While the Bill protects consumer interest, faster approvals are also crucial for developers to prevent delays. In this regard, the Bill falls short and thus the problem is only half-solved, says Liases Foras
The Real Estate Regulatory Bill aims at reducing delays and ensuring faster completion through transparency, accountability and efficiency. "While the bill protects consumer interest, faster approvals are also crucial for developers to prevent delays. Against this backdrop, regulatory authorities aim to promote single window system of clearances for real estate projects, wherein the projects and promoters both can be graded along with 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," says Liases Foras Real Estate Rating & Research Pvt Ltd.
Project delays are the biggest menace for the Indian real estate and one of the key reasons for sky-high prices, Liases Foras says, adding with the new Bill, sales will happen on carpet area, which is a practice followed in the developed countries such as Singapore and UK. Secondly, the escrow account will help in curbing diversion and misuse of funds, thus ruling out speculative practices, it added.
According to Liases Foras, incomplete projects have a huge negative bearing on India's gross domestic product (GDP). It says, "Delay in completion is a menace that has plagued the sector since long. For our analysis, we have considered all the total supply across all the 25 cities under our coverage universe. About 34% of this supply is more than 12-months delayed. This estimated delay of residential projects amounts to 1.32% of GDP (2014-15) at current prices."
These cities include, Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bangalore, Chennai, Pune, Ahmedabad, Hyderabad, Surat, Kolkata, Chandigarh, Vadodara, Jaipur, Indore, Lucknow, Bhopal, Nagpur, Coimbatore, Nashik, Goa, Cochin, Mangalore, Thiruvananthapuram, Palghar, Boisar, Kanpur, Bhubaneswar, Rajkot and Patna.
Based on Liases Foras' data, Urban Development Minister M Venkaiah Naidu had 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 last five years, a total of 17,526 projects were launched with a total investment value of Rs13,69,820 crore".
The Rajya Sabha approval to the much awaited Real Estate Regulatory Bill proves there is indeed light at the end of tunnel, Liases Foras said, adding, most of the lacunae in the functioning of the sector can be attributed to lack of clearly defined regulatory norms. However, it can now be said that things will gradually fall into place.
Delays in project completion, misuse of funds by developers and ambiguity over saleable area parameter are few things that have depleted buyer's trust over the years. This Bill based on three major foundation stones, Transparency, Accountability and Efficiency has the power to tie all loose ends in the real estate sector. A genuine intention has been leveraged and the impact of this Act will be large.
Besides delays, the realty sector is flush with huge inventory. At present, the inventory across major cities in India stands at one million units, clocking in a growth of approximately 22% on an annual basis. As per National Housing Bank (NHB), the housing shortage is estimated around 18 million units in urban India. "Currently, 2.85 lakh units are sold on a yearly basis and fulfil this shortage, sales have to grow more than five times. This is required for the inventory to be sustainable. In order to boost sales there has to be rationalisation of prices. Unless there is an uptick in sales, market would never be able to absorb additional stock which would lead to a decline in new supply," Liases Foras said.
A nation's economy has its foundation in consumer confidence. The Bill will be instrumental in alleviating dwindling confidence and weak sentiment that prevails across the sector. With increased transparency, Liases Foras feels real estate sector will start to look up and find itself on a global footing.
The Government of India has also mooted an ambitious policy called "Housing for All" for the urban poor, and without the proper regulatory mechanism in place, this policy will be unable to yield the desired results.
"The amendments are in the right direction, but it is imperative that they be implemented within the time frame when the momentum is intact. With the Cabinet nod to the amendments, the Bill is very close to becoming an Act, after which it's the State's responsibility to bring it to effect by appropriate measures," Liases Foras concluded.