Impact of RERA on The Demand Supply Dynamics

While the Real Estate Regulation Act (RERA) has brought in various consumer friendly provisions that are bound to increase demand in the real estate market. There are certain consequences of RERA that should increase transparency and help improve overall confidence of the buyers. At the same time there are a few provisions that will create teething issues initially and cause a decrease in supply in the short term.

One such provision is mandatory registration prior to project sale & advertising. The mandatory requirement to have all approvals in place prior to commencement of sales will reduce the risk of project delays due to uncertainty in getting the initial approvals required to commence construction.All projects with an area of more than 500 sq. mts or more than eight apartments over all phases fall under the ambit of this act. All project information has to be updated on the Regulatory Authority website once the developer receives a login and a password. Details of the project should include the registration details; list of number and types of the apartments or plots booked (to be updated each quarter); list of received approvals and pending approvals prior to receiving the commencement certificate (to be updated each quarter); any other documents specified by the Regulatory Authority. All this information is to be made available to the buyer so that the buyer is also kept informed of the progress of the proposed project. Implications of this provision are manifold.

Reduced risk for the consumer

The mandatory requirement to have all approvals in place prior to commencement of sales will reduce the risk of project delays due to uncertainty in getting the initial approvals required to start construction. However, many approvals can only be sought on commencement or completion of the project construction (e.g. completion certificate). There will not be any respite from delays on account of these approvals.

Drop in New Project Launches for the Period in Short term

Fewer projects may be ready for registration after enactment of the Act as it does not allow developers to make a sale before they get all required project approvals. However, the approval process is expected to shorten in the next few years as the government is adopting an online mechanism. Thus, the drop is new project launches should only continue for a short term.

Increased Entry Barrier

The mandatory requirement to have all approvals in place prior to sales should increase holding costs for the project. This will increase the threshold to entry into the real estate industry; and will adversely impact smaller enterprises. Developers may face liquidity issues as banks, financial institutions and funds would prefer to enter into the project once it is registered with the authority.Smaller enterprises may find it difficult to venture into the market due to liquidity issues.

More Joint Development Projects

To reduce holding costs, Colliers anticipate that joint development (i.e. an agreement to develop between landlord and developer) will be a preferred mode of development; rather than outright land purchase.

Colliers India believes that the intention of this provision in the Act is to reduce approval risk for the consumer, which is a prime cause of project delay. The intention is laudable; however, the Act does not cover the approval process under its ambit. Numerous stakeholders have called for a single window clearance for all approvals. However, a look at the approval process in other Asian countries and even the USA reveals that the time required for approvals in these countries is far less than in India, in spite of them also having multiple agencies providing project approvals. The key problem is the lack of clarity of norms, transparency and accountability in the approval process which needs to be addressed in India. Internationally, the time taken for getting approvals is three to nine months. We suggest that the Act should also address the process of getting all the approvals to commence a development project and set a maximum timeline (three to nine months) to get all necessary approvals. By addressing this issue, the holding cost of land can be reduced, and this benefit can then be passed on to the consumer in terms of lower prices.

(Surabhi Arora, Senior Associate Director, Research, at Colliers India also contributed to the article)


Impact of RERA on the demand- supply dynamics

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