Rohit Gera, Managing Director of Gera Developments
Demonetisation, RERA, and GST were all introduced in a short period between November 2016 to July 2017.
RERA’s primary objective is to protect customers, especially through the construction of the project.
With Real Estate Regulatory Authority (RERA), the risks which were previously borne by consumers will now be passed on to the developer. The scenario was way different previously.
For a large number of developers, the primary source of capital was the advances collected from customers for buying a house. This cheap capital would be moved across projects and used for purchasing new land packed with complete disregard to the project from where the money came from.
RERA also aims to eliminate corruption in the sector, which will help bring more homes to the end consumer at a lower price and a faster pace. Therefore, this Act has the potential to completely and totally transform the way real estate has been done in India.
[bctt tweet=”Real Estate Regulatory Authority will weed out fly-by-night operators, leaving professional real estate developers in the market. Consequently, developers have to rethink their entire approach to business.” username=”RoofnFloor”]
Now, there is pressure to deliver projects on time and this pressure will translate to contractors who, in turn, will demand much higher rates for construction. This will lead to an upward pressure on prices for the end customer. In other words, the increased costs associated with these will eventually be transferred to the end consumer through an increase in prices.
Prices will consequently rise mainly due to the costs incurred on account of RERA and inflation. Since GST is not yet applicable to ready to occupy properties, developers will have to bear the tax burden as it cannot be passed on to end consumers. Prices of apartments, which are ready for possession, will increase in step with the taxes.
For a long time, many developers followed a business model whereby profit was made by short-changing customers, constructing houses illegally, and using customer’s money without returning any value to them. Promises made to customers were not intended to be kept or at least, that was the norm. All this will change when developers are forced to define in writing what they will give to the homebuyers and by when it will be provided. The option of selling apartments without approvals is no longer available, and the capital requirements (for developers) will also go up. An industry, which has, for a long time, seen people with very little capital take up large projects, will have to change its current practices. Of course, all this is excellent news for homebuyers.
Developers have to compete on softer aspects of home buying like customer relationships, design, innovations etc. Developers that have a head start on these aspects and have already made investments in these areas stand to benefit the most and are most likely to shore up their brands going forward. Customers will continue to be driven by their need and budget in determining what to purchase, but in the post-RERA phase, projects are likely to compete based on their relative brand strength, and that will increasingly become a focal purchasing decision criteria for customers.
Construction quality was never required to be supported by any form of warranty. However, this is now become mandatory for all projects across the country and will force developers to raise the quality standards of the projects. Making changes in layouts and plans now requires approval from 60% of the flat purchase, which will be very hard to obtain and therefore developers will need to take a far more data-oriented approach to determining their product mix.
As the new paradigm emerges, developers will need to be highly compliant, transparent and extremely well-capitalised.
Hopefully, this will lead to a clean-up of the industry and eventually a change in the perception of the real estate industry.
Developers have no choice but to adapt to the new paradigm. On-time delivery, proper quality, financial discipline, treating the customer as the centre of all actions are things many developers have not needed to adhere to earlier but have to do so now.
Exciting times ahead!
This article is contributed by Mr. Rohit Gera, Managing Director, Gera Developments Pvt. Ltd.
The views expressed here are solely those of the author and do not necessarily represent or reflect the views of RoofandFloor.