10 RERA aftershocks that are predictable

Maharashtra RERA seems like a tough new law that will fix most of the problems faced by consumers while buying real estate, provided that it is implemented in full. While it may seem a lot more challenging than originally envisaged, certain parts of RERA will actually get implemented and create greater transparency. Builders are spending a lot more time trying to identify the gaps in the new framework than necessary and needlessly speculating on what might actually never get implemented due to several reasons.

Here is a list of 10 after effects that RERA will most likely have on the real estate market.

1. Public access to information: The simplest step is the first one. This means that most builders will upload some information to the RERA website. In case the documents are found to be incomplete, RERA will give some additional time for documents to be uploaded. But most importantly, transparency will become the norm and radically change the buying behavior of real estate consumers.
2. Broker Registrations: This process is the easiest part of the new framework and more than 4000 brokers have already registered. By the end of the deadline another six thousand will register, with the total number expected to cross 10,000. For the consumer, it will mean that if brokers misrepresent facts, they too can be fined and lose their registration. Brokers will therefore have to make sure they deal only with the most transparent developers.
3. Public grievances: A submission fee of Rs. 5000 will create a small entry barrier for customer complaints but will not be able to stem the flood of grievances from consumers. Yes, consumers will have a place to file complaints, but how many will get acted upon and in what time frame remains to be seen. Its going to be a major headache for developers as malicious intent for complaints cannot be ruled out, but optimistically, may be limited to about 5% of all cases.
4. Termination of JV/JD deals with little performance: Deals between developers and landlords where performance has been lacking will certainly end prior to the deadline for registration. Landlords will not risk the heavy penalties that they face as co-developers in case of delays, especially if construction has not started because of lack of funds.
5. Penalties for non registration: This is debatable, but when should a project be registered? At the permissions stage or at the start of construction? In the age of Big Data, it will not take the RERA bosses time to figure out how many projects have been awarded IOD/CC but no OC and have yet to register. This might lead to penalties for non registration of projects which might be as high as 5% of project costs. So developers who are reading this article need to be aware that this can scenario can happen quite easily, so register as much as you can.
6. Penal interest in case of delays: Arguably the most popular demand from consumers will be interest costs borne in case of delayed projects. In case these complaints are registered with RERA, penal interest is a certainty. But it works both ways, which means that if consumers have delayed payments, then the penal interest is applicable on consumers as well.
7. Increase in prices: Regulatory compliance will come at a cost which could be PMC costs, legal costs, finance costs or interest costs. Add to that the reduction in available supply due to decreased new project launches, and we have reason to think that prices will go up, especially if developers try to pass these additional costs on to the consumers.
8. Decrease in new launches: RERA has a disincentive now to launch new projects - unless regulatory compliance is in place, developers cannot advertise new projects, thus greatly reducing the cash flow available earlier at pre- launch stages. What it means also is that the pace of development will slow down, not necessarily a good sign in the long run GDP growth of the country.
9. Professionalisation of developers: It is now going to be nearly impossible to function in the old pre RERA way unless developers become highly professional by increasing their focus on ERP systems, project management, customer grievance cells, and legal compliances. Expect higher job creation in this segment at the higher end of the value chain.
10. Entry of large foreign developers: Most visible are the Chinese developers like Country Garden, as they scout for land for their projects. They are very likely to be followed by the US, European and Middle Eastern developers. Putting land parcels on the RERA website opens up Indian real estate to the world out there, not just to potential development partners in India. These developers will bring higher quality and execution standards and give sloppy developers a run for their money. Expect an upgrade even at contractor level with new technologies and training coming in with these developers.

It is a fascinating time to be in real estate. The next decade will see a transformed Indian landscape, built largely by highly competent developers, financed by smarter capital, and consumed by more intelligent and aware customers.