India’s real estate industry is set for a massive makeover with the proposed introduction of the Real Estate (Regulation and Development) Bill, 2015.
The bill, which is due to be considered by India’s Parliament before it is passed, is being lauded as a pioneering initiative that aims to redress the plight of India’s long-suffering property buyers by cleaning up the country’s huge real estate industry.
“The bill will have far-reaching positive consequences for the sector in operating procedures, and will create a comprehensive consumer redress mechanism,” says Anuj Puri, Chairman and Country Head at JLL India.
Tightening the rules
The bill – applicable both for commercial and residential real estate projects – centers on the establishment of a nationwide Real Estate Regulatory Authority, which will have wide-reaching regulatory and punitive powers. All real estate projects and agents must be registered with the Authority, which will have the power to knock back or green light individual projects.
To get project approvals, developers will have to provide – among other things – particulars of the promoter and the project, land status, various approvals and agreements, along with details of real estate agents, contractors, architects and structural engineers.
Financial protection for the buyers comes through the provision of a compulsory 70 percent deposit by builders of the amount raised from buyers. The funds will be placed in escrow to cover the construction cost of the project and to ensure its timely completion.
Another major provision in the bill is the inclusion of an equal rate of interest to be paid by the promoters and buyers in case of default or delays. Currently, this rate favors builders.
Promoters will be barred from changing plans and design without the consent of buyers, while a fast-track mechanism for settling disputes will be established.
Easier market access
A bonus of this newfound transparency and accountability should be easier sector access to capital and financial markets. Foreign investors who previously baulked at entering the Indian real estate sector will now find the market more attractive as the new laws on accountability and transparency kick into action.
Also, the threat of jail time for breaches of the bill will pull less reputable real estate actors into line or force them out of business altogether.
The bill is expected to create lasting developer brands strong on quality and timely delivery of their projects, says Puri.
He adds that despite some minor quibbles, reputable real estate developers have welcomed the bill. “At worst, they may have differences of opinion as far as certain nuances are concerned.”
Puri says the signs are that the market will mature further into an organised industry in which some less-organised players will become casualties.
Mixed market sectors
The bill comes at the end of a mixed 2015. “The year did not bring the hoped-for growth in residential real estate,” says Puri. “However, the silver lining is that the bad days seem to have bottomed out.”
India’s commercial market is also looking up, with demand driven by corporates implementing growth plans. Cities such as Pune, Bangalore, Hyderabad and Chennai are seeing vacancy rates of just five to 10 percent, prompting the need for fresh supply to meet growing demand. “While developers have been shying away from commercial projects, construction should pick up as rents climb faster – at least in the good markets. In 2016, there will be continued demand for leased spaces,” says Puri.
The year was a lean one in terms of new quality retail space, with consolidation by brands and retailers. However, Puri sees a brighter 2016, with more mature investors buying built-up retail spaces. “Once they have… a foothold in India, they will start investing in green field assets,” he says.
Big year ahead
“Overall, the stage is set for a superlative show in 2016. The year may well bring the kind of investment activities that were seen in 2007 – the previous peak year, which saw investments of more than US$8 billion in Indian real estate,” says Puri.
To this end, the new real estate bill will further increase the attractiveness of a market that is expected to grow five-fold to US$676 billion by 2025. The housing sector is the strongest, with a predicted CAGR of 11.2 percent up until 2020.
This phenomenal growth, along with the confidence the new bill will bring, is expected to offer big opportunities for global real estate players, more so because of the significant lack of technical and financial support in India. This translates into increasing demand for architects, Engineering Procurement and Construction contractors, quality material suppliers, project management consultants and facilities management service providers.
“The world sees India as a land of opportunity for business and investment,” says Puri.