The ushering in of the Real Estate Regulation (and Development) Act (RERA) in various States could act as a major trigger for the residential property market in 2017. RERA, passed by Parliament, in March 2016, requires passing of similar laws at the State levels. While UP and Gujarat have jumped on to the bandwagon and implemented RERA at the local level, other States are at different stages of passing such laws. As per the mandate, these States will have to pass the Bill within a year of its being passed in Parliament — that is, by March 2017.
The passing of the Benami Transactions (Prohibition) Amendment Bill 2015 by both Houses is another positive. It is expected to bring unaccounted money into the system and lead to the seizure of benami property.
A crackdown on black money — by passing the above two laws — is expected to bring much-needed transparency into the sector. Buyers of residential property have often fallen victim to malpractices by corrupt developers. Now, with the passing of these laws, one can expect greater transparency and a certain standardisation of procedures and processes.
Benefits for major players
Moreover, such laws could be a blessing in disguise for large developers — who could now consolidate their market share especially in places where there are many local developers — dealing largely in cash. It’s likely that the latter would lose market share or go out of business — as they will have to comply with the new rules following demonetisation. Bigger developers such as Godrej Properties, Mahindra Lifespace, Tata Housing and Prestige Estate, for instance, are today on a better financial footing than local builders — who might be stretched for cash from slowing property sales.
Take, for instance, Maharashtra, which has come out with a RERA draft requiring the developer to furnish all project-related disclosures within 90 days from the commencement of the Act. As per the proposed rules, the developer has to furnish certificates from the project’s architect, engineer and the chartered accountant as regards the progress of construction and the actual cost incurred till date — including that of land. This, in turn, would allow the developer to withdraw money from the escrow account.
As per the existing draft for the State, about 70 per cent of the money collected from the buyer of under-construction properties should be deposited in the escrow account. Such rules are expected to prevent siphoning of funds for other projects. Moreover, the draft mentions a standardised model ‘agreement to sale’, which would leave little leeway for developers to make changes in their clauses. All these initiatives could checkmate the several corrupt small developers — who routinely divert funds from one project to another.
While the clean-up act is likely to give large developers an opportunity to consolidate their market share, they could also end up being affected. They would definitely feel the pinch with compliance costs likely to go up. Moreover, with the onslaught of demonetisation, the sector is already reeling from a sharp slowdown in sales and correcting of realty prices in select pockets.
Outlook
Property experts expect residential property sales to be lacklustre over the next six months — till the liquidity problem eases. However, it could also be an opportune time for realty buyers to get a bargain — by negotiating with reputed builders. Also, depending on the location, it might make sense for buyers to postpone their buying decision — until the property comes under the ambit of the newly passed law.
In terms of residential hotspots, property consultant JLL India has said five cities — Mumbai, Bengaluru, Hyderabad, Ahmedabad and Chennai — will be places to watch out for in 2017. “While Hyderabad, Bengaluru and Chennai are the traditional IT hotspots, Mumbai is seeing Navi Mumbai's advancement as a growth corridor due to increasing saturation of the mainland” said Ashwinder Raj Singh, CEO, Residential Services, JLL India. Moreover, with these cities witnessing constant growth in employment opportunities, more people are flocking there; this, in turn, is triggering the launch of new residential projects, especially in the affordable segment.