Affordable Housing, Government Policies towards Real Estate

Paradigm shift in Real Estate (RERA)

There are a lot of changes happening in the Indian Residential Real Estate sector. The policies are going through a paradigm shift. A steep drop in sales has led to a huge inventory bulge, resulting in market instability. As the Sector continues to face its worst slowdown in recent years, the proverbial Moment of Truth has finally arrived. It seems that all the external powers choose this moment to potentially impact the Sector. Implying as if they are determined to shake up the Sector at its very foundation; and squeeze out all poison that had accumulated because of the opaque practices, inefficiencies and lack of governance mechanism. The government brings in revolutionizing RERA

The Real Estate Regulatory Act (RERA) is the omega of these external forces

Paradigm shift in Real Estate (RERA)With RERA trying to bring in transparency and redefine the engagements between various stakeholders will be a game changing event. This transformation might change the way in which various stakeholders operate. It will also particularly have a far-reaching impact on residential developers. They would need to re-calibrate their business malpractices and come out clean if they wish to stay in the game. Moreover, the transformation, with RERA being a catalytic force would ensure that only serious players remain within the sector.

Lack of Support from Commercial Banking Sector

The increased RBI monitoring of the lending practices followed in the public-sector banking system and a determined effort to clean up the NPA mess with continued policy restrictions is a backdrop for the Residential developers. However, the public-sector banks have traditionally been a major provider of capital to the Sector. This very support from public sector banks is cited as a primary reason for the quick recovery after Global Financial crisis. However, at this juncture, the regulator continues to strictly monitor the exposure of the banking sector to the sector leading to fresh loan proposal either getting denied or tightly scrutinized by the bank’s own management.

Paradigm shift in Real Estate

This is a clear departure from the past when easy loans were doled out for projects based on lofty and unrealistic project reports without any proper scrutiny. Furthermore, the replacement of cheaper bank capital by expensive capital from NBFCs seems to be stressing out developers’ balance sheet even further. There sales velocity refuses to pick up for a few years now. In many cases, which are not worthy of funding by NBFCs or any other source of institutional capital, the situation is leading to defaults and eventual bankruptcies.

Customer Welfare

Expedition of consumer cases in judiciary is another force that would prove to be major driver of consolidation. Many years of failed promises in term of delivery timelines and quality has led frustrated Indian home buyers to get down to streets to secure their rights. Both the government and judiciary have taken a very serious note of such phenomenon and acted in favor of the home buyers. This has been evident from the recent judgments against some of the most prominent developers in the industry. This shows the empowerment of our judiciary and quick action of the government in favor of the consumer.

These regulatory interventions in the form of newly introduced direct and indirect tax laws would have a lasting impact. This would eventually lead to the evolution of Industry and usher in a new era. This will improve efficient business practices, customer centricity, transparency and higher corporate governance. In the interim, however, the consolidation journey lasting over next few years would be quite painful. It is imperative that the Real Estate developers take corrective actions to remain in the game and withstand its impact.