Realty development control drag! New rules = Costlier homes

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Realty development control drag! New rules = Costlier homes

When the Maharashtra government revamped the new Development Control Regulations (DCR) a month ago, it was to increase transparency in real estate transactions. But CNBC-TV18's Priyanka Ghosh reports that these guidelines mean home buyers will have to shell out more.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » Oberoi Realty BSE | NSE 31/05/12 Are Mutual Funds betting on Oberoi Realty? Other Stocks in this news Godrej Properties |

When the Maharashtra government revamped the new Development Control Regulations (DCR) a month ago, it was to increase transparency in real estate transactions. But CNBC-TV18's Priyanka Ghosh reports that these guidelines mean home buyers will have to shell out more.

Real estate companies have been struggling against dropping sales volumes but the new DCR regulations in Mumbai have meant a higher cost of construction and developers say they have no choice but to pass on these higher prices to customers.

Vikas Oberoi, the chairman and managing director of Oberoi Constructions said, "The amount of premium to be paid in the new FSI calculation regime had to be accounted for. The other thing was the input cost which has gone up and we had to reflect that in the sales."

Realty majors like Oberoi Realty find themselves in a tight spot. The company recently hiked prices by 11% at its Goregaon project despite sales falling 33%. Others, who have lesser cash in hand, are bracing themselves for more pressure on margins.

Godrej Properties said in a statement that increasing land and construction costs along with manpower shortage have impacted margins.

The company's margins in the third quarter have already fallen to 17% from 23% a year ago.

The new FSI regulations will also mean that developers have to rework specifications on projects that are already underway and analysts say builders with half-completed projects will lose around 7% of their saleable area.

Experts say the new regulations will also result in further delay in project launches. They also predict that while companies will initially bear this new burden on their balance sheets, prices will be hiked faster as demand returns and a rule that was meant to protect home buyers will end up pinching their pockets.