Is RERA changing the face of Indian Real Estate?

6 years ago

Is RERA changing the face of Indian Real Estate?

RERA was certainly aimed at improving accountability and transparency in the sector to enhance buyers’ sentiments and it was indicative that the entire cycle like land purchase, project funding, delivery, and other paraphernalia was anticipated to go through a positive change. The enactment has undoubtedly proven to be beneficial for the customers as well as the home buyers. Undoubtedly, the RERA administration has imbibed more confidence among the overseas buyers globally and as well as among the Indian investors. The state of Maharashtra which has implemented the RERA guidelines in its true letter and spirit has witnessed a surge in the sales with real enhancement of overall buyer sentiments. Notwithstanding the fact, that one out of ten states in India are showing the political will to implement RERA but policies like RERA and GST undoubtedly had a positive effect on the real estate sector surging the demand and lowering the unsold stock of the sector.

The raised buyers’ sentiments are evident in the substantial shift in the sales figures of the popular developers immediately after the enforcement of the act.

The analysts feel that as RERA has brought in more transparency and organization in the sector with increased safeguard to the home buyers, it would further boost the buyers’ sentiments, in the long run, rendering the home purchasers a peace of mind. This would further help the established real estate players to grow in strength weeding off the small developers in the process. This, in turn, is bound to make better planning, execution, pricing, and delivery in time a reality in the realty sector.

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With the implementation of RERA, there has been an extra pressure on the property developers especially the smaller ones and the prices were expected to rise as the developers were anticipated to face a cash crunch. But on the other hand, the huge unsold stock laying in most of the urban parts of India kept the price rise at bay. This might have impacted the profit margins of the developers but in the years 2017-18, much of a price rise was not witnessed by the customers. Even then, one aspect is clear as the analysts feel that in the pre-RERA times the risk and the cost on the account of poor quality, delays, changes in the project and all other inconveniences that the customer had to face had been borne by the end users. In the post-RERA age, these costs will be borne by the developers and the promoters and these will be loaded in the cost of the apartments and homes. This will inevitably inflate the prices feels a section of the analysts and critics.

Impact of RERA in reality

After the introduction of RERA, the new launches have hit a seven-year low of 41%. The volume of the sales has also plummeted by 11% according to a report by Knight Frank. This report is indicative of the fact that except Chennai, the launch of new projects in all the major eight cities has dried up to a considerable extent. Among the cities that were hit the most, cities in the NCR region and Ahmedabad were affected the most with new project launches going down by 73% and 79% respectively in the first half of 2017. Although there has been a slowdown in the overall sales volume there were considerable improvements in the sales of the affordable segment of housing in the category of homes within Rs. 50 lakhs in select cities.

The Knight Frank report also pointed out that the office space transactions also fell down by 10% in the first half of 2017. Along with that, the inventory levels of ready-to-move-in properties were the highest with the developers giving huge discounts to sell off their unsold inventory. The rental prices also witnessed a growth in cities like Mumbai, Hyderabad, and Bengaluru with Hyderabad experiencing the highest increase in rental prices at about 14% year-on-year.

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The effectiveness of RERA

Although RERA is a highly consumer-friendly act aiming to protect the consumer and organize the sector, the effectiveness of RERA would be evident when the real estate developers are fully RERA compliant and the real estate ecosystem is fully governed by RERA rules. Out of the total number of states in the Indian subcontinent RERA is actually implemented in Maharashtra in full swing and the good fruits of it are also evident according to the observers. The whole of the country is yet to follow suit and the more rapidly RERA is followed by the state governments of India, the more would be the buyers’ confidence. As more developers come under the RERA regulations and the state governments are keen on streamlining the realty sector through enforcement of RERA, the end users would be more benefited and we can expect more regulatory market forces which are more predictable than in the past.

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