The RERA effect: Indian real estate waits to inhale

[ecis2016.org] After the shock of the demonetisation drive, the Indian real estate sector is now bracing itself for the implementation of the Real Estate Act. We examine how these major policies will shape the fortunes of home buyers

Did demonetisation erase black money in real estate?

Just a couple of months ago, demonetisation appeared to have taken all the remaining steam out of our Indian real estate’s sails. Sales in the significantly cash-driven resale homes market, nosedived and prices in this segment declined by as much as 20-25 per cent. They were already trailing primary sales prices by 25-30 per cent in the investor-driven residential corridors, before demonetisation.

You are reading: The RERA effect: Indian real estate waits to inhale

Developer sales in new projects were, at first, expected to be immune to the cash starvation in the economy, as this segment has primarily been patronised by end-users, who use home loans and not cash. However, it quickly became evident that the negative sentiment had seeped into primary sales, as well.

It cannot be said with certainty that the demonetisation move has completely eliminated black money from the sector, particularly where money that is already deployed is concerned. However, cash transactions wherein, unaccounted or ill-gotten money was being parked in real estate, have certainly become exceedingly difficult to execute. Also, the Benami Transactions (Prohibition) Act will help in identifying and vastly reducing the incidence of black money in real estate.

A market revival against all odds

Significantly, the demonetisation drive will also play an important role, in housing demand resurrection. Banks now literally have a surfeit of capital and are looking at an unprecedented opportunity to counter post-demonetisation financial shrinkage, by increasing their loan books. Already, interest rates have declined to as low as 8.5-8.8 per cent. Perhaps, we will see them reducing even further to the all-time low of sub-eight per cent seen in 2006-08. If we also factor in that property rates across the country in both, the first sales and secondary sales segments, have either stagnated or shown a downward trend, it doubtlessly emerges that this is a very favourable time for home buyers.

Of course, affordable loan rates are not the sole factor driving home buying sentiment, especially when it comes to first-time buyers. However, it is certainly one of the crucial considerations. Affordable home loan interest rates are particularly important for budget home buyers, since even marginal reductions in EMI burdens, can propel their decisions to buy. This customer base is very important for the Indian property market, as a healthy residential property sector always has its foundation in strong demand from mid-income and lower middle-income end-users.

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However, the housing market cannot flourish again, unless there is a supportive regulatory environment. Over the years, several important regulations with pertinence to the real estate sector were gathering dust on bureaucratic tables. The most important one of these – the Real Estate Regulatory Bill, or RERA – has finally been fast-tracked and will be implemented across India shortly.

The RERA effect

This very critical Act holds the key to the future growth of the Indian real estate sector. As it has the potential to clean up the sector at all levels, RERA saw a lot of opposition from both, government and industry stakeholders with vested interests, in the past. RERA’s implementation will not only help revive end-user sentiment, but also further open up the Indian housing sector to foreign investments.

Even now, we continue to hear of fresh cases from property buyers, against builders who wanted to make a quick buck off their gullibility. Unfortunately, countless first-time home buyers are enticed by such builders, with the promise of low rates and attractive add-ons and freebies.

The cost of buying a house, often involves one’s life’s savings in India. As a result, home buyers have been focusing on price and often turning a blind eye to the builder’s brand, quality of product and location and even legal veracity of a project.

In most cases, such buyers have fallen victim to builders with one-off projects, who have no intention of rising up the value chain. This means that they see no need for transparency, accountability and sound business practices. Their modus operandi is to book profits on the back of sub-standard construction materials, acquiring and building on plots which do not have clear titles and/or development permissions and ignoring local development rules. These builders are also the ones who accepted unaccounted cash, thereby, adding to the industry’s opacity and cheating the government of stamp duty and registration revenues.

With RERA about to kick in, unscrupulous smaller builders or even larger organised developers, will no longer be able to take buyers for a ride.

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[ecis2016.org] What is RERA and how will it impact the real estate industry and home buyers?

Even brokers included under RERA

Even property brokerage houses will come under the ambit of RERA, meaning that agents or agencies operating in smaller pockets, who did not hesitate to foist inferior or flawed properties onto their clients, will be wiped out. RERA renders brokers and agents punishable, if they do not comply and abide with the regulator’s ruling. Previously, smaller brokers had an unrestricted play on the Indian residential real estate marketplace and many of them thrived on misinforming or under-informing their customers.

With RERA, home buyers who use the services of real estate agents and agencies will be protected and have access to quick legal redressal, in case of faulty business practices. In fact, brokers who made their money out of the ignorance or unwitting trust of clients, will now be eradicated. Under RERA, agents and agencies will have to ensure that they are duly registered with the regulator. By registering themselves, they effectively declare themselves completely accountable for their business activities and practices.

It’s not about size, it’s about ethics

Real estate brokerages that survive this shakeup will not necessarily be defined by their size but by the manner in which they have been conducting business. There will be several small-scale brokerages, which have already built a reputation for transparent practices, for whom it will be business as usual, post-RERA. Along with the larger organised real estate advisory firms, which have a business philosophy based on ethics rather than profiteering, these agencies will gain a significantly bigger market share.

(The writer is chairman, JLLR (JLL Residential))

Source: https://ecis2016.org/.
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Source: https://ecis2016.org
Category: Lifestyle