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India's Third Giant Leap
This Could be One of the Biggest Opportunities for Investors
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- Todays Market
- Indian Stock Market News May 15, 2017
Is RERA a game changer for the Real Estate Industry? Mon, 15 May Pre-Open
The Real Estate (Regulation and Development) Act was passed in the Parliament in 2016. A timeline of 1st May 2017 was set by the Union ministry of Housing and Urban Poverty Alleviation so that states could formulate their rules for the real estate sector.
We had mentioned how RERA could bring about the much needed transparency in the Real estate sector. The act is aimed at protecting the interests of the homebuyers and developers. All real estate developers holding an area over 500 sq. metres will have to register their projects under this act before they can launch them.
Through this act, only builders with proper credentials will be able to start a project which will be further monitored by the state authority. Also, any delay in the delivery of the project will have to be compensated by the builder to the buyer. This compensation will be at an interest rate of State Bank of India's highest marginal cost of lending rate plus two percent, within 45 days of it being due.
A cursory look at the above rules might seem to benefit homebuyers more than developers. But that's not the case. This act will ensure only serious real estate players will survive. Builders with a strong balance sheet, cash flows will be benefited over fly by night operators.
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Small developers might find it increasingly difficult to continue with projects amid a liquidity crunch and look towards asset monetization; cash-rich developers and private equity funds are bound to grow faster. Large developers could buy out projects of smaller realty firms closing down operations leading to consolidation in the overall sector.
With regulation in the sector, housing loans are bound to get cheaper. A sector which was maligned for large amount of black money transactions will open up to new set of buyers.
My colleague Rahul Shah, in his 5 Min Wrapup mentioned about how an individual although a positive development, implementation of the same might be tricky. In terms of its impact on the market, one needs to see how the transition from unorganized to the organized sector pans out. Nevertheless, it certainly has the potential to resurrect the much maligned real estate sector.
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