JOIN USThe real estate landscape is gearing up for change with less than a week to go for the state governments to notify their version of rules for The Real Estate (Regulation and Development) Act (RERA), 2016 and bring in legislation for the same.
Any regulation, while disruptive in the short term, leads to sustainable expansion of the market over the long term. The RERA 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 Securities and Exchange Board of India has regulated capital markets over the past few decades. Regulators play a key role in removing unscrupulous players, promoting fair and healthy competition and instill a sense of confidence in buyers – all of which ensure the growth of that industry.
The real estate industry which accounts for almost 7% of India’s GDP, has predominantly been an end-user market. However, it has been witnessing change with the sector’s regulatory framework getting stronger and veering towards greater transparency. Stringent policies benefit organised players with reputed brands, and help to further consolidate the sector.
The RERA was announced with the aim of increasing transparency and standardisation in the real estate industry and its various stakeholders including buyers, developers, brokers and investors. Measures such as sales based on carpet area, launching post approvals, and ensuring project completion by the escrow mechanism will result in institutionalisation of the real estate industry.
It is expected that the increased regulation will discipline the sector with regard to on-time project delivery and financial prudence. The consolidation will also present opportunities of acquiring distressed assets to organised developers with strong balance sheets. This will benefit many smaller realty players looking for a formidable partner to help in project completion. The RERA also takes forward the government’s digital India vision by making it mandatory to put all project-related details on the authority’s website. This is epochal to ensure transparency in the 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, Non Banking Financial Companies (NBFC) 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.
Healthy competition
Initially, the regulation will lead to fewer new launches as a section of the industry adjusts to it. However, established brands that are already adhering to these norms would not be impacted and will benefit from healthier competition. As the trust quotient of the sector increases, projects of reputed developers will experience increased 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.
Coupled with the government’s push for affordable housing and further reductions in home loan rates it is expected that the realty market will witness good days ahead. The thaw observed from the demand side towards both residential market and commercial market is expected to witness a surge.
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 building and overall project. Price: total amount payable, timing of payment, and penalty for both buyer and developer due to delay. Time: completion time for delivery of apartment and project.
It is the in the best interest of the buyers and the realty industry that the current efforts to water down the Act is arrested with utmost urgency. In conclusion, the execution of RERA will benefit developers in the long run and instill trust among home buyers.
(The writer is Chairman and Managing Director, Sunteck Realty)