The Indian real estate industry’s biggest problem is its negative image among the public. Home buyers do not trust developers to deliver projects on time.
There is a basis for this distrust. In the last few years, we have seen quite a few instances of delays in delivery of apartments which has spooked potential home buyers. This has negatively impacted home sales especially in markets such as Delhi/National Capital region.
Real estate developers will have to win back the confidence of home buyers to revive home sales. Adopting global best practices can possibly help in reversing the negative perception of the industry.
This is no longer a matter of choice. It is a given that in these tough times only professionally managed developers will survive. Government regulations such as Real Estate (Regulation and Development) Act, 2016 (RERA) have called for penalties against errant developers. This naturally means developers will have to focus on project management.
Developers will have to hire professionals and build organisations to efficiently manage projects. This is easier said than done. Real estate and construction industry has the highest shortfall in skilled professionals partly because there are not many educational institutions that offer specialised courses on real estate and construction sector.
One of the reasons RICS School of Built Environment, Amity University was set up was to churn out job ready graduates with specialised knowledge of real estate and construction sectors.
The other problem is real estate professionals in India do not really match up to global standards. International investors expect Indian real estate professionals to speak the language of international real estate. They are looking for business partners who have professionals with technical expertise on par with international standards.
This is possible only if the concept of ‘professional qualification’ in specialized fields within land, property and construction is taken seriously. While we have real estate professionals educated in architecture, engineering and other related streams, it is important that they study in specialized fields and acquire chartered qualification similar to qualification in other fields such as Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Chartered Accountant (CA).
RICS being a professional body offers chartered qualification (MRICS and FRICS) for built environment professionals that can be equated to a CA or a CFA. An MRICS chartered qualification signifies that the professional works to the highest industry standards. This chartered qualification is given to real estate professionals based on their professional work experience and education.
Real estate companies have realised that to win customer confidence and trust they would need self-regulation. This makes self-regulatory professional bodies all the more relevant because they provide property professionals with a chartered qualification in the form of globally recognized designations; equip them with technical knowledge, extend continuous learning and development opportunities and through regular monitoring, ensure that a strict code of ethical conduct is adhered to at all times.
While self-regulation is a much desired quality, the Indian real estate market lacks accountability unlike real estate markets in countries such as UK, US and Republic of South Africa which are fairly regulated by a number of bodies.
Real estate markets in these countries are regulated through legislation, voluntary schemes and self-regulation across town planning, building development and regulation of property transaction activities.
Standards and regulation in US and UK largely focus on the quality of buildings through building regulations and codes. Registration for developers is mostly voluntary and is seen as a mark of quality. Individual regulation or licensing is necessary for consumer protection and is therefore mandated by law for real estate agents. There are minimum standards laid down for brokers or real estate agents.
In the UK providers of residential housing usually conform with standards laid down by the National House Builders Council (NHBC) which provides warranty and insurance, covering 80% of new homes built in the UK. It also undertakes extensive consumer satisfaction research to provide builders with information on perceived quality of product and service.
In South Africa, there is statutory body called National Home Builders Registration Council (NHBRC) which mandatorily provides protection to all new housing consumers against building defects. This body also has trained technical staff and inspectors who are able to identify and fix problems.
RICS believes that there are three areas in India that need to be regulated-construction of buildings, buying and selling of property – including primary and secondary market, rental /management of buildings
A robust regulatory mechanism should include a combination of – legislation, regulation or enforcement of legislation, consumer redress and uniform standards.
India’s real estate sector has always been largely unregulated. This includes real estate agents who are the intermediaries between buyers and sellers. RERA passed in May this year seeks to regulate all real estate transactions in the country. This should hopefully take care of the regulation part.
The other area that needs attention is professional valuations. Needless to say professional valuations are important for a healthy property market because they form the basis of financing decisions, dispute resolution, taxation and various statutory applications.
International Valuation Standards (IVS) are a globally consistent set of practice standards that form the basis of high quality valuations. In India, the valuation profession is unorganised and not governed by any specific laws, authority or regulation. The lack of transparency and established standards for valuation of land and property has resulted in confusion over valuation of real estate companies, market value of land and property assets where over/under reporting of value, inflated valuations, unprecedented price escalations, inaccurate compensation to land owners etc are common problems.
There is a need to streamline property valuation practice in India by institutionalizing international valuation standards through the development of trained and accountable valuation practitioners. This is precisely how RICS is contributing.
RICS has developed and embedded international standards for property valuation, property measurement, construction measurement and land measurement which are recognised throughout the world.
While the Indian real estate sector has been slow in adopting international standards, the industry is now more open to it because of initiatives such as RERA and REIT’s (Real Estate Investment Trusts) which call for transparency in the sector.
India does lag behind mature real estate markets such as US and UK on many fronts. It will take the industry some time to evolve. But, clearly change is in the air. Real estate sector partly because of the need to win back buyer trust is focussing on adopting global best practices. Any kind of change takes time but we have at least made a beginning.
This article first appeared in Track2Realty
Sachin Sandhir is the Global Managing Director-Emerging Business, RICS
