RBI wants to regulate HFCs but who regulates housing market?

Business Standard news says:

The Reserve Bank of India has added a rider for offloading its stake in the National Housing Bank to the government by suggesting it handle the regulation, licensing and supervision of housing companies to provide banks and housing finance companies a level playing field.

Housing finance companies are currently regulated by NHB, which is, in turn, regulated by RBI. NHB is wholly-owned by RBI.

RBI sources said the need for regulating housing companies arise because they do not have prudential guidelines or risk-linked capital limits to which banks, which come under the central bank’s purview, are subject. “There is clearly a regulatory arbitrage here. Housing is a priority sector, so many entities are getting into this business by floating housing companies and thereby skirting RBI’s stringent prudential guidelines,” said a source.

This is all fine and needed but the question that still remains is who regulates the housing market?

As I have pointed out in many a post (focused on Mumbai with similar trends catching up elsewhere), the way housing market runs in India is highly inefficient. It is completely run by builders /brokers and is just a plain seller driven market.

As a buyer you are always at the mercy of the sellers and there is just no clarity in the transaction. A buyer is not just worried about the arrangement of finances but the paper work as well. And a buyer is really lucky not to land into variety of problems from really complex problems – land deed, clearance from govt authority, quality of construction etc etc to simpler ones (relatively)- water, power, security  etc etc.

Despite all this, People just end up buying houses as everyone wants to have a permanent home. Moreover, staying on rent and shifting places is a pain for all. But am sure none are happy with the state of affairs. It is always the builders /brokers/sellers which laugh all the way to the bank.

RBI Gov in his excellent speech (my comments on the speech) says:

Forgotten in the euphoria of financial alchemy is the basic tenet that the financial sector has no standing of its own; it derives its strength and resilience from the real economy.  It is the real sector that should drive the financial sector, not the other way round.

In sum, we first need better regulation for basic housing market which is completely a miss. Though, this is not to criticise RBI move of regulating housing financial companies. It is much needed. However, by not having a proper regulatory framework for real housing sector we cannot expect the housing finance sector to work efficiently. This only complicates things for RBI.

I just don’t know why we don’t see any kind of work on these basic issues. The transaction sizes or size of the market is just too big to be ignored. It beats me completely.

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2 Responses to “RBI wants to regulate HFCs but who regulates housing market?”

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  2. unicon india Says:

    The Reserve Bank of India has added a rider for offloading its stake in the National Housing Bank to the government by suggesting it handle the regulation, licensing and supervision of housing companies to provide banks and housing finance companies a level playing field.

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