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RERA-Impact on Real Estate Prices

13, May, 2017


From May 1, RERA-2017 the 2016 became effective in  the entire country following which each state will have its own Regulatory Authority (RA) which will make rules and regulations according to the Act.

With the RERA in place, will the real estate prices move up especially in the residential market? The answer to this may not be straight. While the new rules demands  a much stricter compliance and transparency, which may push the real estate prices up especially for the new launches, the large amount of inventory overhang in the system, will probably keep the price rise till the supply gets over.

Existing Inventory
A major portion of the existing supply relates to under construction properties including unsold inventory which could take around 12 months or more to complete. All such projects would now be needed to be registered under RERA and must be developed under new rules.

One such new rule relates to the sale of real estate on the basis of super area and not on super built up area. Till now, the industry used to sell real estate based on super built up area. Now RERA wants projects to be sold on carpet area.

New Launches
RERA provisions would now ensure strict control on management of funds and timely delivery of projects. "There will be now a pressure on delivering the projects on time and this pressure will be translated to contractors who will demand much higher rates for construction. This, in turn, will lead to rise in prices for the end customer, however, on an overall basis the total cost of ownership will actually reduce even though the sticker price of purchase goes up," says Rohit Gera, MD, Gera Developments and VP Credai, Pune Metro.

With the implementation of RERA, the overall costs of development of real estate projects are expected to rise and the same is likely to result in an increase in the prices of the real estate projects.

The Act does not bring the government authorities into the ambit who are responsible for the continuous changes in regulations, lack of transparency and predictability in functioning. If approvals will not streamlined on time then cost revisions and delays will become unavoidable.

Transfer of risk will lead to price rise


With RERA in place, in case if a default, the buyers will now have something to fall back upon. Rohit Gera, MD, Gera Developments and VP Credai, Pune Metro, says, "Earlier, the risk on account of delays, quality, title, and changes in the project were all taken by the customer. As an impact, most customers had to deal with some sort of the default and were forced to bear the cost for this default. After the launch of RERA, these costs will now be owned by the developer and there will be a consequential premium that the flat purchasers will have to pay for transferring this risk to the developer In my opinion, there is no headroom for developers to absorb these increased costs and immediately upon the first opportunity we will see this cost being transferred on to the home purchase with increase in prices."


Conclusion
As per the estimates so far, the industry will not witness a huge onslaught of new launches for few more quarters. Builders are already under pressure with under construction projects and will face issues in bringing them under RERA, complying with new norms, arranging funds that they would have already used and then completing those projects within the new agreed time period.

It's time to move with caution for those buyers looking to book properties anytime between May 1 and July 31. After demonetization and RERA, there is an anticipation of a significant consolidation drive in the real estate sector that could result in a large number of small time and unorganized developers being wiped out.  So, if you are getting a lucrative deal and offer on the on-going projects from small-time builders, which are not yet registered under RERA, it's better to stay away from them.


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