A few of the industries that a common man deals with are in dire need of a Regulator. One of them is Real Estate.

There is no common definition of words like built up, loading, super-built-up, charging for parking, brokerage for renting, brokerage for buying and selling.

A builder does not have to tell the buyer whether the seller is a customer or whether he is selling from his own stock.

There are no accounting norms on how a sale is booked by a builder (which makes the builder’s shares and balance sheets far more difficult to understand).

What costs are common, what a builder can charge, how much time can he take by the time he forms a society to hand over the conveyance,  etc. etc.

Surprising that there is no uniformity – and the only person suffering is the client. Once the client buys a house, he again may not care – and thus he joins the large group which does not care!

The builder community has a very low or poor image amongst clients in general and even the investing community in particular. So when a builder makes a promise, most people are skeptical.

The other industry that needs a Regulator soon is the Financial Planning industry…..!! will do a detailed note…soon!


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  1. I agree with your concerns. I myself am one such victim (read customer) and have written about my travails and learnings at http://oshantomon.blogspot.in/2011/08/buying-apartment-my-experience.html
    HOWEVER, your demand for regulator rings alarm bells. I would like to know what you want the regulator to do.
    I believe I have a way by which I can address many of the concerns you articulated, without help of an additional regulator. The way is to ‘buy only ready to occupy apartments’ (more on this is given in my blog-link above). Choosing to buy readymade-apartments is one brahmastra in the hands of customers. If any customer chooses to buy a cheaper under-construction property(than a costlier readymade property), he is willingly taking the risk to save on cost.
    We have come to the current point (where builder calls the shot) because of the huge backlog of housing generated over 50-60 years (till the late nineties). An over enthusiastic regulator with incorrect priorities may shackle the housing sector again. I would recommend a regulator, only when there are no other options. An unnecessary regulator may become one more bribe-sucker in an already bribe-riddled housing industry.

  2. On the point of buying only ready to occupy apartment i remember one nice real life experience.

    My builder, during the time (2009-10) when Karnataka suddenly woke up to the environmental hazards caused on river bed by use of river sand in building, imposed a ban and there was period when sand was very difficult to get in B’lore.

    So, during that time builder used some other sand (from Andhra ?) which looked of very quality but was apparently not fit for doing plastering. I was one of those people who after booking the apartment used to visit it regularly for inspection of construction(with whatever little knowledge i had). Am sure many big builders don’t even allow such regular inspection/visit.

    So, after this round of plastering using the fine sand, within 10 of plastering the plaster started to come off even with gentle rubbing with bare hands. I promptly notified the builder about this and fought with him to change the plaster in my apartment. Which the builder did because of my ability to shout at high decibels at the wrong place (read in front of other customers 🙂 )

    For other apartments which suffered the same problem, builder just did another thin round of plastering with better quality sand on top of that, and then the putty, color etc etc…

    The buyer of ready to occupy apartments came to know about this problem only when they struck the nail on the wall after taking possession. LOL 🙂 Too late to do anything now, they live in fear of doing anything to the wall. They treat it like a painting!!

    There are many more such things which one cannot know in a ready to occupy apartment, like… Teak wood door’s are replaced with teak skinned door’s from china, can you find the difference once it’s painted and polished ??

    So God Bless the buyer of ready to occupy apartment too 🙂

  3. A regulator that sides with the builders! Not sure. The previous regulators TRAI / IRDA haven’t set a sterling track record.

    On the charges I have observed an interesting pattern. Flats in a particular area tend to be priced within a narrow band. The rest is just structuring. A builder may offer a low basic sale price and charge for everything else (club/PLC/electricity back up etc) or a higher basic price and throw in a parking/club membership free. It is like salary structuring.

    When you add up all the fixed and variable costs and divide by the area you get a number that will not vary too much with the neighborhood. The number itself is usually a big question mark.

    Another issue is delays. When I bought my first apartment there was no mention of end date but I was lucky to get it in time. Then came an end date and penal clauses. A builder today promises Rs 10 psf per month at max. Usually it is Rs 5. For ease of calculation assume a 2000 sq ft apartment @ Rs 4000 psf. The cost is Rs 80 lacs. Monthly penalty for delayed delivery is Rs 20k. Annual Rs 2.4lacs (Rs 1.2 lacs @Rs 5 psf pm).

    This means the builder does not need to finish the apartment ever. The customer has lent Rs 80 lacs at an annual interest of Rs 1-2 lacs. Lovely deal.

    Here we do not need a regulator but the government to simply announce that the penalty on late delivery of apartment should be the same as the late payment interest charged to customers and should progressively go up. What is needed is to make the contracts even for both sides. Today they are heavily loaded in favor of the builder.

    Similar things may be possible in quality of delivery as well.

  4. the artificial short supply in housing is caused by existing regulations: CRZ rules being made by babus and green brigade with no input from the locals,Urbal land ceiling act,rent control,arbitrary FSI rules.the builders themselves have gamed the system so that they benefit.
    yet,you want to trust another babu to solve the problems created by another set of well meaning babus?
    yet you dont believe the ‘skpetical buyer’ needs the babu to tell him when he is getting a bad deal? dont buy if the deal sounds shady!and shouldnt disputes be settled by courts.ofcourse the court system is broken,but fix that .dont appoint a babu to solve problems real and imagined.
    we dont need another babu to save us.

  5. @Raja,
    I would rate you an expert who has the ability and willingness to monitor the quality of your home/apartment as it comes up. You are also exceptional if you are capable of making the builder listen to you by shouting at appropriate places. What about lesser mortals like me who do not have these capabilities?
    I would find it easier to go for a readymade apartment. Hire a professional (or an expert friend like you) to give me advice and only then make the purchase. That way I save myself from the plight of your neighbours who did not track the apartment progress as it came up.

  6. @Pravin,
    Brilliantly put. I violently agree with all your points. If a problem can be solved by a ‘skeptical buyer’, there is little value in appointing an activist regulator. That is why I asked Subra to outline his wishlist for the regulator. If he wants a regulator who recommends a guideline (rather than enforce it), comes out with an exhaustive buyer checklist, I am fine with it.
    Fact remains that the so called evil-builder, whatever else he does, can never force me to buy the apartment. Freedom to purchase, delay the purchase till completion resides with customer and customer alone.

  7. @Sambaran,

    Am not an expert at all, just a normal guy who bought his first and only house till date. But what i did is what i did, spent lot of time trying to ensure my money is not siphoned up by some rouge builder, 08-10 were scary times isn’t it ?

    I missed to the mention the point, i don’t know of any perfect solutions to this problem. But i can say that having bought a flat in an apartment with ~150 housing units and after socializing with lot of the them, i have observed a few problems with each type of buying. Be it ready to occupy or under construction. So, you can say in my opinion there are lot of cons which can be added to your blog post.

    Also home loan rates for individuals are cheaper than the loan rates for builders. So if we all buy ready to occupy units, thereby denying cheaper credit to the builder, we can be pretty sure this higher cost of credit will start reflecting in the cost of units. Again am not sure of any sure shot single solution to this problem. But fixing few ground rules should help. Like

    1. penalty clause on non-completion on builder.
    2. Paperwork needed compulsorily before commencement and after completion. You must be knowing about the completion certificate issue in B’lore. Even the best builder’s don’t have it.
    3. The different ratio’s like SBA,Carper,Built up etc and how they have to fixed and communicated.
    4. And so much for regulators… i remember during those time even the govt itself was not sure about how it should apply the service tax on under construction flats. We suffered quite a bit because of this finally getting saved by a last moment clarification from the dept.

  8. You have raised the most prevalent concern. I have fought a big battle with the builder on super built-up area and carpet area. No clear guidelines to verify the builder claims. Unfortunately in most of the cases customer end up with less carpet area than promised in the documents. During the handover, I brought in professional surveyors and builder refuses the under area.

    The customer advances during the construction phase are diverted to other projects and we get a raw deal. The last 5% of the completion phase, I know many of my colleagues who have to get it done themselves incurring additional costs.

    Whether we need regulator is debatable, but I am of the view that builders should not be allowed to sell any projects during the construction stage. Let them sell only finished units so that customer is not at the mercy of the builders.

  9. i suggest, the regulator (if at all!) or government should decide, along with other matters, ratio of cash and cheque payments towards cost of housing !

  10. On the idea of Regulator, Can we have a regulator for PF office/dept please ?? 🙂

    Who can define, how much time it takes for having transfer in’s from old Pf to new PF A/c. Currently it happens by NEFT and gets reflected in the a/c anytime between a year or 2!!

    How much time it takes for sending the cheque details(yes there is a cheque detail in spite of bulk NEFT transfers) from accounts section to xyz section for such transfers.

    How much time it should take to give the payment to a person who has applied for withdrawal.

    Currently those people are stop enjoying my money at sub-optimal interest rates of 8-9% while SBI is charging me 12.75% on my home loan on a OD A/c, where i can save interest by keeping my money.

  11. @bharat shah. whynot dowry amounts,tuition fees,my maid’s salary and everything else.since you trust an unknown babu to determine important things like how you pay your housing costs,it shouldnt be too difficult to let them determine other important things too.
    i mean why grow up into adults at all,if we want others to tell us what to do.

  12. omg,see what you have unleashed here subra.some of us want a regulator for PF and post office?! holy ganga.now i understand why anna hazareji has lots of blind support for a lokpal.
    the rather saddening idea that babudom will save us from our miseries,while tempting has been traversed by many generations of people with disastrous results.

  13. @pravin
    i think you might not see the’!’ i put at the end. however i grasp what you put between the lines.

  14. Ha ha ha… @bharat shah @pravin,

    Looks like first we need to go back and discuss/decide/define on what criteria an industry needs to fulfill to have a regulator.

    May be a vast majority of population involved and thousands of crore of money involved is not a good enough criteria 😉

  15. Recently I came to know how well the real estate industry is regulated in singapore.We might as well take some lessons from there. All the monies paid by the client goes to a escrow account.the builder cannot siphon off the money to his other projects. A lawyer is appointed to help the buyer in the purchase (compulsory) .The last 10% is retained and released only after one year of completion by the banker on getting a clearance from the buyer that he is completely satisfied. any complaint noticed by the buyer is hence ensured that it is attended to.The top (completion date) is announced right during the launch of the property and usually completed months in advance. the URA website gives you details of the no. of flats launched,no sold with prices and month of sale with graphs so much transparency. My 25 year old daughter just went ahead and bought her home single handed with none of us helping her in any way.

  16. @Raja,

    You said:
    “So, you can say in my opinion there are lot of cons which can be added to your blog post”
    Can you please list out those cons? You may list it here or at my blog (wherever you wish).

    You said:
    “May be a vast majority of population involved and thousands of crore of money involved is not a good enough criteria ”
    I am not convinced that large sum and large stakeholder alone merits a regulator. If ‘skeptical customer mechanism’ can work, no need to bring in regulators for builder-customer relationship.

  17. @ TK Vani,

    That’s a very good process. From my knowledge even here in Taipei, Taiwan a similar process is followed. Although i don’t have the full details.

    “skeptical customer mechanism” can ensure no need for a regulator ? Hmm…I guess in that case we didn’t need a RBI,SEBI,IRDA too. US has already given us all a few good examples of what can go wrong when regulator and regulations relax. We need to study other’s flaws and learn from them.
    Regarding listing cons, I would love to post it in your blog…you can already get my flow of thought from the points mentioned above. Will try to do a detailed reply on that point in your blog sometime 🙂

  18. “US has already given us all a few good examples of what can go wrong when regulator and regulations relax”

    er,so who will guard the regulator? are YOU going to vouch that the regulator will not be unduly influenced? regulators are a lazy person’s cure for all diseases

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