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How the Real Estate Act is impacting developer’s business plans

January 2017 | Back to all Real Estate Articles

With the Real Estate Act set to be implemented in 2017, developers have started exploring alternative business strategies, to minimise its impact. We look at the developments and what they mean for home buyers

Although developers have publicly welcomed the Real Estate Regulation Act (RERA), there seems to be definite concern, as the deadline for its implementation by states, by May 1, 2017, fast approaches.

With numerous projects running behind schedule, developers have realised that they may have to re-strategise their execution and business models, to avoid a scenario, where their projects do not comply with the new regulations.

Key changes in developer’s business model on the eve of 2017:

  • Several developers in Noida are asking their home buyers, to shift to completed apartments in adjacent towers in the same project or other projects, so that the undelivered towers with few buyers remain unsold and thus, outside the purview of the regulator.
  • In many cities, developers are reworking their marketing strategies, to offer properties to buyers on carpet area and not the super built-up or saleable area.
  • The ‘build and sell’ model, is also being evaluated by developers, to avoid falling within the ambit of the regulator, with its cost being passed on to the buyers.
  • Projects that are nearing completion, are being expedited, to apply for OC (occupancy certificate) before May 1, 2017.
  • Large projects are being re-submitted for approvals, with phase-wise construction and delivery schedules.

Why developers feel that RERA will be beneficial

Parth Mehta, managing director of Paradigm Realty, points out that the residential segment in 2016, witnessed stalled growth and low consumer demand at current prices. Developers should now adopt tracking tools for key performance indicators, IT setups and risk mitigation and provide construction updates, to ensure that processes run smoothly and within the deadline and the norms of the act, he says. “Market leaders should now focus on building benchmarks for sustainable growth,” says Mehta. The Real Estate Act, can create an environment of greater transparency in deals and approvals and this will eventually boost sales, he feels.

Kaizad Hateria, brand custodian and chief customer delight officer, Rustomjee Group, agrees that the Real Estate Act, will improve accountability in the real estate sector. It will help builders to improve customer service and increase the value proposition quotient. “All branded developers have always had a positive intent for completing projects on time,” Hateria maintains.

New business models to deal with RERA: Will it make homes costlier or cheaper?

Analysts point out that developers will try their best to avoid litigation, till there is greater clarity on the functioning of the regulator and the possible grey areas. Nikhil Hawelia, managing director of the Hawelia Group, believes that there is nothing wrong in shifting buyers to another tower, if the developer has only sold a few apartments in the newly-launched tower. Similarly, it is a good idea to check the feasibility of the ‘build and sell’ model. According to him, such strategies serve to avoid penalties and also ensure that buyers aren’t hurt in the process.

“Any strategy will work, as long as it does not rub the existing buyers the wrong way. Failing this, there will be more trouble with the regulator. My only concern, is that it may escalate funding costs and houses more costly,” says Hawelia.

However, others maintain that alternate strategies, like build and sell, smaller projects and escrow accounts, will wipe out speculative middlemen from the market, who make their money during the construction cycle. This may make houses relatively cheaper, as ready-to-move-in apartments, will not change many hands before an end-user actually buys it.

While builders continue to evolve strategies and business models to deal with the new law, home buyers have no option but to wait and watch, whether these strategies will help or hurt their cause in 2017.

 

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Source: housing.com

 

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