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Corporate Oct 17, 2012

Real estate: It’s a big, nasty racket out there

By Mahesh Vijapurkar

Now we know that DLF, the country's biggest real estate developer, and Robert Vadra, the son-in-law of the country's most powerful person, Sonia Gandhi, had sweetheart deals, however, the moral question of it remains.

The real estate business does offer a lot of scope for fudging accounts, including hiding the profits and the finding creative ways of conveying bribes. In fact, because the bribe works, the real estate developers find newer ways of making profits by bending and flouting rules. Given the size of their clout, they are not investigated, leave alone blacklisted. Throw a brick, and chances are it would land on a crooked builder-developer.

DLF-Vadra story is not an exception; it is only a story aired in public because someone not only found out the alleged mischief but decided to do something about it.

Reality check at real estate. AFP

Newspapers, at least those willing to take on the builders' lobby which has deep pockets filled with ill-begotten wealth, have only unearthed a few of the ways. At every turn, it seems, there is a new way of making windfall profits by mere flouting of the law. The persons who clear such deviations to profiteer, of course, share the loot.

So much so, there can hardly be a major project which has not broken the building code which the civic bodies are expected to enforce for the safety of the structure and comfort of their users. But it is here that the daily miracle is worked: everything is hunky-dory unless someone else blows the whistle. The whistles, however, mostly remain silent, or muted. Those who take slices of the profits are the politicians and the bureaucrats.

Gone are the days when a builder constructs something slightly sub-standard and gets past the approvals by a bit of chai pani to the officials. Now, the bribe-giving and bribe-taking is an institutionalised transaction where norms only mean the officialdom seeks a share in the profits, not just a mamool. Every time an apartment block comes up, there is someone getting richer for winking at flouting of codes, not enforcing them.

The biggest scandal in this real-estate business is when urban land ceiling lands are involved. The builder has to necessarily set aside 10 percent of the spaces created and hand it over the government, which in turn, assigns to its favorites-artists, journalists et al-who badly need them but are too indigent to be able to acquire them.

Take any such building already past all supervisory and regulatory steps and you would find scandals. The approved plans are for the poor, as mentioned above, but the construction is entirely different, as was in a major housing development in Powai. The structures, which bear no resemblance to the approved plans, are put on the glossy brochures. The civic body -- read here 'the involved officials' ignore it.

An RTI application for all such approved plans and the post-construction twisted layouts would have enough worms crawling out of the cans. The builders and the officials would not have a place to hide. But such an RTI calls for a gutsy activists. Maybe one will come along soon enough.

Here is a list of how rules are routinely broken and huge profits made.

Take Mumbai metro region, for instance.

• At each approval stage, there is an exchange of cash under the table. Each approval involves a different department and a different official and the politicians have their eyes peeled to see what is happening. And the process gets greased at each stage.

• When the plan is approved, then the wait starts for the commencement certificate. Longer the wait, higher the outgo from the builder.

• When the commencement certificate arrives, and the work starts, the mandatory inspection of the plinth is not even carried out. At several stages the building under construction is supposed to be inspected. Instead, the officials, after being properly humoured, sign the papers in their offices, without visiting the site.

• Then the real cat-and-mouse game starts. The builder builds extra floors, or adds to the statutory floor-space index (FSI) by way of enlarging the room sizes or adding extra floors. Had the site visits been carried out, this would be detected in time and the builder-developer caught. He is summoned only when he is half-way through the stealing space out of air.

• Nowadays, it is not a bribe for such additional floors. The demand is for a share, sometimes up to half, of the profits to be had because of the additional floors. Buildings are also built without the mandatory refuge areas-they turn up as flats, actually-for residents to flee in the event of a fire. These concessions are bought by the builders.

• Then starts the processes of getting no-objection certificates (NOCs) from the civic body, after all mischief is done already. At each step, this NOCs which are a prelude to the occupation certificates (OCs) costs the builder. The inspection is nominal, if at all. Then the top tier gets involved in the clearance of the OC. Another swap of duty for cash -- you pay, you get it. You don't, the buyers of apartments bay but that seems not to matter but the builder wants to move on to another project.

• The OC is issued for a price even before the entire building is fit to live in. The water connection done, the meters are yet to be installed, the various promised facilities are yet to be put in place. But that does not matter.

• All this, of course, costs money which the buyer of the flat pays for. The builder is not paying from his pocket. This corruption does not only corrode the system but makes it impossible for the middle-class buyers to convert the dream of a flat into a reality. The lower-income community dare not even dream.

However, it is no one's case that the builder-developer is a victim of the system. He and the officialdom with the connivance of the politicians have together sabotaged it to such an extent that entirely illegal buildings emerge out of nowhere on lands not meant for putting up a residential or commercial structure. The builder, after the sweet talk of facilities which are seldom met fully when delivering the flat, almost invariably late, does not even answer phone calls of the fuming buyer.

They are in a seller's market -- "You buy what we give, you get it when we can deliver and as regards to everything else, including the Rs 3 lakh to Rs 10 lakh for a parking space which we are mandated to provide free, whistle in the dark. Simply because the city has unsold flats does not mean we reform."

Others can only wring their hands in despair. The others being people like us.

by Mahesh Vijapurkar

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