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RERA and its impact
- 1. RERA AND ITS IMPACT (RERA - Real Estate Regulation and Development Act) Dr.Sharon Sheregar Deepak Narayanswamy NMIMS
- 2. Indian Real Estate Market – A glance •Indian RE industry is a 123 bn $ market as of 2013 and expected to become 853 bn $ by 2028 • CAGR of 15% for the period from 2008 -2028 • Robust demand for real estate due to increasing urban population •Increasing FDI, PE and debt investments • Policy support – PMAY (Pradhan Mantri Aawas Yojna) • Residential sector contributes ~ 80% of real estate sector • Other sectors include commercial space, retail space, hospitality, SEZs etc. • Mumbai and Bengaluru – top real investment destinations in Asia • Demand supply gap as high as ~ 80% in the low income group Ref: ibef.org/real-estate
- 3. Journey so far – Why RERA? • Real estate sector - Growing significantly but largely unregulated • Lack of transparency • System opaque with respect to price, delays, quality, ownership title and litigations • Delays in delivery of property to buyers • Misleading homebuyers regarding property details • Stepping beyond permissible FSI • Lack of standardization and consumer protection • Consumer Protection Act was the only source of recourse • Preferred option for parking black money
- 4. Why RERA? Every 3rd house is delayed by >2 years across the country is in the NCR and one in the four such houses is in the Mumbai region About 29.23 lakh houses under construction are delayed and more than 50% of these are delayed by at least 1 year or more Ref: centrik.in
- 5. What is RERA or RERA Act 2016 Act to : • Establish real estate Regulatory Authority for regulation and promotion of real estate • Enable sale of plot/flat in an efficient and transparent manner • Protect interest of consumers • Establish an adjudicating mechanism for grievance redressal • States to form rules as per the Act Ref: THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 1st May 2016
- 6. Key Features of RERA RERA registration mandatory* Total price to include break-up and is escalation free Voluntary withdrawal by allottee Mandatory disclosures by builder Disclosure of timeline for balance construction Exemption for seeking 2/3 consent of allottee Deposit of 70% realization – past or future receivables Disclosure of carpet area Registration fee – as per rate defined by state RERA Litigations to be disclosed Updating details online and land title search report Penalties for delays and offences
- 7. RERA – Expected benefits • Simplified Procedures: Mandatory for every state and union territory to have online registrations. Documentation processes made easy, consumers will benefit and save time • Transparency: Consumers can track the developments of the projects. All plan layouts and documents will be uploaded on the site • Timely Possessions: RERA will ensure customers will not have to face any delay in possession • Trustworthy: RERA will make consumers and developer relationship stronger, thereby encouraging more investments. • Grievance Redressal: Authority to address grievances and complaints associated with real estate investments.
- 8. Scope of RERA Scope of RERA Under construction & new projects Residential and commercial Real estate agents and brokers too under purview All states and Union Territories
- 9. Impact of RERA on Real Estate Market Reduced risk for consumer Short term drop in NPL Increased entry barrier More Joint Development projects Possible increase in FDI and PE funding Regulated Environment
- 10. Impact of RERA on Sellers • Initial Backlog – Additional effort to get existing projects registered, clear unsold inventory • Increased project cost – Window of price escalation reduced – Only legal funds to be used • Tight Liquidity – No more pre-launches to generate funds • Rise in cost of capital – Increased construction cost – Escrow account • Consolidation – No more fly by night builders • Increase in project launch time – Raising funds – Getting required approvals • Increase efficiency – Due to compliance requirements • More best practices – Only genuine builders • Consolidation of sector – Established builders with funds will survive • Corporate branding – Through Quality and compliance • Higher investment – Due to less risk and increased transparency • Increase in organized funding – Due to inherent nature of the law
- 11. Impact of RERA on Buyers • Rise in prices – Due to increased project cost – Compliance to committed quality – Only genuine and branded builders • Less negotiation power for buyers – Increased transparency • Almost white transactions – Little scope for cash transactions • Supply likely to reduce – Builders will initiate less risky projects • Demand likely to go up – Increased confidence among buyers • Significant protection – RERA assurance • Quality products and timely delivery – Commitments to match reality – Penalties for delays • Grievance redressal mechanism in place – One of the objectives of RERA • Balanced agreements – No hidden clauses • Carpet area – Disclosed upfront as per RERA • Transparent utilization of buyer’s money – Reduced cross utilization of funds
- 12. RERA impact: Banks and loans • Banks now seek higher collateral from developers to avoid NPAs • Initial fall in demand for loans due to RERA backlog • As per experts, demand for loans has begun to stabilize and will soon show growth • Home loan growth -37% Apr-Oct 17 yoy, 2016 (+ 4.27%) and 2015 (+26.89%) (Ref: CMIE) • Post RERA implementations, Private Equity Players (PE), Banks and other Non-banking financial Companies (NBFCs) will not hesitate in funding projects proposed by developers.
- 13. Recent trends in housing loan https://m.rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=17314
- 14. Figures pre and post RERA Ref: indianexpress.com
- 16. New launches – Before and just after RERA “The Government’s recent thrust on affordable housing through policy measures, viz., government incentive schemes, accordance of infrastructure tag, interest subsidy scheme under PMAY have resulted in sharp rise in new housing projects in the affordable segment for low income groups. From the consumers’ perspective, while availability of low cost credit is driving the demand for affordable housing, policies like Real Estate Regulatory Authority (RERA) Act may infuse fresh buyer interest in the reality sector.” – RBI 10th Jan 18
- 17. RERA and impact on Demand & Supply
- 18. REAL RERA Indianexpress.com Jan 2018 Builders give flat buyers one delivery deadline and RERA a later one
- 19. Challenges with RERA • Banks calling for additional collateral • Delay in appointment of regulator • Due diligence still required as incomplete information / non- compliance still exists • More scope for red-tapism as approval is rate limiting for project success • Who will bear the cost of delay in approval is not laid down
- 20. SUMMARY • Launches to remain restricted for few quarters to work along the RERA and GST norms. • Increased transparency and accountability will be seen. Developers will not risk commencing until RERA compliant • Prices may increase once the unsold inventory gets cleared. • Supply will shrink as only developers adhering to rules will be able to launch fresh projects. • There will be phased launch of projects to avoid penalties • Builders will bounce back with newer strategies and RERA-compliant projects in the market. • With numerous steps involved in the project, the timeline between the announcement of the project and the final project launch will increase. • Prices of new projects are expected to count in the expense bearing on the total project cost. • RERA will have a far-reaching impact on the sector and will transform its working mechanism altogether.