The Real Impact of the RERA Act

It’s been over four months since the Real Estate Regulation Act (RERA) came into effect in India. While the much-welcome move from the Indian parliament came as a boon for home-buyers in the country, there were (and still are) a lot of teething issues for developers and builders and the real-estate sector as a whole.

As is known, the RERA Act covers all projects that were still being executed and hadn’t received a Completion Certificate as on the date of commencement of RERA Act, that is May 1, 2017. Thus, many under-construction properties have come under the ambit of the RERA Act. All of these projects had to be registered with the housing regulatory authority, and the developers or builders concerned had to provide regular updates on the approvals at various levels. All these registered properties have to follow the rules of RERA.

• The Much-Needed Respite

One of the highlights in the RERA guidelines is that any real-estate property, be it a luxury apartment in OMR Chennai or a simple 2BHK in a suburban location of Mumbai, will be priced on the basis of the carpet area, and not the super built-up area. As per a report in The Economic Times, BMR & Associates LLP’s Manoj N Kumar, who is a Partner in Direct Tax, has clarified that the carpet area is 30–35% lesser than the super built-up area of a project. The sale of projects on a carpet-area basis can lead to a significant increase in the per-square-foot price of the project, he adds.

• The WIP Bane

The newly introduced rules under the RERA Act bring about a major transformation in the way real-estate dealings have been taking place in India. Switching to the new rules was expected to take some time, especially in the case of under-construction properties that have already seen a lot of paperwork. And, as can be seen, the shifting of gears has slowed down the growth of the sector in many states. The properties that were under construction at the cusp of the switch to RERA are bearing the worst brunt as their regularization and documentation had to be changed midway. And, until these properties get completed, their respective builders and developers are not willing to start off with new projects. This means, there is a lot of pressure on them to complete the ongoing projects and sell them, failing which there will be a pile-up of unsold inventory.

• The DeMon-RERA Impact

Experts express unison in the opinion that the demonetization drive by the Indian government in November 2016 was a blow to the real-estate sector because of the unprecedented and heavy cash crunch that made an appearance without any warning. Add to that, the RERA Act has forced builders and developers to mend their ways and set things straight, and bring about transparency at every level.

The back-to-back moves by the Indian government have taken the businessmen in the sector by shock, and it is only natural that they will need time to ensure things are in order. Until then, the sector is expected to continue facing a slowdown. However, given the motive of RERA to ensure thorough regularization and accountability in real estate, it is believed that the sector will start looking up gradually and that the benefits of the Act will be here to stay.


This is a guest post by Dinesh Dhawde

Chennai Real Estate Crawls out of Lull; Witnesses Growing Demand and Cut in Inventory

The dampening effects of the demonetization policy on the real estate market in Chennai seem to have started to reverse. The policy, which was announced in November last year, coupled with the real estate bill and the devastating floods that shook the city in 2015, had a back-to-back blow on property rates in Chennai. The result was that the city started accumulating a lot of unsold inventory owing to paucity in demand, although, surprisingly, the rates were not going down.

Now, it seems, the rates of residential properties are coming down notably. And, taking advantage of this emerging trend of price fall, buyers are taking properties on rent instead of purchasing them. According to The Real Estate Management Institute, the average weighted rental value of residential properties in Chennai, as well as some other tier-I cities like Mumbai and Delhi,are on an upswing--somewhere in the range of 8% to 12%. Moreover, media reports suggest that banks and other financial institutions, too, are contributing to this positive development by bringing down lending rates for home loans.

Experts note that there has been about 15% increase in property sales in the first half of 2017 as compared to the same period last year. They attribute this growth to the demonetization policy of last year. A majority of the property rate hikes this year were seen in South Chennai, in relatively affordable places like Mahindra World City, Navalur, Padupakkam, Sholinganallur, and Thalambur.

The spurt in demand has brought about a major reduction in unsold inventory in Chennai, with a supposedly 30% drop in the past two years, according to Knight Frank India. Because there was a bulk of unsold inventory over the past 1.5 years, there were no new flats coming up in Chennai. The real estate consultancy believes that the unsold inventory in the city can easily be exhausted in another six years.

With the real estate market scenario getting better after the demonetization drive, commercial office space demand is slowly increasing. This, according to Knight Frank India, is a sign of employment prospects, which will lead to increasing incomes and housing needs, which means need for more residential properties. The vacancy levels of office space has come down to 10.8% in Jan-Jun 2017 from 22.5% in the same period in 2015. The highest rental growth has been witnessed in the Old Mahabalipuram Road or OMR Business District, in locations such as Guindy and Taramani.

The major contributor to the commercial real estate market in Chennai has almost always been the IT sector. This sector alone accounted for 0.7 million sq ft of office space in the city in this year. However, demand from the banking and financial sector is also increasing. With the limited office space now, and the increasing demands, the weighted average rental values of commercial real estate have increased to about Rs. 55 a month for one square foot.

This is a guest post by Dinesh Dhawde.