New real estate law may put an end to pre-launch sales

New real estate law may put an end to pre-launch sales
06/01/2017 , by , in News/Views

Real estate developers may soon adopt a build-and-sell model for their residential projects—a complete shift from the current norm of selling homes at a preliminary stage.

With the Real Estate (Regulation and Development) Act of 2016 (RERA), currently being notified by various states, the entire pre-launch stage will be eliminated, and a project will be launched only after obtaining all approvals, which is a lengthy process.

“It makes a lot of sense to implement the build-and-sell model going forward. With RERA, pre-launches will not happen, and developers won’t be able to test the market in terms of pricing or product. Though they would need to arrange the financing, they would prefer to rather build a substantial part of the project and then sell it to buyers,” said Irfan Razack, chairman and managing director, Prestige Estates Projects Ltd and chairman, Confederation of Real Estate Developers’ Associations of India (CREDAI).

With RERA kicking in, the Mumbai-based Wadhwa Group is looking at restructuring land transactions in such a way that payments are less at the pre-construction stage of a project. In this way, developers can borrow more for starting construction and reaching a stage where they can confidently launch under the new guidelines, provided the approvals are in place, said a company executive.

“We will be looking at selling more at a brownfield stage where about 30-40% construction is completed than at greenfield stage. It is far safer to launch through a build-and-sell model. We are trying to achieve a structure where bare minimum is given before construction stage so that the cash flows can be used to execute the project quickly,” said Vrushank Mehta, head of corporate strategy and land acquisition, Wadhwa Group.

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