How Will The Implementation Of RERA Affect Real Estate Prices?

After the implementation of Real Estate Regulatory Authority (RERA) on 1st May, the real estate sector has its very own regulator in the entire country. Each and every Union Territory and State will be regulated by its very own Regulatory Authority (RA) which is going to follow the Act to make its rules and regulations.

But the question is that now when the RERA is activated in full swing, will it make the real estate prices to increase, specifically in the residential segment? The answer to this cannot be a simple yes or a no. As the new rules and laws are stringent and demand constant compliance and credibility, it can increase the prices in real estate for the new projects.

On the other hand, with RERA’s control and regulation, the new launches will take place at a slower pace than earlier. Since the new projects will be less, the demand for current inventories will increase.

Current Inventory
Along with the numerous under-construction projects that are going on and will take around a year to complete, the current supply also includes the ‘unsold inventory’. All the ongoing projects have to be mandatorily registered under RERA and follow the new norms and rules.

One of many new rules includes the selling of real estate with the criteria of ‘super area’ rather than ‘super built up area’. Until now, the real estate was working on the basis of super built up area. But post implementation of RERA, projects will be sold according to the carpet area. If we go by the trends prevalent in the market, the carpet area of any project is less than the super built up area by around 35%. Therefore, if the sale is based on the carpet area, price of per square feet of the area of the project will increase by 40-50%.

But even when the prices will change of per square feet, the total price will not have a much impact. But the homebuyers will be benefitted because they will be able to take better decisions because of the clarity of the area being offered.
For example – If a builder is selling 1000 square feet at a rate of Rs.5000 per square feet. This 1000 square feet of area is super built up area which the developers are promoting and on which deal takes place. So the cost of property comes out to be Rs.50 lakh. Further, the carpet area will also come in the picture and will have to be promoted by the developer. Now we assume that the area is 700 square feet and the price will have to be increased to Rs.7143 to maintain the cost at Rs.50 lakh.
As per the guidelines by RERA, chances are that some adjustments can take place in prices but not specifically an increase will be witnessed in the real estate sector.

New project launches
The RERA provisions will now make sure that there is a strict control and regulation on the management of real estate and delivery of projects on time. The developers will now face pressure to hand over projects on time and the same pressure will be faced by the contractors who will undoubtedly ask for high rates for construction work. And as a result, this will lead to increase in prices for the homebuyers.

Only the projects that are compliant to RERA will be launched now and the builder’s cost will increase and as a result the prices too will increase.

The main reasons for the increase in the total costs will be –
•The restriction laid on the selling of open parking spaces
•The restriction laid on the developers for the cash flows by a separate account
•Increased cost of things like monthly updates, filings in quarter, webpage maintenance etc.
•The need for transferring general areas to housing projects.

RERA is not bringing the authorities of government in its range who will actually be involved in in constant modifications in regulations, decreased credibility and transparency and inevitable working. If their approvals are not timely, the delays are bound to take place. Consequently, the final product will expensive for the buyers. India was given the 185th position out of the 187 countries in the report of Ease of Obtaining Construction Permit Index by the World Bank. This makes India just same to the condition of an after-war country where everything has collapsed.

Risk transfer leading to increased price
After RERA, if there is any kind of default, the homebuyers will have some regulatory body to listen to their issues and solve them. Earlier, every kind of risk, be it in delays, title, quality etc. were carried by the customer. Therefore, the customers were involved in some kind of default and also used to bear all the expenses of that default. But now, these costs will be carried by the builders as the risk will be transferred to him.

Conclusion
Presently, many developers are occupied with the ongoing projects and thus, the real estate sector will not witness the many new project launches.
The time has come for the homebuyers to deal with caution when they are booking/buying properties till 31st of July. If the deal is very lucrative and attractive but the project is not registered under RERA, the best thing you will do will be to maintain a distance with that project.