While the Real Estate (Regulation and Development) Act (RERA) has been framed keeping consumer interests in mind, developers seem to be getting cold feet in launching projects. Most developers are adopting a wait-and-watch approach to see the impact of RERA before embarking on new investments.
The Act, which came into force on May 1, has provisions aimed at protecting home-buyers.
“Developers are looking at offloading existing inventory rather than adding more supply. Also, it can be said that due to the uncertainty revolving around the applicability of RERA, developers have adopted a wait-and-watch strategy,” said Pankaj Kapoor, MD, Liases Foras.
The Act requires builders to use at least 70 per cent of the booking amount on the specific project for which the booking has been made. Many builders used to rely on the booking amount to fund multiple projects.
However, due to oversupply, builders have not been able to raise sufficient booking amounts, resulting in project delays.
“There is a pre-RERA era and a post-RERA era. The Act will be a gamechanger for the real estate industry. While most big developers will adhere to regulations, smaller fly-by-night operators will be the ones who will be most affected, ” says Dipesh Bhagtani, Managing Committee Member, MCHI-CREDAI, the apex body for developers in Maharashtra.
Typically, the festival season accounts for 70 per cent of launches. The Maharashtra Metropolitan Region (MMR), for example, witnesses about 200-250 launches during this period. But this time around, sentiments have remained subdued.
Bias towards consumerSurabhi Arora, Senior Associate Director, Collier International, a real estate consultancy firm, points out that while RERA has received applause from consumers, developers are sceptical. “ It is perceived to be a legislation biased towards the consumer. However, we believe that early adoption of the practices mandated in the Act will bring developers significant advantages. On the supply side, we expect a drop in project launches in the short term.”
Arora said Colliers’ analysis suggests that fewer projects will be ready for registration as developers will wait to see how the new norms pan out and how other projects fare.
However, Vikas Chimakurthy, Senior Executive Director, Kotak Realty Fund, feels that strong real developers should go ahead and launch projects. “As long as you have mechanisms such as an escrow account and all due approvals in places, developers should go ahead,” he said.