Indian Real Estate Sector – A Quality Check

Realty Check - construction Quality In Indian Real Estate

In Indian real estate sector, usage of inferior quality materials, constant delays in project completion, lack of transparency and the murky financial and accounting practices, are a commonplace. While the Real Estate (Regulation and Development) Bill 2012, is expected to make developers more accountable, the real solution lies in generating greater awareness among the buyers, about the best practices in real estate development. If the buyers insist on the highest levels of disclosure, fair practice and accountability, the builders and developers will have little choice but to comply. This can be best achieved when an independent and credible third party assessor certifies a project, which has strictly implemented the best practices in the sector. There are four broad categories that any assessor looks at before assigning a grade to a project: construction quality, financial viability, documentation and clearances and management quality.

In India, where the organised developers constitute a third or less of the entire market, many projects are often found wanting, in terms of construction quality. The first is the developer’s choice of location (distance from the city and surrounding land features) and whether adequate and satisfactory testing of the raw material and soil and design and structural quality have been conducted. Second, the developer should source all the raw materials from experienced vendors. The highquality and environmentally sustainable materials go a long way towards enhancing the construction quality of a project. The developer must work with the consultants – architects, civil contractors and structural engineers, who know their job well and have worked on similar projects in the past.
Many delays, associated with real estate developments today, are caused by funding uncertainties or blockages. It is, therefore, necessary for the sponsor of the project, to have adequate cash reserves or the lines of credit. Some of the things to pay close attention to, include the source of funding (the investors in the project), the ability of the developer to raise more money, if required, accounting methodologies and whether, the developer plans to put the property on lease or sale. The more clarity there is on the funding strategy, the lower the risks associated with the property. It is worth the buyer’s while, to have a good look at the developer’s track record of funding the previous projects and if it is in the public domain, the cash reserves and frequency of financial audits conducted by the developer.

Any real estate project has to be in compliance with a set of legal clearances, including those from the environment, fire and pollution authorities. Having these permissions, before commencing the project, is a sign of maturity and sincerity, on the part of the developer. In India, it is a common practice for developers, to commence the work and take the permissions, as they go along. This puts the fate of the project at risk. Another important aspect here, is the land title. The builder should be able to prove that he owns the land title and show its ownership, dating back 30 years. Most developers only show records for the last 10 years. Too often, developers create agreements that are heavily biased in their favour because the buyers don’t pay attention to the fine print. It is important to have well-defined clauses, with regards to the compensation, cancellation or holding charges, built-up area, possession date, extras and fittings, etc, so that the buyer knows exactly what to expect when he enters into the agreement.

The experience and expertise of the management team behind the real estate project, is also critical. The management team must have the people on board who possess the right competencies required for executing the project. The reporting structure also, must be well-defined and the members of the management team should meet regularly. However, most important is the attitude of the management towards customer satisfaction and the quality of pre and after-sales experience provided by them, to their customers. For example, is the developer’s website accurate or does it misrepresent them or the project? Are the customers being suitably informed and reimbursed, in case of delays or changes? Are there any innovations that the developer has added? Is there focus on sustainability, even if that involves higher cost upfront?

The cry to bring the errant real estate developers, across the country, to book has already begun. At the same time, all the stakeholders need to take proactive measures to usher in these above-mentioned best practices. The buyers need to thoroughly do their homework, before entering into any property deal. The third party assessors who are equipped with the knowledge and expertise to gauge the risk profile of the projects, based on the transparency, quality and compliance standards, will play a crucial role in bridging the information gap and bringing about better awareness among the buyers. At the same time, the industry must move towards regulating itself, instead of waiting for the government to make the first move. By making a concerted effort, we can tackle the systemic ills one by one.

Posted By-
Alok Kumar Upadhayay


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