghraj,says,While the need for greater clarity and transparency remains high,it cannot be denied that a historically unorganised market culture is now beginning to give way to correct practices. While there doubtlessly remains an unorganised segment of players catering to under-informed buyers,the interrupted boom has already brought about higher levels of accountability. The reason for the slowdown in demand in the recent past is that most buyers today know what they have the right to expect from a developer by way of true value,disclosure and accountability. This is a direct result of the increasing corporatisation of the Indian real estate.

NEED FOR NORMS

Rao suggests that the need of the hour is to bring a legislation called National Housing Projects Disclosures Act. This legislation should make it mandatory for a project developer anywhere in India developing a residential project to disclose in the prospectus all the specific details about the project. Echoing Raos views,Vineet Singh of 99acres.com says,In particular,there should be disclosure norms regarding the regulatory approvals received by the real-estate projects. Launch of realty projects should be allowed only after they have received all the regulatory approvals. At present,we see many launches where even six to 12 months or more after the launch,regulatory approvals are pending. This delays construction and frustrates customers. So,unless a specific set of approvals is in place,developers should not be allowed to raise money for a project.

ENABLING RIGHT CHOICE

Story continues below this ad

For customers to be able to make the right choice,developers must disclose all the physical,legal,and technological details of their housing projects. The disclosures that must be made compulsorily should include the builders name,project name,landowners name,status of land ownership,area of land for the project,project land use description in a standard format,total built-up area,FAR (floor-area ratio) permitted and utilised,ground coverage permitted and used,and the number of floors permitted and developed. Also included must be the status of various approvals,namely,layout plan sanction,building plan sanction,electricity and water sanctions,environmental clearance,fire safety clearance,lift clearance,technical specifications of the project,compliance to National Building Code and other codes pertaining to earthquake/structural safety.

These details must be made available to customers when they visit the site office and should also be included in developers advertisements. Only when these details are offered will there be transparency. Such complete disclosures will also raise the bar vis-à-vis developers accountability. When disclosures are made in a standardised format,customers will be able to compare projects. Customers and institutional investors banks and private equity players will be able to assess better the risk involved in investing in a project, says Rao.

According to real-estate experts,the legislation for compulsory disclosures should be a Central legislation since the matter pertains to customers all over the country. It could perhaps be prepared under the aegis of the Ministry of Housing and Urban Poverty Alleviation,also involving the Ministry of Consumer Affairs.

Today,the entire market is excited about the affordable housing segment. Rao says,We expect that developers are going to put up affordable housing projects and the great Indian middle class is going to buy them. In such a scenario,and against the backdrop of the housing sector bust in the US,it is necessary that India builds a robust regulatory regime. The governments liberal policies should not result in a situation that embarrasses the new government at the Centre. More importantly,such legislation will protect the common man and allow him to make informed choices while investing his hard-earned earnings.

praveen.singhexpressindia.com