India’s real estate sector is currently undergoing unprecedented transformation in the name of increased transparency. The Real Estate Regulation and Development Act (RERA) represents the latest change to the policy environment, leaving industry experts speculating about its long-term implications. While the real estate industry is the latest sector to undergo significant regulatory reform, it is certainly not the first. In 1994, it was the telecoms industry in the spotlight with the advent of the Department of Telecoms. In this industry, increased regulation equalled industry consolidation, with numerous companies being streamlined down to just 4-5 major providers in less than a decade. Can we expect the same trends to occur in housing and what does this mean for the supply of affordable homes?
The changes introduced by RERA aim to restore a relationship of accountability and trust between buyers and developers. The law makes it obligatory, for example, for developers to provide all information such as project plans, layout, government approvals, land title status and schedule for completion, to the Real Estate Regulatory Authority, which can then be accessed by consumers. Furthermore, the act requires developers to take responsibility for delayed projects, by paying back consumers at the same rate at which the customer is paying their bank.
Inevitably, those who rely on bribes and illegal wealth to execute projects will be driven out of the market. However, smaller companies who are simply inefficient and unable to complete projects on time may also find it difficult to compete in this new regulatory environment, and will look for stronger partners to minimise risk. With corrupt builders being weeded out and smaller players looking to consolidate, larger developers who transact with transparency will take the lead in this sector.
What does this mean for the supply of affordable housing? While larger developers have traditionally focused on the luxury sector of the market, demonetisation has already compelled the big players to look towards providing more affordable housing units catering to end users. In the long-run, therefore, while the sector may suffer some short-term turbulence as unprofessional developers close down their operations, a stronger and consolidation real estate sector will ultimately benefit the affordable housing sector as established firms move in.
Xrbia, who has long recognised the benefits of investing in the affordable housing space, demonstrates the benefits of the presence of large-scale developers. The efficiency of our operations ensure we are able to offer well-located, luxury-style accommodation at a price affordable for ordinary families, while our track record assures customers of our credibility. Additionally, our established relationships with a range of financial institutions means we have been able to develop a no-income-proof home loan product, which has expanded the opportunity of homeownership to those working in the informal sector.
Most importantly, perhaps, large scale developers can bring scalability to the affordable housing sector which, given the acute affordable housing shortage we are facing across our urban centres, is a pressing concern.
In summary , market forces being as unpredictable as they are , may actually in fact not translate into supply velocity in markets that are intrinsically unattractive now for various reasons such as location, demand , price appreciation etc. Fewer developers may finally mean less homes for any underserved market segment. Who will therefore build for the poor?
By Rahul Nahar, Founder, Xrbia Developers Ltd.
Who Will Build for the Poor?
