Fewer homes will be registered since developers will wait to see how the new norms pan out
India’s Real Estate (Regulation & Development) Act (RERA) will boost transparency, discipline, and accountability in the property market. The Act entails a near-term drop in new project launches as fewer projects will be ready for registration; it will deter entry by smaller players due to higher holding costs; and it should make joint development more popular, says a report.
“Demand should benefit from new expectations created by the Act. Indeed, sentiment among buyers already appears to be turning more positive. This is good for the market in both the short and the long term. On the supply side, we expect a drop in new project launches in the short term. This is because our 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,” says a report titled Developers Get On Board – Implications of Real Estate (Regulation & Development) Act 2016 by Colliers.
Currently, all major cities in India have high unsold inventory, so lower new project launches should ensure equilibrium in demand in the residential sector. However, this may entail price rises in preferred and under- supplied mature markets, whereas over-supplied markets should be less impacted, it says.
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, the report says.