Investment in land and housing has always been considered as the safest and the best option to make your money grow. In the decade starting 2003, Indian real estate prices saw an unprecedented rise, not only in the metros but also in Tier II & Tier III cities. Anticipating a surge in demand, real estate developers launched projects beyond their capacity.
This continued for the next five years, fuelled by a booming economy, increased salaries and affordable home loan rates.
But the crisis that ensued after the Lehman Brothers collapse led to a funding crunch, with developers struggling to complete their projects. Poor project management, high level of inflation and escalating construction costs along with the lack of commitment from the developers further compounded the problem leading to a trust deficit between builders and buyers.
The need of the hour is to overcome the negative perception and regain the trust of the buyer community.
Over the last few years, the government has been trying to cleanse the system. The Real Estate (Regulation and Development) Bill 2015, is a pioneering initiative to protect the interest of consumers, promote fair play in real estate transactions and ensure timely execution of projects. The Bill provides for a uniform regulatory environment to ensure speedy adjudication of disputes and orderly growth of the sector. It is also expected to boost both domestic and foreign investment in the sector and help the government realise its dream of ‘Housing for All’.
The Bill seeks to put a lid on the unsavoury practices. It clearly states that all brokers need to register with the regulator and that a builder cannot launch a product without all the requisite clearances. It further highlights the need for standard definitions of super area, carpet area, etc and also sets a model sale-purchase agreement. According to the new law, builders need to keep 70% of the money collected from sales in an escrow account, which can be used for developing the project and not diverted elsewhere.
In spite the best efforts of the government, the sector is still going through a tough phase. Debt-laden developers are still struggling with slow sales, stalled projects, delayed construction and huge pile up of unsold inventory. The lack of buyer confidence in developers has been impacting demand.
The next couple of years are going to be critical for the sectors revival. Big corporates like Tata, Bharti, Godrej and Mahindra and the ones likely to enter the sector in future are likely to play a big role in its resurrection.
People are showing great deal of trust in these developers, as these companies already carry strong brand equity in their respective sectors and have previously won consumer trust by strictly following ethical practices. The presence of these players is likely to change the dynamics of the industry in a slow but steady fashion. The market structure of the industry, which continues to be highly fragmented and unorganised too is going to change for the better.
With the entry of large corporates, it is also possible that real estate will finally receive the industry status it has been demanding for years. This will help it access funds from banks at a lower rate of interest. The sector actually needs larger players with a holistic view of development to win buyers confidence.
Sayal is the author of ‘Inside unreal Estate’ and MD & CEO, Bharti Realty