Beyond the Alarm Bells: Addressing Systemic Gaps in India’s Real Estate Ecosystem

Beyond the Alarm Bells: Addressing Systemic Gaps in India’s Real Estate Ecosystem

By Sujesh Nair MRICS, MIE

The recent observation by the Honourable Supreme Court, questioning the efficacy of the Real Estate Regulatory Authority (RERA) and suggesting it might be better abolished if it remains ineffective, has prompted a significant reaction across the Indian real estate sector. Almost immediately, industry bodies and developers initiated a dialogue, with many framing the Apex Court’s strictures as a catalyst for "RERA 2.0."

While this renewed focus is welcome, it raises a critical question regarding the industry's posture since the Act’s inception in 2016: Why did it take judicial intervention to address long-standing regulatory gaps? For nearly a decade, a fragmented ecosystem of developers, financial institutions, valuers, and regulators has operated within these grey areas, often leaving the homebuyer to navigate a complex system with insufficient protection.

The root of this systemic friction lies not solely in legislative limitations, but in the passive enforcement by those empowered to drive change.

The Persistence of Ambiguity: Area Metrics and Enforcement

A persistent example of this gap is the continued use of legally ambiguous terms like "built-up" or "super built-up area" in market practice and title deeds, despite RERA’s explicit mandate that properties be registered and sold based on "carpet area."

While regulatory officials affirm that unauthorized additions are not permissible, a lack of standardized enforcement allows these vague metrics to persist. Financial institutions are uniquely positioned to correct this. By leveraging their in-house technical teams to insist on valuations based strictly on RERA-defined metrics and making funding contingent upon this transparency, the lenders could instantly catalyse market compliance. Instead, prevailing practices often default to accepting quoted prices over rigorously scrutinized intrinsic value.

The Valuation Profession: Challenges on the Frontline

This systemic inertia extends into the valuation profession. If a critical mass of registered valuers consistently flagged ambiguous clauses or non-compliant practices, the market would naturally correct itself. However, professional bodies must evolve to implement micro-regulations that mandate members to report discrepancies, moving away from a passive, bystander approach.

Drawing from years of practice as a registered valuer, the real-world challenges of enforcing compliance in a target-driven ecosystem are stark:

• Document Ambiguity: Routine due diligence often reveals discrepancies between government-sanctioned plans and marketing brochures. Furthermore, disclaimers on certain regional RERA portals absolving the authority of responsibility for uploaded project documents leave buyers highly vulnerable.

• The Carpet Area Contradiction: It is not uncommon to find mortgage-linked title deeds explicitly listing "built-up area." When financial institutions fail to mobilize their technical teams to challenge this duality, non-compliant practices are inadvertently validated.

• The Professional Cost of Diligence: When valuers insist on comprehensive reviews, such as demanding phase-wise layout plans to verify promised amenities; they frequently encounter friction. In instances where a valuer prioritizes the buyer's safety and regulatory transparency, they risk alienation from financial entities that prioritize "developer relationships" and business targets over rigorous risk mitigation.

• Historical Resistance to Change: The transition to strict carpet area reporting (such as during the early enforcement phases of MahaRERA) met significant resistance from industry peers accustomed to older, more lucrative area metrics.

Regulatory Silos and Legislative Gaps

Existing frameworks mandate that valuers operate primarily in the public interest. However, India currently lacks robust monitoring tools and auditing mechanisms to ensure these ethical standards are uniformly upheld to protect the end-consumer.

A critical legislative gap exacerbating this issue is the exclusion of "Registered Valuers" from the mandatory RERA certification process, which currently only requires sign-offs from architects, engineers, and chartered accountants. This omission leaves the actual financial worth of the asset open to subjective interpretation. If valuation is rigorously applied in insolvency proceedings, it must be equally scrutinized when a homebuyer is investing their life savings.

Furthermore, secured lending property valuations remain largely unregulated by the Reserve Bank of India (RBI). This creates a vacuum where pricing often masks true value.

The Cost of a Fragmented Approach

Presently, stakeholders; banks, developers, RERA, RBI, IBBI, SEBI, and professional bodies, operate in silos. This fragmentation forces the homebuyer to seek recourse across multiple jurisdictions.

The consequences of this are evident in extreme scenarios. For instance, the Supreme Court’s 2019 decision to classify homebuyers as ‘financial creditors’ under the IBC 2016 highlighted a critical weakness: RERA could not sufficiently empower the buyer, necessitating a complex legal workaround. Similarly, historical instances of court-ordered demolitions of high-rises due to severe regulatory violations (such as CRZ norms in Kochi) reveal a chain of systemic failures. In such cases, despite glaring project violations, initial approvals are granted, and due diligence teams and the lenders fail to ask the necessary deterrent questions, ultimately leaving the homebuyer to bear the financial and emotional burden.

Conclusion: Leadership Beyond Compliance

The real estate industry should not require a Supreme Court directive to implement ethical, transparent practices.

If the threat of institutional restructuring was necessary to prompt stakeholders to act, it serves as a stark reminder of a collective fiduciary duty to the homebuyer. No amount of legislative revision to RERA will succeed if the ecosystem continues to operate in isolated silos driven purely by short-term business targets.

True self-interest aligns with the long-term stability of the market and the protection of the consumer. This requires decisive, proactive action from bankers, builders, valuers, and regulators alike. India deserves a real estate ecosystem built on transparency and accountability, led by professionals who recognize that doing the right thing is the ultimate foundation of good business.