Pos­i­tive sen­ti­ments gen­er­ated by RERA good for realty mar­ket

De­mand likely to ben­e­fit from new ex­pec­ta­tions cre­ated by the Act. Sen­ti­ment among buy­ers al­ready ap­pears to be turn­ing more pos­i­tive, says re­port

HT Estates - - FRONT PAGE - HT Es­tates Correspondent

In­dia’s Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Act (RERA) will boost trans­parency, dis­ci­pline, and ac­count­abil­ity in the prop­erty mar­ket. The Act en­tails a near- term drop in new project launches as fewer projects will be ready for reg­is­tra­tion; it will de­ter en­try by smaller play­ers due to higher hold­ing costs; and it should make joint de­vel­op­ment more pop­u­lar, says a re­port.

“De­mand should ben­e­fit from new ex­pec­ta­tions cre­ated by the Act. In­deed, sen­ti­ment among buy­ers al­ready ap­pears to be turn­ing more pos­i­tive. This is good for the mar­ket in both the short and the long term. On the sup­ply side, we ex­pect a drop in new project launches in the short term. This is be­cause our anal­y­sis sug­gests that fewer projects will be ready for reg­is­tra­tion as de­vel­op­ers will wait to see how the new norms pan out and how other projects fare,” says a re­port ti­tled De­vel­op­ers Get On Board – Im­pli­ca­tions of Real Es­tate ( Reg­u­la­tion & De­vel­op­ment) Act 2016 by Col­liers.

The Act has brought in var­i­ous con­sumer-friendly pro­vi­sions that are bound to in­crease de­mand in the real es­tate mar­ket. There are cer­tain con­se­quences of RERA that should in­crease trans­parency and help im­prove over­all con­fi­dence of the buy­ers. At the same time there are a few pro­vi­sions that will cre­ate teething is­sues ini­tially and cause a de­crease in sup­ply in the short term.

The manda­tory re­quire­ment to have all ap­provals in place prior to com­mence­ment of sales will re­duce the risk of project de­lays due to uncer­tainty in get­ting the ini­tial ap­provals re­quired to start con­struc­tion. How­ever, many ap­provals can only be sought on com­mence­ment or com­ple­tion of the project con­struc­tion when a com­ple­tion cer­tifi­cate is ac­quired (eg com­ple­tion cer­tifi­cate). There will not be any respite from de­lays on ac­count of these ap­provals.

Fewer projects may be ready for reg­is­tra­tion af­ter en­act­ment of the Act as it does not al­low de­vel­op­ers to make a sale be­fore they get all re­quired project ap­provals. How­ever, the ap­proval process is ex­pected to shorten in the next few years as the gov­ern­ment is adopt­ing an on­line mech­a­nism. Thus, the drop in new project launches should only con­tinue for a short term. The manda­tory re­quire­ment to have all ap­provals in place prior to sales should in­crease hold­ing costs for the project. This will in­crease the thresh­old to en­try into the real es­tate in­dus­try; and will ad­versely im­pact smaller en­ter­prises. De­vel­op­ers may face liq­uid­ity is­sues as banks, fi­nan­cial in­sti­tu­tions and funds would pre­fer to en­ter into the project once it is reg­is­tered with the author­ity. Smaller en­ter­prises may find it dif­fi­cult to ven­ture into the mar­ket due to liq­uid­ity is­sues, the re­port says.

“To re­duce hold­ing costs, we an­tic­i­pate that joint de­vel­op­ment (ie an agree­ment to de­velop be­tween land­lord and de­vel­oper) will be a pre­ferred mode of de­vel­op­ment; rather than out­right land pur­chase,” the re­port says.

The in­ten­tion of this pro­vi­sion in the Act is to re­duce ap­proval risk for the con­sumer, which is a prime cause of project de­lay. The in­ten­tion is laud­able; how­ever, the Act does not cover the ap­proval process un­der its am­bit. Nu­mer­ous stake­hold­ers have called for a sin­gle win­dow clear­ance for all ap­provals. How­ever, a look at the ap­proval process in other Asian coun­tries and even the USA re­veals that the time re­quired for ap­provals in these coun­tries is far less than in In­dia, in spite of them also hav­ing mul­ti­ple agen­cies pro­vid­ing project ap­provals. The key prob­lemis­thelackof clar­ity of norms, trans­parency and ac­count­abil­ity in the ap­proval process which needs to be ad­dressed in In­dia. In­ter­na­tion­ally, the time taken for get­ting ap­provals is three to nine months.

“We sug­gest that the Act should also ad­dress the process of get­ting all the ap­provals to com­mence a de­vel­op­ment project and set a max­i­mum time­line (three to nine months) to get all nec­es­sary ap­provals. By ad­dress­ing this is­sue, the hold­ing cost of land can be re­duced, and this ben­e­fit can then be passed on to the con­sumer in terms of lower prices,” the re­port says.

As for the re­quire­ment to keep 70% of the project pro­ceeds in an es­crow ac­count, since builders or de­vel­op­ers some­times di­vert funds from one project to an­other, the new reg­u­la­tion dic­tates that for ev­ery project the de­vel­oper needs to have an es­crow ac­count.

This step will re­move a com­mon per­cep­tion amongst buy­ers that the money they pay for a project is si­phoned away for other pur­poses, thus im­prov­ing buy­ers’ con­fi­dence.

It was also rec­om­mended in the re­port that the gov­ern­ment and in­dus­try should work to­gether to set up cour­ses and in­for­ma­tive sem­i­nars for real es­tate pro­fes­sion­als. For ex­am­ple, Real Es­tate Man­age­ment In­sti­tute (REMI), in col­lab­o­ra­tion with CREDAI, Ma­ha­rash­tra Chap­ter has re­cently in­tro­duced a three week cer­tifi­cate course for real es­tate bro­kers. In the com­ing years; a real es­tate de­gree should be a pre­req­ui­site for reg­is­tra­tion with the Reg­u­la­tory Author­ity. The real es­tate in­dus­try as­so­ci­a­tions should en­cour­age best prac­tices and set high eth­i­cal stan­dards for their mem­bers to fol­low. Or­gan­ised sec­tors such as banks and fi­nan­cial in­sti­tu­tions are more likely to in­vest in ringfenced projects, it says.

SU­NIL GHOSH

PHO­TOS: IS­TOCK

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