Every economic activity which generates substantial revenue, has a competitive playing field and enjoys an extensive interface with customers needs a regulator. It is necessary to have a regulator to ensure that buyers get a fair deal, that there is reasonable competition in the industry and that sellers do not form cartels so that they can extract exorbitant prices from buyers. People commonly mistake a regulator for a government-appointed administrator who will take some arbitrary decisions, mostly on behalf of the powerful and the rich. Therefore, two issues are very critical for imparting some degree of credibility to the regulator: the process chosen for appointing a regulator and the decision of who gets to be the regulator’s boss, or in other words who pays the regulator’s salary.
Many important economic activities in India continue to thrive without a regulator. Housing construction is one such industry, if it can be called an industry at all. The sector is rampant with malpractices and the rules are heavily loaded against the consumer. Sure, there is always the option of seeking recourse in the courts, but the prospect is a deterrent in itself.
There are scores of irate customers who, after having paid good money to builders upfront, are still awaiting possession of their dream homes. Most of these errant builders take money from prospective buyers, start the construction process, divert the money elsewhere (more on this later) and then come back to the customer with a plea that costs have escalated and the customer needs to pay more money so that the builder can finish his construction and the buyer can take possession of his property. Having already coughed up a substantial amount, the customer has no option but to pay up. There are many property buyers in Mumbai who have been waiting for over three years to get that all-important, and elusive, piece of document called “occupation certificate”.
Many builders delay construction when they see property prices rising in the neighbourhood. Having initially lost out, they then delay construction and squeeze out the additional margin from the hapless customers. There are also many builders who divert funds to their other businesses.
Then there is this ambiguous practice of measurement. Mumbai builders charge customers on the built-up area but Kolkata builders still charge for the super built-up. There is no uniformity in the rules. Plus, there are the usual stories of promises reneged, the half-truths about measurements and amenities, the failure to hand over the building to society members, the illegal sale of parking lots.
One can argue that the local municipal laws apply to builders and, by that token, the local corporations can be considered as the regulators. But, going by the track record of the municipal corporations, this would be a grave mistake. Most corporations are over-staffed, inefficient and excessively corrupt. Their duty to the citizenry ends with collecting stamp duty for registering the property, and then wheedling out property tax from these same house-owners every year.
There have been sporadic discussions about the need to for a housing regulator in the past. Maharashtra’s minister of state for housing, Sachin Ahir (NCP, MLA from Worli) had promised in November 2009 that the government would give priority to the proposed housing regulatory authority – the Maharashtra Housing Regulatory Commission Bill has been in pause mode for over a year. But, the micro-structure of the Bill needs to be debated – there has been very little discussion about the Bill in the media and by civil society. For instance, one provision in the Bill seeks to direct every builder to keep aside a percentage of apartments for the middle and lower income groups in every project. We have already seen how builders have subverted this rule (by selling two-three contiguous flats to the same buyer) in the past.
And, why have only a regulator for only Maharashtra? The industry needs a national regulator. It can be argued legitimately that since Maharashtra’s problems are different from the rest of the country, it needs a separate regulator. True. But, by that same logic, Mumbai’s housing problems are very different from Pune, which are very different from Nashik, which are completely unlike those in Nagpur. In addition, a local regulator is kind of beholden to the local politicians, who tend to be closer to the local builders. As mentioned in the first paragraph, if the formula for appointing a regulator and finalizing his reporting structure is water-tight, we might still see some good coming out of the housing industry.