In the words of a highly esteemed real estate website in India, India’s real estate sector had thus far been actively played as though in one’s backyard following only the most basic rules and with no referee. The Real Estate Regulatory Act will change the nature of the real estate game from one that is played informally in one’s backyard and with rules that are routinely disobeyed, to a game played in a large well constructed stadium between professional players and a referee who enforces rules.
From May 1 of this year the RERA became the law of the land and hence from the 1 of May onwards each state and UT is to have its own Regulatory Authority that will frame rules and regulations following the provisions of the Real Estate Regulatory Act.
The 2 points below outline how the RERA will, and in some instances already is impacting the market of realestate in India.
How RERA Will Impact House Prices
The price of houses across India has not fallen to the extent it had been predicted it would. A lack of new demand, a large inventory of unsold units, along with demonetization have together not led builders to lower prices significantly. Although builders have not lowered prices, they have offered buyers freebies and discounts to stimulate demand for houses in the primary market.
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Real estate industry veterans have stated that rather than leading to lower prices, RERA will have the opposite effect and lead prices of real estate higher as risks which before RERA were borne by consumers shift towards builders. According to such experts before RERA consumers had to bear the risk of project delays, poor building quality, and unplanned changes in projects. More often than not most consumers had to bear the cost of a default, yet today under the RERA the entire brunt of the cost has been placed on the builders who will pass on the higher costs to consumers in the form of higher prices for new houses. Industry experts have stated that there is no room for builders to absorb these higher risks without raising the price of houses they sell, hence in all likelihood the price of houses sold on the primary market will rise.
The Much Publicized Delays in Delivery
Over the past few months the news has been replete with stories of builders who have delayed in delivering projects to buyers. This may be at an end thanks to the RERA as the Real Estate Act forces builders to create separate accounts for separate projects and to keep 70 percent of the capital paid for a project for use only for the project for which the money was paid. According to this real estate website this will mean that builders cannot transfer funds paid for one project to use on a different project which will lead to a timely completion of projects in the future.