Larger Indian developers upbeat as new law lands

One of India’s largest developers is upbeat about the prospects for the coming year, following the introduction of a new real estate law.

The regulation, which was passed into law in March 2016, will require more disclosure from developers and provide more protection for consumers, empowering home buyers. Developers have previously been able to sell homes off-plan to buyers at low prices before obtaining approvals for construction, but will now only be able to sell properties after getting all approvals for the planned units, with 70 per cent of those proceedings required to go towards finishing the development – rather than the developer using those advance funds on completing other projects or acquiring land.

Projects over 500 square metres in size will also have to be registered with the regulator before they are launched, with developers facing a fine of up to 10 per cent of the development cost, if this does not happen.

Anuj Puri, Chairman & Country Head, JLL India, has hailed the bill as “an unequivocal victory for the Indian real estate sector”.

“Its enactment as a law will almost single-handedly revamp the way this sector works across the board, from developers to end-users and investors, to lending institutions and government agencies involved in the buying and selling of property,” he comments. “It is by far the most decisive step the sector has taken towards transparency and reaching towards the kind of standardized processes, procedures and accountability guidelines that the industry requires to progress.”

Pirojsha Godrej, CEO of Godrej Properties Ltd – India’s third-largest developer, – cautions that it could force smaller developers out of business.

“Conditions aren’t going to get any better than this; there is some amount of distress with many banks taking over projects, some of the promoters have lost control of their companies,” he told Bloomberg.

Indeed, smaller firms may not be able to survive financially under the stricter conditions imposed by the new regulation.

“Weaker developers are facing a harder and harder time both in terms of accessing customers and capital at reasonable costs,” Pirojsha added.

Godrej, by contrast, is enjoying “brisk business”, reports Bloomberg.

“We have a strong ability to invest capital at this point and we are very happy with our sales in a weak market,” he commented. Indeed, the company saw sales more than double in Q4 2015, compared to the same period in 2014.

Urban Development Minister Venkaiah Naidu says the bill aims to protect the interests of buyers and bring more transparency to the sector.

Ganesh Vasudevan, Chief Executive Officer of IndiaProperty.com, is also upbeat about the new law, which he tells OPP.Today will hopefully restore consumer confidence and “usher in a new era of prosperity to the real estate sector which sorely needs it”.

“This is a welcome change which will bring in the much needed transparency to the entire sector,” he added.

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