KKIMRC IJRHRM Vol-01: No- 01 Sep-Nov 2011

A Review on Indian Real Estate: Trends, Challenges and Prospectus

1
Dr. Ashok Bansal, 2 Mr. Rajeev Sirohi and 3 Manish Jha
1. Associate Professor- D.A.V. College, Pehowa (Kurukshetra),
ashokbansal2729@yahoo.co.in
2. Asst.Professor -Department of Management
Haryana College of Technology & Management
5th Milestone, Ambala Road, Kaithal, Haryana-136027
rpsirohi@gmail.com
3. Asst. Professor (Department of Management)
Panipat Institute of Engineering & Technology
70th km milestone Vill- Pattikalyana, Samalkha-Panipat
Haryana-132102-emjay4@sify.com

Abstract

The real estate sector in India is presently worth USD15 billion and it is growing at a phenomenal rate of
30% per year. This sector is the second largest employer in India, after the agricultural sector. Having
attained maturity, the real estate sector is attracting huge investments, especially FDI. Today, real estate
in India addresses the demand for built-up space, from a variety of property segments such as offices,
residential units, shopping malls, hospitality industry, manufacturing sector and logistics parks, to name
a few. The real estate sector is also active in the establishment of SEZs and the building of townships; it is
spreading to the smaller cities and underpins their growth. The concept of green buildings is being
adopted by the sector, testifying to a significant emphasis on sustainability considerations. Infrastructure
developments closely parallel real estate developments. This paper presents a panoramic view of the
operations of Indian real estate sector in various property segments, the challenges faced by the sector
and its prospects. The contents of this paper are based on research reports and other eminent published
sources. This paper will be useful to a cross-section of readers, more particularly so to those associated
with the real estate sector.

Keywords: FDI, Infrastructure, Real Estate, Township.

I. INTRODUCTION
The term real estate is defined as land, landlords, developers, builders, real estate
including the air above it and the ground agents, tenants, buyers etc. The activities of
below it, and any buildings or structures on the real estate sector encompass the housing
it. It is also referred to as realty. It covers and construction sectors also. The real estate
residential housing, commercial offices, sector in India has assumed growing
trading spaces such as theatres, hotels and importance with the liberalization of the
restaurants, retail outlets, industrial economy. The consequent increase in
buildings such as factories and government business opportunities and migration of the
buildings. Real estate involves the purchase, labour force has, in turn, increased the
sale, and development of land, residential demand for commercial and housing space,
and non-residential buildings. The main especially rental housing. Developments in
players in the real estate market are the the real estate sector are being influenced by
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the developments in the retail, hospitality builders have not overstepped, North
and entertainment (e.g., hotels, resorts, Americas largest condominium market,
cinema theatres) industries, economic Toronto keeps erecting high rises, but a
services (e.g., hospitals, schools) and greenbelt boundary to encourage denser
information technology (IT)-enabled neighborhoods helps support urban
services (like call centers) etc. and vice residential development. Toronto probably
versa. The real estate sector is a major needs to take a breather in new office
employment driver, being the second largest construction: four major new buildings
employer next only to agriculture. This is come on stream. And the country does not
because of the chain of backward and need much additional retail space. Ontario
forward linkages that the sector has with the typically provides good industrial
other sectors of the economy, especially development opportunities, but until the
with the housing and construction sector. U.S. economy strengthens, sluggish demand
About 250 ancillary industries such as does not support much new building.
cement, steel, brick, timber, building Canadians admirably restrain any national
materials etc. are dependent on the real gloating, but they can lay claim to having
estate industry. one of the worlds healthiest capital markets.

I.I International Trends In The Real I.I.II Mexico

Estate Growth Mexico offers obvious positivesa hard-
I.I.I Canada working population, an expanding middle
Canada barely experienced recession and class, and the resulting increased demand for
jolted into a V-shaped recovery, now, 2011 homes and consumer goods. But everybody
promises slowing, steady growth and decent reads about mind-blowing drug wars, police
prospects for real estate investors as long as corruption, and political assassinations. In
the U.S. economy does not drag them down. addition, real estate markets hit the skids
Relieved Canadian property owners and when the U.S. economy tanked. Prices
financial institutions cannot help contrasting declined 30 to 35 percent and now
their reasonably healthy condition with recovermore than halfway backbut
parlous U.S. markets. Recent experience its been tough sledding. Mexican investors
puts Canada in a better place and boosts did not over borrow, patient equity players
confidence that we can escape U.S. take a patrimonial view and count on
problems. Always linked to its more long-term returns, relying on healthy
populous southern neighbor, the nation demographics and controlled development.
tries to diversify beyond a dependence on In fact, most cities and property sectors have
U.S. exports, extending trading relationships avoided overbuilding. Boosters suggest that
to Europe and Asia, particularly China. Still, markets now align for significant growth
a weak U.S. greenback and sputtering U.S. from pent-up demand, and highlight
economy dampen cross-border commerce, opportunities to fill the remaining capital
hurting especially Ontario industrial gap. Theres a large hole to fill, especially
markets, which serve Midwest for construction loans. New laws allow
manufacturing centers. Except in Calgary, domestic pension funds to invest in real
Canadas version of Wild West hot growth, estate and infrastructure, which could

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increase property market liquidity and so much capital/ amount for purchasing &
demand for product. Most multifamily developing such a house or properties.
housing is owner occupied and heavily Trading is one of the reasons for the rise in
government subsidized. Developers receive prices, as a high potential nation
a guaranteed return over ten-year periods industrializes slowly and steadily. Many
without much upside. For-sale housing builders have stepped in the realty sector
remains supply constrained by lack of and they are buying old houses, renovating
construction financing, while the second- them and selling them off at a huge profit.
home market went off the cliff when U.S. Across the length and breadth of India, real
retiree demand evaporated. Government estate prices are skyrocketing, as NRIs and
planners encourage future development to foreign firms fuel the demand of residential
focus on more urban concepts and city and business space.
centers, getting away from expanding
suburban envelopes. The road-dependent I.II.I Realty on the upsurge
sprawl model, copied from the United BANGALORE: India's real estate
States, reaches the point of diminishing investment market has grown rapidly over
returns, creating hardships for many the past three years. Average return of
Mexicans who cannot afford cars or cannot around 50 percent per annum in the sector
support multi car households. for last four years has attracted huge
investments from various quarters. The main
I.II The Growth of the Real Estate in sources of investments in the sector are high
India: net worth individuals (HNI), private equity
Indian present realty is growing at 30%, funds and now the foreign direct
particularly in Tier II and Tier III cities. The investments (FDIs) as the government has
rise of the middle class ( 500 million ), Non partially relaxed FDI regulations in Feb
Resident Indians investing in Indian realty, 2005. According to global consultancy firm
Foreign Direct Investment entering the CB Richard Ellis, the response from foreign
market, expansion of MNCs and Indian investors is overwhelming. In a report, the
multinationals, proliferation of educational firm says that by varied estimates, more than
institutions, growth of IT, BPO, food $15 billion (Rs 70,000 crores) of foreign
processing & health care & increase in the funds are awaiting investments into India.
income of middle class - all these are the In the last one and a half year, domestic
factors responsible for the growth of Indian realty funds have also raised $4.5 billion (Rs
realty. Chandigarh, Gurgaon, Vizag, 20,500 crores) to invest in the real estate
Coimbatore, Kochi, Jaipur, Nagpur are some sector. However, there is no official estimate
Tier II cities witnessing unprecedented made on the investment from HNI group.
boom. Real estate prices are now not But according to banking sources the
affordable to the common man. NRIs, amount could be anywhere around Rs 1 lakh
traders, well settled doctors, lawyers, crore.
engineers are ready to spend crores for their
dream lands. After purchasing these lands, NEW DELHI: Mumbai slipped by one
they spend lot of money on construction. It place to sixth in the list of the world's most
is not possible for common man to arrange expensive office locations in 2011,

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according to global realty consultant growth of the city. The main task of real
Cushman & Wakefield. The 2011 list was estate counselors is to give advice about
topped by Hong Kong, while London and property. There is a constant need for the
Tokyo came second and third in the skilled employees in government agencies
rankings, which valued Mumbai's office and private firms related to appraising,
occupancy cost at USD 114 per square foot developing, merchandising and financing
a year. India's financial capital occupied the the residential, industrial and commercial
fifth position in 2010, Cushman & real estate.
Wakefield (C&W) said. Apart from being
overtaken by Rio de Janeiro, Mumbai CBD I.IV Foreign Direct Investment (FDI) in
(Central Business District) lost one position Real Estate:
on the global ranking also because of the The decision to liberalize the FDI norms in
fact that it has not seen any change in the the construction sector is perhaps the most
rental values over the previous year. significant economic policy decision taken
by the Government of India. Until now, only
I.III. Employment in Real Estate Sector: Non-Resident Indians (NRIs) and Persons of
Real estate industry is one of the flourishing Indian Origin (PIOs) were permitted to
and dynamic sectors in India. This sector has invest in the housing and the real estate
witnessed constant growth in India. The real sectors. Foreign investors, other than NRIs,
estate sector is the second biggest were allowed to invest only in development
employment generator in India. Real estate of integrated townships and settlements,
business covers various activities such as either through a wholly owned subsidiary or
development, appraising and selling of through a joint venture company in India,
buildings. The scope of employment for along with a local partner. However, the
estate brokers & agents are very bright in guidelines prescribed via Press Note 2
India. Career in real estate development (2005) series, issued by Ministry of
covers various areas such as residential Commerce & Industry, have further opened
brokerage, commercial brokerage, industrial out FDI in townships, housing, built-up
and office brokerage, property management, infrastructure and construction-development
land development, real estate appraising, projects. Major corporations are taking
urban planning, real estate counseling and initiative and are wooing international
real estate research. Land development is players soliciting investments for major
one of the most significant specialties in real projects.
estate industry. The developers use the
vacant land to construct the government I.V Indian Real Estate-Opportunities and
offices, industrial estate, commercial offices, Challenges
residential townships, multiplexes, factories, Indian real estate boom has been partly
hotels and restaurants, entertainment centers backed by the revolution brought about by
and shopping malls. The residential and private banks in the Home Loans business as
commercial brokers help the people to sell it has proved to be the most lucrative
and buy homes and income-producing segment for the Indian banking industry as
properties. The urban planners work with well. Firstly, it is the sustained high growth
local government to anticipate the future rate of GDP and increasing GDP per capita

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in the country providing an impetus to the Besides these, favorable reforms ensuring
real estate demand across segments. easy project financing, increased fiscal
According to the recent FICCI report: the incentives to developers and simplification
last three years have seen real GDP rise a of Government procedures are the few of the
cumulative 26 per cent, with impressive bottom factors that have catapulted the
increases of 8.5per cent in 2003/04, 7.5per growth in this sector. In pursuance of the
cent in 2004/05 and 8.4per cent in 2005/06 expected growth that this sector will take,
on the back of the robust growth across the future is full of challenges. In the
industries. Thus, setting into motion the commercial office segment, in spite of the
demand for commercial / industrial as well huge demand, the developers may have to
as residential real estate. Secondly, the huge face heat from the ups and down of other
demographic shift being witnessed in the sectors since this segment, in particular, is
country in the last decade is cited as one highly dependent on the performance of the
more reason behind the sectors exponential Indian IT/ITES. Any unforeseen downturn
growth. The increasing rate of life in the business prospect of IT/ITES industry
expectancy, declining infant mortality and a would have a significant impact on the
high but falling birth rate in the country have vacancy levels of the upcoming commercial
created an additional demand for housing office space stock in the country. Secondly,
and infrastructure for the ever-increasing with the introduction of the SEZ policy, it is
burgeoning population. An estimate shows believed that a significant amount of the
that the present 1.1 billion Indias office space demand will be targeted in
population would touch 1.5 billion by 2030, SEZs. Though, the current SEZ policy does
thus edging out China as the most populous not allow the migration of existing units to
country in the world. Coupled with the SEZs, in case such migration becomes
significant rise in the working population possible, the market will witness supply of a
and dependency ratio below 50per cent, it is huge stock of un-used office space, which
expected it would generate higher personal will lead to substantial crash in rental and
savings and stronger investments, resultantly capital values in the segment. The real
boosting the growth of real estate further. challenge for the reality players, therefore,
Urbanization is seen as another underlying lies in estimating the market demand and
macroeconomic factor that is fostering the validating supply of any additional
growth in India. According to the estimates commercial space. While in the residential
of United Nations Population Division, the segment, if one goes by the Planning
urban population of India will grow at a rate Commission report there is a shortage of
of 2.5per cent per annum for the next two approximately 9 million units; and this
and a half decades, doubling it to 600 deficit, as per the Asian Development Bank,
million people by 2030. And according to would escalate to around 22 million units by
Census of India estimates, 41per cent of the 2007/08, and up to 10 million units by 2030.
total population will be living in the urban The most deterring challenge that would
areas by 2011, thus triggering an increase in come on the way would be the product
demand for space in these areas. differentiation and correct understanding of
the consumer needs. These challenges would
be applicable to both the national or

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international players as the consumer confronted with more problems than just the
preferences in India vary from one location changing characteristics of real estate. While
to other and brand value in a highly operating companies strive for more
competitive market would be stiff without autonomy, corporate headquarters are
substantial product differentiating factors. increasingly struggling for a synergetic
Another segment that would gain approach to corporate resources and
momentum is the hospitality sector. capabilities. Findings by (Bossink et al.,
According to the Ministry of Tourism, 2007) revealed that an incremental real
Government of India, there are an estimated estate strategy is ambiguous, and does not
1.2 million hotel rooms in the country, of support any of the three competitive
which star hotels account for a mere 7per strategies. According to (Scheffer et al.,
cent (approximately 80,000 rooms). The 2006) many corporations still lack sufficient
Ministry forecasts that there will be a total insight into the impact of corporate real
2.9 million hotel rooms in India in 2010 and estate decisions on corporate performance.
2020 respectively. From the real estate Therefore, it is difficult for senior
perspective, the biggest deterrent in the management and other stakeholders to grasp
growth in this segment could be the delay in the actual contribution of corporate real
further relaxation for FDI in the sector. estate. While (Franklin Becker & Arthur
Although the expected continuance of Pearce, 2003) found that as large
consumerism will drive the retail demand, organizations grow and evolve, they face the
which will be substantially be catered by challenge of accommodating change in a
domestic retailers, the market will still be manner that contains costs while
limited till the entry of global realtors. So strengthening the firms competitive
far, one point that has come out from the position in the marketplace. Invariably, not
reality boom is that with the entry of global only initial capital and long-term operating
realtors in conjunction with the national costs, but the effect of the real estate
players, the industry is poised to experience decision on the firms ability to attract and
a landscape change. These players should retain staff, and their ability to work
watch for these trends and suitably define productively, must be considered. The real
their strategies to succeed in this rapidly estate industry is very broad and diverse in
emerging market. terms of jobs and functions within the
industry. Appraisers, loan officers, escrow
II. LITERATURE REVIEW officers, title associates, real estate lawyers
According to a study conducted by and accountants, agents, and brokers
Louargand (1999), a firms real estate represents some of the diverse work
exposure can have a pronounced effect on environments in the real estate industry
the way investors value the enterprise in its (Chan & Kleiner, 2005). A Definition given
entirety. However Pfnuer et al. (2004) feels by (Liow Kim Hiang & Joseph T.L. Ooi,
that real estate decision making is based 2000) on corporate real estate (CRE) refers
upon an insufficient information basis and is to the land and buildings owned by
dominated by the investment perspective. companies not primarily in the real estate
(Dewulf et al., 2000) Suggested in his business. Given a large concentration of
studies that managing corporate real estate is corporate wealth in real estate and that

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management is committed to increasing brought a new investor audience to the

shareholders wealth. sector. Studies had been also done by
(D'Arcy & Taltavull, 2009) to find out the
(Audrey Schriefer & Jyoti Ganesh, 2002) systematic review of real estate education
says that Tools for real estate planning, provision in Europe directly related to
acquisition, disposition and portfolio changes in the structure of real estate
management have improved dramatically markets. Research by ((D'Arcy, 2009)
over the past several years, creating new addresses the information costs and new
potential for corporate real estate executives information requirements necessitated by
to deliver workplace solutions in a timelier, internationalization has been a key driver of
cost-effective manner throughout the institutional formation. Both regulatory and
occupancy life cycle. There are numerous informal barriers to internationalization have
risks involved in the development of real also been important drivers of the evolution
estate (Atherton et al., 2008) by allowing of new institutional arrangements to support
the decision maker to contribute to the internationalization.
assessment of these risks, the analysis
provides the decision maker with a greater III. CURRENT SCENARIO
understanding of the critical variables and It is difficult to estimate the exact
their impact upon the viability of the final contribution of the real estate sector to gross
scheme. However (Michael Booth, 2000) domestic product (GDP) as it appears in a
felt that Shareholder value must remain disaggregated and dispersed form in the
central to the attention of corporate real National Accounts Statistics. Residential
estate officers (CREOs), even though senior housing and real estate services (activities of
executives have a number of competing all types of dealers such as operators,
agendas. One reason for this is that developers and agents connected with real
shareholder value is a vital performance estate) is covered under the category real
indicator for any important ancillary service; estate, ownership of dwellings, business and
another is that CREOs can help to improve legal services. The gross value added in the
shareholders wealth in a unique way. Very ownership of dwellings is equivalent to
often, however, property has accumulated gross rental of the residential dwellings less
through pure inertia or lack of management cost of repairs and maintenance. Gross
focus. Consequently, for many companies, rental is estimated as a product of average
real estate is not adding shareholder value gross rental per dwelling and the number of
and it is perceived to be an operational census dwellings and includes imputed rent
pain felt by (Matthew Hill, 2001). A of owner-occupied houses. The rentals of
Definition by (Roper, 2001) says that the industrial/trading establishments are
Relationship management is a tool used deductible expenses from the profits of these
within the real estate department and applied establishments but appear as profits of the
to major client business units to bring the business or company renting out the
focus on the need for better understanding of premises. Similarly, implicit rents on self-
the business of the business. (O'Roarty, owned real estate is accrued as profits from
2009) says that the shift in capital towards business and is difficult to separate from
real estate at the beginning of the decade non-real estate profits. The addition to the

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stock of real assets with these businesses This legislation fixed a ceiling on the vacant
appears in the business accounts as capital urban land that a person in urban
addition. In the national accounts it would agglomerations can acquire and hold. A
appear under the head gross fixed capital person is defined to include an individual, a
formation construction. Value of family, a firm, a company, or an association
construction output is the additions made to or body of individuals, whether incorporated
the stock of real estate assets in the public, or not. This ceiling limit ranges from 500-
private and household sectors. The 2,000 square meters (sq. m). The Act
contribution of construction to GDP is the provides for appropriate documents to show
estimate of value added derived from the that the provisions of this Act are not
corresponding estimates of this value of attracted or should be produced to the
construction output. Registering officer before registering
instruments compulsorily registrable under
the Registration Act. This legislation was
IV. LEGISLATIVE ISSUES repealed by the Centre in 1999. The Repeal
Much of the over 100 laws governing Act, however, shall not affect the vesting of
various aspects of real estate dates back to the vacant land, which has already been
the 19th century. Despite the plethora of taken possession by the State Government or
laws, the situation appears to be far from any person duly authorized by the State
satisfactory and major amendments to Government in this regard under the
existing laws are required to make them provisions of ULCRA.
relevant to modern day requirements. The
Central laws governing real estate include:
IV.III Land Acquisition Act, 1894
IV.I Registration Act, 1908 This Act authorizes governments to acquire
The purpose of this Act is the conservation land for public purposes such as planned
of evidence, assurances, title, and development, provisions for town or rural
publication of documents and prevention of planning, provision for residential purpose
fraud. It details the formalities for to the poor or landless and for carrying out
registering an instrument. Instruments which any education, housing or health scheme of
it is mandatory to register include: the Government. In its present form, the Act
(a) Instruments of gift of immovable hinders speedy acquisition of land at
property; reasonable prices, resulting in cost overruns
(b) Other non-testamentary instruments
which operate to create, declare, assign, IV.IV State laws governing real estate
limit or extinguish, whether in present or in While each state has its own set of laws,
future, any right, title or interest, whether which govern planned development, rules
vested or contingent, to or in immovable for construction and floor-area-ratio (FAR)
property; or floor space- index (FSI) and formation of
societies and condominiums, two laws that
IV.II Urban Land (Ceiling and exist in every state, are the stamp duty and
Regulation) Act (ULCRA), 1976 rent laws. Stamp Duty is being covered in a
later section.

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boom as has happened in many major cities

all over the world.
IV.V Rent Control Act
Rent legislation in India has been in V. TAXES AND STAMP DUTY RATES
existence for a very long time. Rent control V.I Stamp Duty
by the government initially came as a There is a direct link between Registration
temporary measure to protect the Act and Stamp Act. Stamp duty needs to be
exploitation of tenants by landlords after the paid on all documents which are registered
Second World War. Rent legislation and the rate varies from state to state. With
provides payment of fair rent to landlords stamp duty rates of 13 per cent in Delhi,
and protection of tenants against eviction. 14.5 per cent in Uttar Pradesh and 12.5 per
Besides, it effectively allows the tenant to cent in Haryana, India has perhaps one of
alienate rented property. Tenants occupying the highest levels of stamp duty. Some states
properties since 1947 continue to pay rents even have double stamp incidence, first on
fixed then, regardless of inflation and the land and then on its development. Most of
realty boom. Some of the adverse impacts of the methods to avoid registration are
the Rent Control Act are: basically to avoid payment of high stamp
duty. 7.6.28 fallout of high stamp duty rates
Negative effect on investment in housing is the understatement of the proceeds of a
for rental purposes. sale. This is also linked to payment of
Withdrawal of existing housing stock income tax and capital gains tax. When
from the rental market. registration has not been effected, a transfer
Accelerated deterioration of the physical is not deemed to have taken place and hence
condition of the housing stock. capital gains tax can be totally avoided.
Stagnation of municipal property tax Thus, the present provisions in various laws
revenue, as it is based on the rent. and their poor implementation have led to a
In the absence of rent control, dilapidated situation where there is considerable
urban housing would be periodically pulled financial loss to the exchequer on account of
down and replaced by modern apartment understatement of sale proceeds, no
buildings and other complexes leading to registration and consequent non-payment of
more rational use of prime locations and stamp duty and avoidance of capital gains
also creating a continuous process of urban tax.
renewal. This has not happened in India
because rent control combined with security V.II Property Tax
of tenure provides no incentive for house Property tax is a levy charged by the
owners to undertake renovation work. This municipal authorities for the upkeep of basic
explains the run down appearance of many civic services in the city. In India it is the
of our buildings in prime locations, which owners of property who are liable for the
gives Indian cities a much more shabby payment of municipal taxes whereas in
appearance than their counterparts in other countries like the United Kingdom, the
developing countries. Repeal of the Rent occupier is liable. Generally, the property
Control Act could unleash a construction tax is levied on the basis of reasonable rent
at which the property might be let from year

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to year. The reasonable rent can be actual

rent if it is found to be fair and reasonable. The Andhra Pradesh experience is a good
In the case of un-let proper-ties, the rental example to begin with where registration of
value is to be estimated on the basis of sale of land/property is achieved within a
letting rates in the locality. month. The Tenth Plan Working Group on
Information Technology for Masses has
V.III Titles and Records recommended computerization of land
Another important issue in real estate records all over the country with
development is that of title to property. In computerized land/property documents
India, the State does not certify a title to being available to the public at all levels,
housing or land property. The revenue including in villages, by 2005. Through
records are not documents of title, and online documentation of land records, hyper
ownership is established only by the links with court registries of the district or
sequence of earlier transfers. Thus, the the State can be developed, so that the
fundamental question of title has often led to unwary buyer can get immediate
enormous litigation. At present there are information of any pending litigations. In
three legislations which have a bearing on this context, the Registration and Other
property transactions involving transfer of Related Laws (Amendment) Act, 2001 has
ownership of proprietary interest. These are proposed the compulsory registration of
the Transfer of Property Act, the Indian documents relating to part performance of
Registration Act and the Indian Evidence contracts concerning immovable property
Act. 7.6.38 an examination of the provisions (covered by Section 53A of the Transfer of
of these Acts reveals a number of Property Act), in order to prevent loss of
inadequacies. Most of the sale transactions revenue to the states.
are done through the power of attorney route
to evade transaction costs like registration, V.IV Urban Land Monopoly
stamp duties, property tax etc. The system, Many cities have created development
as it exists, imposes a responsibility on the agencies (like the DDA in Delhi) and
part of the purchaser with regard to the handed over control of all urban land within
inspection of the title. The result is tenuous the municipal jurisdiction to them in the
titles to land and non-transparency in belief that they would act in the interests of
property transactions, thereby hampering the public. However, such agencies tend to
large-scale real estate development. 7.6.39 behave like the monopolies that they are. It
Titles to land have become necessary for is in the interests of the monopolist to
more efficient handling of land title restrict the development and sale of new
documents, to provide greater security of land and keep prices high, so as to maximize
tenure for those in occupation of land, to its own returns. Introduction of a
keep pace with the greater demand for re- competitive construction boom requires
conveyancing, for better support for abolishing the monopoly of such agencies
mortgaging and investment, to face the over urban land by completely separating
steady increase in the number of private and control of land from its development. There
public users who make routine enquiries is a huge opportunity for leveraging the
about land ownership. large portfolios of unutilized and

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underutilized real estate assets of various converting agricultural land within the limit
government agencies. This practice was into urban land and then again purchasing
perpetuated after Independence and a large more land in order to meet the 100-acre limit
volume of government housing for for FDI. This would only lead to delays in
functionaries ranging ministers and projects.
legislators to Class III and Class IV
employees, involving huge public V.VI Conversion of Rural Land to Urban
expenditure was developed during the past Use
50 years. Many economists have proposed Conversion of rural land at market prices
that all government housing including those should be completely de-controlled and left
in the Lutyens bungalows zone in Delhi to the market. At present, in Delhi, historical
should be handed over to the private sector village land situated within the city limits
and the resources generated be invested for cannot be converted to develop urban
productive purposes. Under this, the colonies. The presence of urbanized
government acquires the land which is then villages in the middle of the capital city is
developed for residential/commercial use by an anachronism and a testament to bad
the private developer. One example is the policy. The curbs on the expansion of urban
Bengal Ambuja project in Kolkata, which limits into surrounding village areas should
is a joint venture between the West Bengal be removed.
Housing Board and the Gujarat Ambuja
Cement Group. The housing project caters VI. FINANCIAL SECTOR
to the housing needs of various income
groups by building low density high rise VI.I Credit Restrictions
buildings. Another example worth emulating Most housing finance companies cater
is the HUDA model of the Haryana Urban mainly to individuals in the higher income
Development Authority (HUDA) under group, who have reasonably assured credit
which a number of integrated cities have worthiness. Only 5-7 per cent of the loans
been developed through public-private disbursed by these housing finance
partnership Gurgaon has emerged as the companies go to builders and institutional
most successful of these, with the countrys developers. The high default rates among
largest private sector integrated township the developers is one of the factors
DLF City being established there. dissuading housing finance companies from
investing in this sector. Lack of a code of
V.V Land Reforms conduct for the industry is the other factor
The present ceiling of 15 - 25 acres per that keeps investors away. Even now,
person on agricultural holdings comes in the developers need to become corporative to
way of large-scale real estate development, avail funding from financial institutions. All
especially with the recent foreign direct this leads to builders and developers
investment (FDI) norms making it approaching private sources of finance at
mandatory for having at least 100 acres of high interest rates, which ultimately leads to
land for investment in integrated townships. higher real estate prices. Developing a
Therefore one has to under the existing law grading system among the developers will
find methods of circumventing this by first make investors aware of the risks associated

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KKIMRC IJRHRM Vol-01: No- 01 Sep-Nov 2011

with the projects of each developer. A of liquidity as well as professional advice

scientifically graded project would lend for price discovery, as the investor would be
itself to a more accurate and reliable investing through an asset management
estimation of the risks associated with the company. It also provides assured returns in
real estate project/ project promoter. This is the form of dividends to its investors from
expected to enhance the confidence of the rental income earned on real estate assets
end users and augment the interest of the
lenders in these projects, thereby facilitating VI.IV Mortgage market and
the flow of institutional funds to the securitization
project/project owner. Another source of finance for housing
companies is development of the secondary
VI.II Sources of Funds mortgage market which involves conversion
Real estate mutual funds, pension funds and of mortgages into tradable financial or debt
insurance companies are the major investors instruments. Securitization is a process
in the housing sector in developed countries. popular among housing finance companies
In India developers ability to get financial in the West by which the home loan assets
help from these sources is limited. Housing are bundled into securities and sold to the
finance companies in India also need to be investors. Such securities are called
given access to pension, provident and mortgage-backed securities and they help
insurance funds. As the gestation period of the finance companies convert their loan
real estate projects is more than five years, assets into cash for further loan disbursals,
on an average, it is necessary that developers thus maintaining a flow of funds from the
have access to such long term funding lenders. There are two pre-requisites for
sources. secondary mortgage market:

VI.III Real estate investment trusts VI.IV.I Mortgage loan insurance:

In India real estate assets are kept outside The risk of default under mortgage loan is
the financial market and not leveraged for covered under an insurance policy for a
investment purposes. India must try to make nominal premium, which protects the risk of
real estate a full-fledged investment option. non-payment to the lender. As a result, the
To begin, with an exclusive stock exchange mortgage loans are risk-free and it is this
could be set up under Securities and reason that only 50 per cent risk weight is
Exchange Board of India (SEBI) guidelines assigned to housing loans under capital
for trading real estate stocks. The adequacy norms. In India, however, such
Government should permit the setting up of risk weight is 100 per cent given the absence
a Real Estate Investment Trust (REIT) of such insurance cover which increases the
which should be regulated by SEBI in order risk of non-payment/failure. The Reserve
to open the investment floodgate for the real Bank of India (RBI) has recently reduced
estate sector. The REIT would operate like a the risk weight for housing loans to 75 per
mutual fund, where investments of cent, taking into account the good recovery
individual investors are consolidated to in this sector. (ii) Foreclosure: Housing
invest in real estate, rather than stocks of loans are long-term loans, repayable over a
companies. It would provide a higher level

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period of 15 to 20 years. Any default will be social and cultural institutions was far below
restricted to the period of actual default. the provisions made in the Master Plan. The
implementating agency, the DDA, notified
VII. MUNICIPAL LAWS, RULES & and acquired all the land required for the
PROCEDURES future growth of the city, but failed to
develop it on a scale and at a speed
VII.I Municipal Laws sufficient to meet actual need. In such
Most urban and municipal laws and circumstances, restrictions on change of use
regulations in India date back to half a of land and premium charged by authorities
century if not more. There is a need to like DDA/Directorate of Industries are
thoroughly review and modernize them in matters to be investigated.
the light of the latest developments in urban
infrastructure, transport, pollution control
etc. A committee of eminent persons from
the concerned fields should be set up to VII.III Approval Procedures:
draw up a model municipal law. Such a law Another serious malaise affecting
must make provision for private investment investment in the real estate sector and
in and supply of all public utilities and housing development is the tardy process of
services. It must ensure that the municipal planning approvals. A system of deemed
authority focuses its attention on data approvals for all planning permissions by
gathering, analysis, planning, organization registered architects operating on the basis
and monitoring. In other words, the of self-regulation much like chartered
government should play the role of the accountants do, would enormously speed up
facilitator more than that of the provider. the entire plan approval process. This will
ensure that far larger quantum of housing
VII.II Zoning Rules stock is supplied every year, at more
In an ever-changing urban scene, the zoning reasonable prices than is the case presently.
regulations are in a constant state of flux
with no systemic reviews or updation taking VIII. CONSUMER PROTECTION
place. There is need to establish a regulatory Real estate came under the purview of the
commission to continuously review the zone Consumer Protection Act (1986) in 1993
shifts and activity shifts as demographic after an amendment to the definition of
patterns change in urban areas. The failure service in Section 2(1) 0 of the Act to
of the Master Plan for Delhi is a case in include the term housing construction.
point. The most important cause of this is However, there are still several lacunae
the poor and inadequate implementation of relating to consumer protection. Under the
the Plan during the first 20 years of its provisions of this Act, housing is considered
existence from 1961 to 1981. Most of the a service not goods. If housing is treated
provisions made for various facilities in the as goods then replacement or liquidated
Plan were not realized on the ground. Space damages can be claimed if it is defective,
made available for housing, retail, unlike in the case of breach of service
commercial offices, service industry, small- provision, which requires only payment of a
scale industry, as well as for educational, penalty. Further, pricing is covered under

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the Act under the unfair trade practice as Act, 1899 and the Indian Registration Act to
applicable to goods. By defining housing as delink the process of registration from the
a `service, unfair practices related to pricing payment of stamp duty and also to liberate
of housing are not covered. However, the registration process from the
merely defining housing as goods will not requirement of various no-objection
solve all problems. The responsibility of certificates. Rationalise the tax rates and
making the right choice under the Act rests duties pertaining to the real estate sector.
with the consumer and the seller is protected States should reduce stamp duties from the
from giving a warranty of the goods. Thus, present range of 13-26 per cent to the level
even if housing were to be included as a of 3-5 per cent. Stamp duty rates must also
good, the very definition of good adopted be uniform across States. The perceived loss
in the Act may need to be reviewed to give in stamp duty revenues will be more than
adequate protection to a purchaser of compensated through increased disclosure of
housing. property sales and the correct value of the
property transacted. Property tax must be
IX. CONCLUSION linked to the capital value of the property
There are three critical issues in real estate than on the rental value of the property.
development - archaic rules and regulations, Entertainment tax rates must be reduced.
lack of affordable finance on a mass scale The principles of law applicable to statement
and inadequate land availability. Revise the made in a prospectus should also apply to
number of legislations governing property the sale of property. This will also facilitate
transactions and merge them into one the institutionalization of conveyances and
comprehensive law. The repeal of the Urban conveyances can investigate titles and cross-
Land (Ceiling & Regulation) Act by various linkages between municipal authorities,
states which have not done so is necessary. electricity boards, taxation departments, land
This is expected to facilitate the release of registries and collect orates can be easily
2.2 lakh hectares of urban land, which facilitated through hyperlinks. A formal
remains frozen. Amend the Rent Control system for enabling private participation in
Act so as to remove the absolute authority of the provision of municipal services will
the rent controller over the disposition of the provide access to the skills required for
rented property. This allows the rent improving the efficiency of urban services
controller to virtually divest the owners of and make them self-sustaining in the long
the natural right to his property and transfer run.
it to the tenant. The Rent Control Act must
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Authors Profile

Rajiv Kumar is a Sr. Faculty member in Institute of Cooperative Management a unit of National Council
for Cooperative Training (NCCT) New Delhi aegis by Ministry of Agriculture Govt. of India. He is
having more than six years experiences in Industry, teaching & Research .He is playing very important
role in manpower development of various departments of Govt. as well as private concern. He has
possessed MBA from Kurukshetra University, Kurukshetra, and M.Phil. in Management & also qualified
UGC-NET in Management & pursuing Doctorate of Philosophy in Management. He has published
number of research papers in National & International Journals, on various field of management &
participated in national & International Conferences.

Dr. Ashok Bansal is an eminent personality in the field of Commerce & Management presently working
as an Associate professor in DAV College Pehowa Kurukshetra. He is having more than twenty five years
experience of teaching. He has provided his valuable guidance to the various scholars & researchers in the
field of management & commerce. He has possessed Doctorate degree in commerce from Kurukshetra
University, Kurukshetra. He contributed his vast knowledge through various National & International
research papers & conferences in India.

Mr. Manish Jha Presently working as Asst. Professor in the MBA Department at Panipat Institute of
Engineering and Technology, Samalkha, Haryana, India; teaching subjects in the area of Marketing &
International Business. He has over 7 yrs of experience which includes 4 yrs in Industry and 3 yrs in
Teaching. Has participated in various National and International level seminars, conferences and
workshops, etc, with few Research paper published in journals. He has guided several students in the
project Work submitted to University for the award of post graduate degrees.

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