09 Jan 14 New legislation will help construction materials companies develop better business strategies

One of the biggest challenges for competitive intelligence (CI) analysts in India is the lack of adequate documentation and statistics. Real estate is among the least documented sectors in India. But a new legislation in the pipeline could change this…

Next to agriculture, construction is the second largest employer in India. Real estate constitutes a big chunk of this and comprises of four sub-sectors – housing, retail, hospitality, and commercial. It contributes around 6.3% of the GDP and is expected to generate 7.6 million jobs in 2014.  Housing is the largest of the four and contributes to 5-6% of the country’s GDP.

The current over supply of real estate in the large cities in India notwithstanding, the sector is expected to grow rapidly in the medium and long term as there is a huge shortage of housing in the country. The sector is therefore of great interest to various stakeholders including investors, suppliers of building and construction materials, consultants, economists and analysts.

However, systematic efforts to pin down and analyze the nature of opportunities in the sector have been a frustrating exercise, as there is very little data available. Real estate has a very large number of small local unorganized players.  Also, it falls under the jurisdiction of state governments – each with its own set of rules and regulations. So while getting data on the number of housing starts, for example, is trivial in most developed economies, it is a black hole in India.

But this could soon change…

Among the many pending legislations, is the draft Real Estate Regulation and Development Bill, 2013, which is aimed at bringing greater transparency and protection of customers’ interests.

The Bill will require all developers to register with a regulatory authority and submit to the authority details of their projects and brokers who represent them. Without this, they will not be able to undertake any buy-sell transactions.

The Bill also has clauses for protection of buyers of real estate, including the requirement for developers to open escrow accounts and deposit up to 70% of the buyers’ money in them, penalties for not delivering as per the agreed schedule and setting up of a tribunal to hear cases related to real estate.

When the Bill is passed, this could bring a very positive change in the way the real estate market works and the confidence levels of real estate buyers.

From a CI perspective, the registration of all developers and their project details will make available valuable data on the sector, which will allow stakeholders to analyze the market. Sellers of building materials, for instance will be able to analyze the demand for their products based on the type of construction, location of the project, target end customer profile, etc.  and develop their sales strategies accordingly.

The Bill is only in the “pending” stage, so why talk about it now? Well, the political climate in the country is changing very rapidly. The success of the AAP in the Delhi elections has shaken up the government and in its efforts to establish its own credibility, it is likely to clear a lot of pending legislation. Could this Bill go through before the parliamentary election next year?