Evolution of Real Estate Industry in the Changed Scenario

For obvious reasons RERA is one of the hottest and most talked about topic amongst the real estate (RE) circles. A lot of deliberation is taking place amongst the developer and real estate agents. Each side is trying to put forward their fair share of arguments defending or opposing RERA. End customer’s standpoint is also being discussed with sincerity. There is a universal consensus about the RE market becoming more transparent and buyer friendly. The fact that along with transparency, accountability has also become a part every property transaction, and this has only added to the positive customer sentiments and benefitted developers who stayed clean throughout. The top 20 to 30 developers were already undergoing a voluntary disciplined drill. Even before the onset of RERA they practiced self-discipline while dealing with customers, channel partners and investors; they ensured highest levels of financial disciplines which safeguarded timely project deliveries; they were already adhering to all statutory compliance requirements. Besides the new statutory requirement of registering each and every project, there wasn’t much adjustment required to be done by branded developers. They just tweaked their process a little and aligned the timelines as per the new compliance requirement. They were profitable entities before RERA, they are a profitable entity even today despite all the turbulence, and they will continue to be profitable in future even if the headwinds continue for persist for some time. However, the same cannot be said about the fly by the night developers who entered the industry to make quick bucks and exit the scene with equal haste, leaving the home buyers in lurch. RERA acted like an axe and cleaned the RE segment of such unscrupulous and unethical entities. As a result of this there is a lot of consolidation happening in the industry at present.

Demonetization (DeMo) is another favourite topic now a days, as its impact was felt very deeply by RE industry even before RERA arrived on the scene and the aftereffects are still felt strongly. Experts put opine and largely agree that despite DeMo being a dampener of spirits, its actual negative impact is much less than the hype. The overall drop witnessed by the industry after DeMo is only 7 to 8%.  Experts consented with this realistic figure, playing down the hue and cry made by some pundits who put forth inflated downfall figures.

Another very important point of the discussion which is often not spoken about openly, is that in last three years the new government policies have slowly and steadily taken away all incentives for second home purchase; which in principle has discouraged genuine buyers from overstretching themselves financially to invest in a second property. Hence the demand has become more realistic and investor community has also begun treading very cautiously, it has brought a lot of speculative pricing in control. The developers too have come to their senses and come to terms with the new order. The overall impact has translated into price stability. Due to gradual price correction happening since a few months, actual buyers are now getting incentivised and encouraged to consider investment in property.

According to experts the last few quarters have seen more demand generation for the RE market which is in excess of 1 billion dollar. The price speculation has given way to price stability and investor community has become more realistic in their expectations. An ROI of 8% to 10% is a realistic figure and accepted norm, anything above that is a bonus.

Like any other industry there needs to be an exit strategy in place. In case of big investors there is no clear road map for exit with respect to – ‘when to exit’ and ‘how to exit’, and this acts as a deterrent for many prospective individual investors and investment firms.

Despite technology entering the segment and online platform challenging the conventional buying habits the estate agent profession will continue to remain important and play a vital role in bringing the buyer and seller closer to each other. A personal touch will always be needed and appreciated by the buyers. With the entry of RERA on the scene, RE Agent has been put on the map and given the long awaited recognition. Earlier, despite playing an important role this entity always remained on the side lines. Before RERA the job of an agent got over after bringing a customer to the developer’s office, but now the agent’s job actually begins from there on. The RE Agent bodies insist that if people seek professional help in different aspects of their life, then why should they go unassisted while buying property, which happens to be one of the most important decision and the biggest investment of their life.

Unfortunately RERA has also put the agent in a very precarious situation by holding him or her responsible for the acts of omission or misrepresentation by a developer. The penalty in form of lifetime licence cancellation of the agent’s licence is deemed to be very harsh and unfair. Voices are being raised from the community about the possibility of livelihood of an agent being taken away due to misrepresentation on part of the developer. This has become a contagious issue and attracted a lot of negative feedback from the agents and agent associations. RERA has also created some complications for individual gents and corporate agencies by calling for a separate licence registration in every state and having different registration fee for every state. This has led to confusion and unnecessary delays. There is also an ambiguity about the inter-state referral business wherein an agent in one State has given a client lead to an agent in another State.

There are some suggestions for four key challenges that needs to be addressed:

  1. There must be one pan-India licence.
  2. There needs to be a standardization of registration fees for individual brokers and corporate agency bodies across states.
  3. Like the buyer escrow account there should be a provision for an escrow account for the broker fees as many developers don’t pay the broker fees and cheat the agent.
  4. The agent registration number should be included in the contract so that their role and claim to compensation is recognized along with their responsibility and they receive legal protection.

The recently held 9th Convention of NAR opened up a lot of debates and the 1300 odd delegates got different perspectives about the real estate (RE) industry, the issues plaguing it since a while and the possible solution in the new world order.

Dr. Niranjan Hiranandani, CMD – Hiranandani Group in his inaugural speech said, “The real estate industry is facing ‘challenging times’ post RERA, GST, demonetization (DeMo) and the Benami Properties Act, effectively the impact of these has been like four tsunamis. We are also witnessing three major challenges: a slow-down in new launches, high land prices and high taxation levels post-GST. There is a need for reduction in high levels of taxation as also land prices, and Indian real estate is looking at the Government to do the needful in this regard.”

“The community of realtors has got recognition for perhaps the first time ever, in the RERA Act, and our profession has been recognized as providing value to the industry. We have to take the knowledge and learning gained out of this Convention to organize ourselves better, follow ethical practices, and operate with a greater customer-centric focus going forward.  We have taken the first baby steps, and together we shall collaborate with the Government and regulators to bring in legislation that enables us to do our business better in future,” said Ramprasad Padhi, President of the AREA Group.

As far as GST goes the RE community is at the beginning of the learning curve and a lot is yet to be understood before there is a clarity about the benefits and challenges posed by GST.

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