RERA to up housing prices
The Real Estate (Regulation and Development) Act, (RERA), that came into force on May 1 this year, is a welcome change for industry players, buyers, and investors. It aims at creating a more transparent system, and ease the buying process as well. The downside, however, is a rise in input and holding costs for developers, which will be passed on to buyers. Shaju Thomas, Director, Office Services, Colliers International India, says that with all the benefits that RERA brings to the buyer community, residential prices are likely to rise. “Since the effects of demonetisation are yet to wear off completely, and with the existing glut, an immediate uptick may not be noticed, as the primary focus of developers would be to reduce their unsold inventory.”
To comply with various provisions of the Act, RERA requires developers to recalibrate their business model. Other stakeholders like real estate agents also need to be more accountable going forward, and a marginal price realignment may be on the cards, says Kanchana Krishnan, Director – Chennai, Knight Frank (India). This, is due to two factors: With developers now required to sell on carpet area, they can launch a project only after all approvals are in place. Secondly, supply will further shrink as only developers adhering to the rules will be able to launch fresh projects.
The rise is said to impact new units and the existing unsold supply as well. As per draft regulations, released by the state government in January 2017, ongoing and under-construction projects which have not obtained a completion certificate, would also have to be RERA compliant. Thomas explains only projects where services have been handed over to the local authority or to the residents’ association for maintenance prior to RERA implementation, will be exempted.
RERA is expected to weed out fly-by-night developers, and lays out strict guidelines for market players. A few ways in which developers must adapt to the Act:
– Prudent management of funds and cash flow
– Depositing 70% of the amounts realised from the allottees in a separate bank account
– Improved project planning, adopting alternate and modern construction technologies to speed up construction
– Phased launch of projects
– Advertising only facts
Industry experts predict a slight rise, but builders are confident the increase, if any, will be neglible. Anil Pharande, Chairman, Pharande Spaces, explains how pre-launches – which were a primary source of funding for developers in the past – are now out of the window, and can cause funding issues. “The likelihood of being able to rope in equity funding increases significantly for RERA-compliant developers. While some players may be tempted to experiment with pricing post-RERA, but the fact remains that the market currently does not support a price increase.” If it does happen, the price correction will not occur overnight; it will be a gradual transition, says Ashish R Puravankara, Managing Director, Puravankara. “The implementation of RERA and also the sops allocated to the affordable sector in the Union Budget, will boost customer confidence.”
Impact on affordable
So how will this affect the price-sensitive affordable sector? Developers, irrespective of segment – affordable, mid, and luxury will now need to align their business practices with the stipulations of the Act. However, central assistance under PMAY, tax concessions ,interest rate cut by banks will make housing more affordable, adds Krishnan.
A slew of these recently announced reforms and initiatives targetted at the segment are going to bring in better deals for buyers, and RERA is expected to act as an important growth driver of ‘Housing For All’. Sunil Sharma, VP-Marketing, Mahindra Lifespaces Developers, does not anticipate the cost of affordable projects to go up as the Act has a rather long-term view for the sector.
Despite these factors, experts are confident RERA will have a far-reaching impact on the sector, and will transform its working mechanism altogether.