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RERA and the cleaning up in real estate

RERA and the cleaning up in real estate

At the RICS Real Estate Conference in Delhi on November 15, the talk was about transparency – what you see is what you buy. The Real Estate (Regulation and Development) Act, which came into force this year, is forcing many developers to revamp their business models. The industry, some said, was in a “phase of cleaning up”. Here are the key takeaways:

1. What does “transparency” mean? Developers will now sell by “carpet area” rather than the pre-RERA practice of quoting super built-up area. Also, business models could be re-jigged to sell completed properties, so that home buyers see and buy rather than the earlier paradigm where he booked, paid, and waited for possession, which took years. There was opaqueness in the years between the booking of a property and its possession – funds could have been diverted by the developer, while the property buyer could have stopped mile-stone based payments. Besides, builders often sold home buyers an artificial completion deadline of three years. Seven years is more realistic.

2. Because of the pressure on faster delivery, cost of construction might escalate. Developers will resort to more automation which would, however, lead to better quality products. Some of the delays in completion can be attributed to unskilled manpower with low productivity.

3. Professional developers now have a level-playing field. Unorganised developers spooked the market. If everyone plays by the rules, the more ethical will bring home the bacon. It is partly due to this reason many unorganised builders are looking at vacating the market – either selling off or exploring joint ventures.

4. The residential market isn’t out of the woods yet – post demonitization, sales dropped 36 per cent in India’s top 10 cities on average, data from PropEquity stated. While volumes are picking up, it could be more than a year before a comeback. However, most global investors keen on Indian real estate now take a much longer view. Meanwhile, many investors are becoming ‘activists’; trust on Indian fund managers are at a low considering they oversold the India story in the past.