Why RERA will not impact new home prices

1st May 2017 will be a landmark day for Indian Real Estate as the Real Estate (Regulation and Development) Act, 2016, (RERA) is expected to come into effect on this date. It will change the way real estate markets operate and work in India. But will it impact prices of property, especially new homes?

If you consider the market situations and inventory levels, RERA won’t have much impact on prices. The new home prices are already at their low levels and the further decrease is highly unlikely. On the other hand, although builders will come under greater regulatory oversight, it won’t be reason enough to hike prices.

Bridging the gap between stakeholders

One of the biggest issues faced by Indian real estate markets is the trust deficit between various stakeholders. Home buyers are wary of promises made by developers as they read or hear about bad experiences faced by others. Developers too have at times felt buyers to act unreasonable and to not understand the intricacies of the building process.

It is in this background that RERA has come as a welcome step. A regulatory can act as a bridge between the stakeholders and improve their relationship. The setting up of a clear and transparent framework will give confidence to all parties involved and make transactions much simpler.

Coming up with the act

It took more than eight years of discussions and deliberations. Many fly by night operators were taking advantage of rapid urbanization and rise in demand of property. In some cases unscrupulous activities were rampant and in some cases, developers diverted money from the projects. The developers who were doing things right faced perception problems with acts of others. All this raised demand for a regulatory who can keep an oversight on such activities and bring a method and order to real estate sector.

Key features of the act

The Act makes it a mandate for all developers to get their projects registered with the State’s Real Estate Authority under whose jurisdiction the project falls. Furthermore, 70% of the amount collected for a project will have to be set aside in a separate account dedicated only to the particular project. Real Estate builders will now only be able to sell apartments on the basis of carpet area and not the super built up area as is the current norm.

Dispute resolution

At present, the best avenue for home buyers for dispute resolution has been the consumer courts. These cases are then looked through the prisms of the consumer laws in the country. RERA will bring about a change in this as the regulator will be equipped with sufficient powers to resolve any dispute that may arise between stakeholders.

Price Impact

As mentioned above, all these factors may not warrant any impact on pricing at least in the short run. In the long run, however, a consolidation in the real estate space cannot be ruled out which might have some impact on home prices. While many benefits for home buyers and property developers will be visible in the immediate future any pricing impact will not be instantly gauged.