Real Estate bill likely to drive up prices – Hiranandani


Neha Hiranandani

The new Real Estate Regulatory Bill is a step in the right direction, but could end up making property costlier, Neha Hiranandani, director of Mumbai-based House of Hiranandani said.

“Though the objectives are noble and correct in the long term, we believe lack of clarity on the various mechanisms proposed will only add to costs through delay, making projects not only more expensive, but ensuring that affordability continues to be a distant dream,” she said, adding that the bill was ‘incomplete’ as it left out local body officials from the ambit of the regulator.

India’s real estate sector is arguably the most opaque segment of the economy due to the parking of ‘black money’ by politicians and bureaucrats in the sector.

At the same time, it is also highly unorganized, with practically anyone able to become a ‘developer’ even if he or she has no original capital or prior experience. Many people who own land in the cities take loans, build up complexes, sell the units and repay their loan. This has led to inconsistencies in quality, and affected even high-end developers due to inconsistent reputation around the sector.

The Real Estate bill is designed to bring accountability and predictability into the sector, but contrary to developers’ suggestions, it has left the government officials — who often cause project delays — from its regulatory ambit.

“The bill has failed to bring the government authorities into the ambit who are responsible for the continuous changes in regulations, lack of transparency and predictability in functioning. The bill is therefore incomplete in its approach, and the outcome of this is going to be more expensive products for consumers,” Hiranandani pointed out.

Another point that could hurt operations is the requirement that 70% of the sale proceeds has to be kept in an escrow account till the property is handed over. Most of the companies in the sector ‘presell’ the flats and use the proceeds to complete the construction as regular bank loans come with high costs.

“Placing 70% of receivables in an escrow account in an economy with such high interest rates is going to lead to a complete shift in the business model of many companies. Owing to lack of holistic approach, the end price to consumers will continue to rise, putting a severe strain on affordability,” Hiranandani said.

“The passage of the bill adds to the layers of bureaucracy and timeline and puts pressure on an already strained sector,” she added.

Many other real estate players also commented on the bill, though most were more circumspect about the impact that the new law will have on the sector. The sector is already going through one of its worst crises in recent years with inventory piling up and prices stagnating.

“We wish the developers’ interest is also taken care when buyers default and delay payment which result in delays in project execution. Developers cannot be blamed for such delays,” said Chintan Sheth – Director, Sheth Corp. “The Act also has to take into account the delays arising out of clearing plans and permissions.”

However, everyone felt the new law will ensure greater transparency and provider greater comfort to buyers. “This will boost buyer confidence and in turn will also help increase sales. This bill also looks at the developer’s interest by taking into consideration external factors in case of project delays,” said Vikas Oberoi – Chairman & Managing Director, Oberoi Realty.