‘Insider trading=developer-agent collusion’: Reddit post calls for SEBI-like regulatory body for real estate

The Indian stock market has long been governed by the Securities and Exchange Board of India (SEBI), a regulatory body designed to prevent fraudulent practices such as pump-and-dump schemes, insider trading, and artificially inflated valuations. However, a growing section of the public is now calling for a similar body to oversee the real estate sector, where analogous unethical practices persist unchecked.

A recent Reddit post has sparked a discussion about the stark parallels between stock market manipulation and the real estate industry’s questionable tactics, particularly in Bangalore. Calling for a strict SEBI-like regulatory body in real estate, the post drew parallels between developers and agents engaging in market manipulation strategies to those found in stock trading.

Pump and dump vs pre-launch hype

One of the most commonly cited stock market scams is the pump-and-dump scheme, where misleading information artificially inflates a stock’s price before investors offload their holdings for a profit. A similar tactic is observed in real estate through pre-launch project hype.

“Developers create a buzz with glossy brochures, exaggerated growth projections, and artificial scarcity, driving up initial demand and prices,” the Reddit user pointed out. “Once they’ve secured a substantial number of bookings, the ‘pump’ may deflate, leaving buyers with overpriced properties.” However, due to the illiquid nature of real estate, prices do not fall as quickly as in the stock market, leaving buyers with overvalued assets for the long term.

Insider trading vs developer-agent collusion

In stock markets, insider trading involves individuals using privileged, non-public information to gain a financial advantage. In real estate, a similar practice occurs when developers share exclusive information about upcoming infrastructure projects and zoning changes with select real estate agents.

“Developers may share privileged information about upcoming infrastructure projects or zoning changes with select agents, allowing them to buy and sell properties at inflated prices before the general public is aware,” the post highlights. “This creates an uneven playing field.”

Artificial scarcity and land banking

Stock market manipulators often influence prices by controlling supply. A similar strategy is observed in Bangalore real estate through land banking, where developers hold vast tracts of land to create artificial scarcity.

“I’ve come across landlords holding back their portion of units in large societies and inflating the prices,” the Redditor claimed. “Even for big societies, developers and landowners deliberately withhold supply to keep prices artificially high.”

Misleading information and valuation

Stock markets sometimes see companies inflating their value through false information. The Reddit post claims that real estate developers similarly mislead buyers about amenities, infrastructure, and future development plans.

“Unfortunately, RERA (Real Estate Regulatory Authority) has not been super effective here,” the user wrote. “I’ve seen cases where the amenities were ready 5-6 years after people moved in.” The concern is that while RERA exists, its enforcement remains inadequate to tackle deep-seated industry malpractices.

Market sentiment manipulation

Market sentiment in stocks can be influenced through targeted information campaigns and rumors. Similarly, developers and agents in Bangalore’s real estate market use social media and advertising to fuel a fear of missing out (FOMO), artificially driving demand and prices upward.

“One interesting way someone tried to induce urgency in me: ‘Sir, our systems were hacked, that is the only reason we’ve not been increasing the prices. Any day now, the system will get fixed and we’ll increase the prices,’” the Reddit user shared, highlighting the deceptive sales tactics employed by developers.

The need for regulatory oversight

With such parallels drawn between stock market fraud and real estate manipulation, the call for a SEBI-like regulatory body for the housing sector is growing louder. While RERA was introduced to improve transparency and accountability, critics argue that its impact has been limited.

As real estate continues to be one of the most significant investment avenues for Indian households, stronger oversight is crucial to prevent buyers from falling prey to misleading practices.