RERA Impact on new launches

The Real Estate (Regulation and Development) Act, (RERA), which came into force on May 1 2017 is surely a welcome change for industry players, buyers, and investors. While it creates a more transparent system, the other side of the Act has been a rise in the input as well as holding costs for developers. With a number of advantages that it passes to the buyers, it is also a fact that residential prices may likely rise in the coming time. A recent report by Cushman & Wakefield (C&W) showed that in 2016-17, the new launches in the residential category declined by 8%, in comparison to March 2015- April 2016. The January - March quarterly report by PropEquity also shared a 19.45 % decline in new home launches. While the industry experts predict that there will no major change in the next two or three quarters, the reason being that the developers are restricting themselves from new launches and re-working on the strategies to comply their existing projects with RERA norms.

RERA has made many developers put their expansion plans on hold and now it looks like the developers are in the wait-and-watch mode. The eight major metros across the country have shown a 14-16% decline in the first quarter in comparison to last year. In fact, last four quarters saw the same trend, thanks to RERA and demonetization. The developers are expected to remain engaged with realigning their operations with the RERA requirements.

Also Read:- The RERA report card- story so far

Analysis:

- While the affordable segment launches from April 2016 - March 2017 have increased, high-end and luxury segments came down to 11%. The developer's priority is now to complete their under-construction projects, to avoid RERA penalties and actions.

- Launches to remain restricted for two to three quarters to work along the RERA and GST norms. In addition to the same, the downsizing within the IT and ITES sector is another concern in residential space, majorly in the metros. Bangalore for an example, which witnessed 20,500 launches during April 2015- March 2016, only had around 15,600 launches in the April 2016-March 2017 period.

- Increased transparency and accountability will be there. Developers will not commence the sales and promotions until all project approvals are obtained. Prices may increase once the unsold inventory gets cleared.

- Reforms like the Benami Transactions (Prohibition) Amendment Act, GST, and REITs will also affect the sector soon.

- With the re-calibration of the business models, marginal price realignment may be on the cards and the supply will further shrink as only developers adhering to the rules will be able to launch fresh projects.

- There will be phased launch of projects. The sales, as well as launches, have been weak across all segments. The high-end and the luxury segment have seen the major slowdown as a result of the demand-supply mismatches. The ambiguity over RERA and its regulations is making developers take a back seat in launching new residential and commercial real estate projects.

- Builders will bounce back with newer strategies and RERA-compliant projects in the market. With a number of steps involved like the conversion of land-use patterns, land acquisition, approvals and clearances, registration with the state real estate regulatory authorities, etc., the timeline between the announcement of the project and the final project launch will increase.

- The prices of these new projects are expected to count in the expense bearing on the total project cost.

Thus, the developers, irrespective of segment - affordable, mid, and luxury will align their business practices, sales and launches as per the RERA. RERA will have a far-reaching impact on the sector and will transform its working mechanism altogether. As of now, many real estate developers have cut down on new launches. Their main focus is on reducing the effective cost of their offerings and giving add-on’s to clear unsold stocks.

TAG:- RERA, RERA Norms RERA Requirement