1. How RERA will impact organised commercial real estate sector

How RERA will impact organised commercial real estate sector

With the implementation of RERA on May 1, it’s time to analyse its ramification on the commercial real estate sector. Though the provisions of RERA will be more applicable to the unorganized residential real estate sector, it would be interesting to understand its impact on the organised commercial real estate sector.

Published: May 1, 2017 2:55 PM
We have tried to understand the possibilities emanating from the implementation of RERA on various stakeholders of commercial real estate, viz. developer, retail investor and office occupier, to name a few.

By Gopeshwar Srivastava

With the implementation of RERA on May 1, it’s time to analyse its ramification on the commercial real estate sector. Though the provisions of RERA will be more applicable to the unorganized residential real estate sector, it would be interesting to understand its impact on the organised commercial real estate sector.

We have tried to understand the possibilities emanating from the implementation of RERA on various stakeholders of commercial real estate, viz. developer, retail investor and office occupier, to name a few. To begin, retail investors who are investing in the under-construction real estate projects for assured return, now due to RERA will have detailed and transparent information about the track record and financial strength of the developer offering assured return along-with the key details of the project. As a result, it will put pressure on the Grade B developers in tier-1 cities and Grade A developers in tier-2 locations to be extremely careful while launching projects with assured return. This might also result into a drastic drop in the launch of commercial projects with assured return.

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On the other hand, retail investors who have exposure to the commercial projects (without assured return) of Grade-B developers in tier-1 locations and of Grade -A developers in tier-2 locations face the risk of the projects getting scrapped due to the Act’s provision of mandatory disclosure of financial information and statutory compulsion of completing the project in the stipulated time-frame. So far as developers are concerned, it is going to impact largely Grade-B developers in tier 1 cities and Grade A developers in tier-2 cities.

The result of this would be two-fold. Firstly, due to the legal compulsion of completion of the project in stipulated time-frame, there would be an increase in Grade B supply in Tier-1 locations. Secondly, scrapping and surrendering of projects. It has already been witnessed in the NCR market where Grade A category developer has surrendered his commercial plot to the authority. This would also mean that the rental of Grade B property will not match the growth trajectory of Grade A property.

As we look at the impact of RERA on office occupiers, it will ensure the much-needed transparency and robust policy framework which will provide the much-required clarity to global office occupiers with respect to the building layout plan, available services and compliance related statutory approvals and perhaps will lead to space standardization. Due to this transparent ecosystem created by RERA, Grade-B developers will make effort to match up with Grade-A supply and as a result office occupiers will have a wide array of option to choose from and secure a competitive deal. Due to this transparent ecosystem created by RERA, Grade-B developers will make effort to match up with Grade-A supply and as a result office occupiers will have a wide array of option to choose from and secure a competitive deal.

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If we look at the impact on stakeholders, RERA would reduce the gaps from organised commercial real estate market and ensure a win-win situation for all the stakeholders.

(The author is Associate Director, Office Services, Colliers International)

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