RERA: Transforming the real estate sector for buyers, developers and investors
The real estate industry accounts for almost 7% of India’s GDP and has always been a predominantly end-user market. It has been only the last few years that the sector’s regulatory framework has been getting stronger which should benefit the organized players with reputed brands, and further support consolidation in the sector.
As with any significant policy shift, be it the government’s recent demonetisation of higher currency which did spark a debate over its impact on the Indian economy, this step has been one of the most forward looking transformational reforms undertaken by the government of India. This has in the past been demonstrated in the way SEBI has regulated capital markets over the past few decades. Regulators play a key role of removing unscrupulous players, promoting fair and healthy competition and instil a sense confidence in buyers – all of which ensured the growth of that industry.
RERA once effective, will aim towards increasing transparency and standardisation in the real estate industry and its varifor ous stakeholders including buyers, developers, brokers and investors. Measures such as sales based on carpet area, launching post all approvals, and ensuring project completion by the escrow mechanism will result in institutionalization of the real estate industry.
There will be a strong requirement on developer’s part to tie up the required finances before they start sales of units, and this is where institutional capital will play a key role. The amount of housing required in India is so huge that formal funding of the industry will grow many folds in next few years. Private Equity players, NBFCs and Banks will have higher confidence to provide capital to developers since all the necessary permits will be in place and completion of a project in committed time period will become a norm rather than exception. This should result in lower cost of equity as well as debt for real estate developers.
From the perspective of buyers, the RERA regime will instill more confidence in the mind of homebuyers with regards to
•Product - which includes specifications of apartment, building and overall project
•Price - total amount payable, timing of payment, and penalty both buyer and developer due to delay
•Time - completion time for delivery of apartment and project.
The regulation will lead to consolidation and discipline in the sector with regards to on-time project delivery and financial prudence. The consolidation will also present opportunities of acquiring distressed assets to the organized developers with strong balance sheets. In addition to which the regulation will also lead to fewer new launches initially as a section of the industry adjusts to it. However established brands who were already in conformity would not be impacted and will benefit from healthier competition
With RERA’s implementation set to be effective from 1st May,2017, will ensure trust and confidence in home buyers leading to an uptick in the real estate demand. Thus a developer who manages an efficient development cycle and builds trust with the customer, will create a solid differentiator in the market place post RERA.