India Economy

How real estate Bill will benefit buyers

Meera Siva | Updated on March 10, 2018

The Cabinet nod for the Real Estate (Regulation and Development) Bill 2013 has been met with approval, concerns and questions.

The time frame for implementation of the Bill is envisaged beyond 2014 and the impact of the Bill will likely be seen later than that.

Overall, what is in store for stakeholders once the Bill takes effect?

Listed PlaYERS: Neutral

Listed real estate developers may face short-to-medium term concerns after the Bill is enforced.

“We may see a noticeable slowdown in launches of new projects, as getting all the necessary permissions in place is a long and tedious process,” said Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.

He also felt there may be an upward pressure on prices as developers wait to launch their projects with due approvals in place, unless the Government follows up with much-needed administrative reforms that speed up the process.

However, over the medium to long term, developers are likely to see improvement in funding.

Many large developers are saddled with high debt and incur high interest payment due to lack of funding sources.

As the sector is progressively viewed as less risky, they may be able to access lower cost funding for their cash flow needs, boosting profitability. Over the next two to three decades, a cleaner and transparent real estate market, akin to the stock market, could be expected, said Om Ahuja, CEO-Residential Services, Jones Lang LaSalle India. Pointing to the complaints addressing mechanism, he was optimistic that similar to companies stating the number of pending shareholder issues, project brochures of property developers in the future may need to list outstanding complaints.

Small BUILDERs — Mixed

There is concern among small developers that the increased disclosure requirements may add to their costs.

Further, the Bill does not address concerns faced by property developers in obtaining permits and approvals.

Ravindra Pai, Managing Director of the Bangalore-based Century Real Estate Holdings, noted that the Bill would add to the difficulties of smaller builders and new entrants and definitely increase the barriers to entry in the market.

“The Government needs to ensure that the spirit of the Bill is maintained and the regulator does not become just another department giving room for increased corruption and delays,” Pai added.

Small and medium developers may face higher costs due to the vastly increased disclosures mandated by the Bill. This could also help bring in more credibility, and help attract investments from domestic and international funds.

Positive to PE Funds

PE investments in real estate have been decreasing in number and value this year. Sunil Rohokale, Managing Director and CEO, ASK Group, that offers PE funds in real estate, said this regulation would weed out short-term focused developers who entered the market for quick profit.

“The Bill may increase cost for developers but will mitigate a lot of risk in investment as there is higher transparency with the developer taking up ownership for disclosures,” Rohokale observed.

“The uniformity of regulation and specifications across the country are positives for PE investors, mezzanine investors and banks,” he added.

The increased transparency and uniformity may also attract more global institutional investors and financing institutions, according to Anshuman Magazine, Chairman and Managing Director, CBRE South Asia. Buyers have many reasons to cheer the real estate regulatory Bill as it includes many key provisions that are beneficial to them.

There are, however, some concerns about property prices increasing as a result of the provisions.

Developers indicated that if the Bill increases the costs for them, it will likely be passed on to the buyer, but the timely delivery of projects may offset this cost increase.

BUYERS CHEER

The Bill imposes strict guidelines on advertisement and prospectus from builders and also has provisions for claiming compensation for loss caused by misleading statements.

This, along with selling based on carpet area, should deter misleading advertising and lofty promises. Buyers have had limited bargaining power and no easy recourse when the builder reneges on promises.

The provision in the Bill to set up an appellate panel to take up disputes between buyers and builders will help in the speedy resolution of issues such as delays, change in specifications, and so on that are typically faced by buyers.

The Bill may be not comprehensive and there are a few items that are left out.

“The Bill does not cover builder changing the floor plan, keeping the carpet area same,” said Bhupati Shukla, a home buyer who has suffered delivery delays, “and there is no clarity about the timelines for the completion of amenities in the project, such as club house etc.”

As the Bill benefits the customer, all participants expect that it will be positive to the industry.

“The public in general and home buyers in particular welcome the Bill,” says M. Murali,  Managing Director, Shriram Properties, Bangalore, “and the desire to own property will go up.”

Published on June 08, 2013

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