March ushered in a fresh lease of life for the Indian real-estate sector with the much awaited Real-Estate Regulatory Bill getting a nod from both Houses. The bill is based on three major foundation stones: Transparency, Accountability and Efficiency. The benefits of the bill will be revealed in a domino effect not only across the realty sector but the economy at large. From a bird´s eye view, it is quite evident that increased accountability will be positive for all across the value chain. For instance, with increased disclosures and focus on corporate governance after the establishment of SEBI, the scams in the stock market have reduced considerably compared to the early 1990s.
Compulsory disclosures and registration ensure transparency, while taking responsibility in case of any unwarranted deviations in the process ensures accountability. Together, these elements infuse efficiency by discarding any kind of deception in prices.
First, sales will happen on carpet area, which is a practice followed in developed countries such as Singapore, the UK, etc. Second, the escrow account will help curb diversion and misuse of funds, thus ruling out speculative practices.
An important element of the bill is the redress mechanism. It envisages establishment of a fast-track dispute resolution mechanism for settlement of disputes through adjudicating officers and the Appellate Tribunal. For the redress of grievances, buyers can now approach consumer courts available at district level across the country instead of only the Regulatory Authorities proposed to be set up in capital cities. This reduces the cost of litigation and makes the process convenient for buyers.
Huge impact on the residential market Based on our data, Urban Development Minister M Venkaiah Naidu said, ¨As per available information for 27 major cities including 15 capitals, 2,349 to 4,488 new housing projects were launched every year between 2011 and 2015. Thus, in these 27 cities during these past five years, a total of 17,526 projects were launched with a total investment value of Rs 13,69,820 crore.¨
Impact on economy
The Indian economy opened up to the world about two decades ago and we want foreign funds to roll in. Thus, it becomes imperative that a global standard is maintained and transactions monitored by a regulator. Moreover, project delays are the biggest menace for Indian real estate and one of the key reasons for sky-high prices. As far as responsibility for delays is concerned, it lies both with the developer as well as government authorities. Thus, if we look at a broader aspect, delays on execution also have a negative bearing on India´s GDP.
For our analysis, we have considered all the total supply across all the 27 cities under our coverage universe. About 34 per cent of this supply is over 12 months delayed. This estimated delay of residential projects amounts to 1.32 per cent of GDP (2014-15) at current prices.
The construction and sale of an apartment, the root of the real-estate sector, has the capacity to catapult the growth of an entire ecosystem on its own. Once execution delays are considerably reduced, housing sales will receive a boost. The Indian economy will stand to benefit through this equation in a three dimensional way, as shown above:
Only half the problem solved
The bill not only protects consumer interest but recognises that faster approvals are also crucial for developers to prevent delays. Against this backdrop, regulatory authorities also aim to promote a single-window system of clearances for real-estate projects benefiting the sector and can now grade projects along with grading of promoters, besides ensuring the much desired digitisation of land records. However, the bill has a long way to go as far as faster sanctioning process is concerned. Thus, the problem is only half-solved.
Nevertheless, with a vast universe under coverage, it can be expected that the bill will have far reaching positive effects on execution and accountability. A nation´s economy has its foundation in consumer confidence. The bill will be instrumental in alleviating the prevalent dwindling confidence and weak sentiment across the sector. With increased transparency, the real-estate sector will start to look up and attract increased funds from overseas.
Without a proper regulatory mechanism in place, the government´s ambitious ´Housing for All´ policy will be unable to yield the desired results.
The amendments are a step in the right direction, but it is imperative that they be implemented within the timeframe that the momentum is intact.
The three dimensional way...
Increased sale of houses create ancillary demand. There will be automatic demand for furniture, consumer durables, fit-outs, automobiles, fibre optics and telecom companies.
This will spur job creation and expansion of industries giving a boost to commercial segment. Benefits of this will also trickle to retail realty as increased income implies enhanced purchasing power.
An upbeat economy with a functional regulatory mechanism will place India on a global footing and make it one of the most sought after destinations for international investors.
About the author:
Pankaj Kapoor, Founder and Managing Director of Liases Foras, is an expert particularly in the field of valuation, risk assessment and forecast of the price behaviour.
New launches across 27 cities
Statistics of Delays (total supply fi gures in mn sq ft)