Real Estate Regulation Act: How it will change the paradigm

Kamal Khetan

The Real Estate (Regulation and Development) Act (RERA), 2016 is less than a fortnight away from the deadline for state governments to notify their version of rules and bring in legislation for the same. Regulations which appear disruptive in the short term lead to sustainable expansion of the market over the long term. This has been demonstrated in the way SEBI has regulated capital markets over the past few decades. Regulators play a key role of removing unscrupulous players, promoting fair and healthy competition and instill confidence in buyers – all of which ensured the growth of that industry.

RERA has been announced with the aim of increasing transparency and standardization in the real estate industry and its various stakeholders including buyers, developers, brokers and investors. Measures such as sales based on carpet area, launching post all approvals, and ensuring project completion by the escrow mechanism will result in institutionalization of the real estate industry. The increased regulation will lead to consolidation and discipline in the sector with regards to on-time project delivery and financial prudence. The consolidation will also present opportunities of acquiring distressed assets to the organized developers with strong balance sheets. RERA also takes forward the government’s digital India vision by making it mandatory to put all project related details on the authority’s website, giving the customer more comfort.

The regulation will also lead to fewer new launches initially as a section of the industry adjusts to it. However established brands who were already in conformity would not be impacted and will benefit from healthier competition. As the trust deficit in the sector reduces, projects of reputed developers will experience increased demand. Thus a developer who manages an efficient development cycle and builds trust with the customer, will create a solid differentiator in the market place.

From the perspective of the home buyers, the RERA regime will instill more confidence in the mind of homebuyers with respect to three key elements: Firstly product, which includes specifications of apartment, building and overall project; secondly price i.e. total amount payable, timing of payment, and penalty for both buyer and developer due to delay; and lastly, completion time for delivery of apartment and project. From the perspective of real estate developers, meticulous and complete planning with regards to the product design, approvals and resources before launch of any project will become mandatory and a key success driver under the regulation.

There will be a strong requirement on developer’s part to tie up the required finances before they start sales of units, and this is where institutional capital will play a key role. The amount of housing required in India is so huge that formal funding of the industry will grow many folds in next few years. Private Equity players, NBFCs and banks will have higher confidence to provide capital to developers since all the necessary permits will be in place and completion of a project in committed time period will become a norm rather than exception. This should result in lower cost of equity as well as debt for real estate developers. The implementation of RERA would require thorough reassessment of risk viz. business, regulatory, market and operational amongst the developer fraternity. Therefore RERA signifies the dawn of a new era for the Indian real estate sector.

(The author is chairman and managing director, Sunteck Realty)