Should un­der­writ­ing be banned?

Some con­sider it a ne­ces­sity while oth­ers de­mand a blan­ket ban

HT Estates - - HTESTATES - Jee­van Prakash Sharma

ex­perts say un­der­writ­ing ul­ti­mately means a win-win sit­u­a­tion for all realty stake­hold­ers. “Un­der­writ­ing is re­quired specif­i­cally as it also acts as a cat­a­lyst for the de­vel­op­ment of new and up­com­ing ar­eas where the end-user is wary of in­vest­ing. There­fore, in­stead of ban­ning un­der­writ­ing, reg­u­lat­ing it is a good idea,” says Vishal Gupta, MD, Ashi­ana Hous­ing.

What can make un­der­writ­ing work is: a) It should be al­lowed only af­ter a project gets all the proper ap­provals; b) the money should be used for the de­vel­op­ment of the project through es­crow ac­counts and c) the gov­ern­ment should have some reg­u­la­tion in place to pro­tect de­vel­op­ers by set­ting a min­i­mum thresh­old level of cap­i­tal that un­der­writ­ers must give to the de­vel­op­ers be­fore they take over the hous­ing units.

Shob­hit Agar­wal, man­ag­ing direc­tor, Cap­i­tal Mar­kets, JLL In­dia, says no prac­tice is bad un­til it is done in ex­cess and re­sults in neg­a­tive con­se­quences for the con­cerned par­ties. “Un­der­writ­ing as a prac­tice is help­ful for all the three par­ties in­volved – de­vel­op­ers, un­der­writ­ers and buy­ers. When un­der­writ­ers pass on the par­tial dis­counts that they get from de­vel­op­ers to buy­ers, it can work as a very good mech­a­nism. A prob­lem is cre­ated only when un­der­writ­ers do their busi­ness with a view to earn­ing con­sid­er­ably higher re­turns by un­scrupu­lous prac­tices,” he says.

Many prop­erty ex­perts say that be­cause of un­der­writ­ing the ba­sic need of hous­ing is mis­taken as an in­vest­ment need. Due to this an un­der­writer is con­cerned about mak­ing as much profit as he can with­out both­er­ing about the fact that hous­ing is a ba­sic re­quire­ment. So le­gal pro­vi­sions must be cre-

ated to ban un­der­writ­ing and de­vel­op­ers must be forced to dis­close the sta­tus of their un­sold in­ven­to­ries on their web­sites.

“Un­der­writ­ers must be thrown out of real es­tate. Due to the prop­erty mar­ket be­ing un­reg­u­lated, the en­tire sales process is chaotic as there is a big dis­con­nect be­tween a builder and his cus­tomers. Un­der­writ­ing is get­ting to be a men­ace. Un­der­writ­ers con­cen­trate just on sales with­out tak­ing any re­spon­si­bil­ity,” says Abhay Ku­mar, chair­man and man­ag­ing direc­tor, Gri­hapravesh.

Man­ish Agar­wal, man­ag­ing direc­tor, Satya De­vel­op­ers, says “Ban­ning of un­der­writ­ing will lead to more trans­parency in the sys­tem and add to the con­fi­dence of prospec­tive buy­ers. The pas­sage of the Real Es­tate Reg­u­la­tory Bill will cre­ate trans­parency in the sec­tor.”

Hav­ing said that, I’ll also like to add that when I made my in­vest­ment in a Gur­gaon project, the bro­ker in­stead of is­su­ing me a proper let­ter com­mit­ting the 2% com­mis­sion, gave me a bo­gus one that only went to show that there was a premeditated in­ten­tion to cheat.

The case is cur­rently with the Eco­nomic Of­fences Wing in Gur­gaon. There have also been cases wherein bro­kers have given post-dated cheques to buy­ers and then filed a re­port of a cheque book theft with the po­lice.

Buy­ers should, there­fore, be very care­ful be­fore choos­ing the bro­ker to go along with as the rogue bro­kers cheat the cus­tomers know­ing this to be a civil case and that not many in­vestors will ever go to court or pur­sue the mat­ter with the law en­force­ment au­thor­i­ties.

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