Bottom Line: Ahead of the deadline of 1st May 2017, the developers are forced to manage, if not correct, the business model to escape from the real estate watchdog.
With most of the projects running behind the scheduled deadline of delivery, the developers across the major property markets of India are adopting various strategies to escape with the Real Estate Regulation as the deadline for RERA is approaching fast.
Some of the striking changes in the business model on the eve of 2017 are:
- Developers in Noida are asking the home buyers to shift them to completed apartments in the next tower of the same project or other projects, so that the undelivered towers with few buyers remain unsold and thus outside the purview of regulator
- In many cities the developers are redesigning the marketing package to offer the buyers only on carpet area and not the super built-up or saleable area
- Build & sell model is suddenly being evaluated with its cost being passed on to the buyers, and hence not within the ambit of regulator
- Near completed projects are put on fast forward mode to apply for OC (Occupation Certificate) before 1st May, 2017 Â Â
- Large format projects are being re-submitted for approvals with phase-wise construction and deliveryÂ
The developers, on the face value, are welcoming RERA but are definitely concerned with its possible fall out. Though they avoid being critical to RERA, there is a clear realization that they have no other option but re-strategise their execution and delivery to not get trapped into non-compliances by the regulator.
Parth Mehta, Managing Director, Paradigm Realty says 2016 had not been easy for residential real estate market. With stalled growth and low consumer demand at current prices, it has under-scored lesser amount of property deals.Â Thanks to RERA, now with many unfinished developments can help in more transparent deals and approvals which will eventually increase in sales.
â€śDevelopers can use tracking tools to channelize key performance indicators, IT setup, risk mitigation that makes up with construction update ensuring that the process runs smooth within the RERA deadline and is under the norms of RERA. Market leaders should now focus more on building a benchmark for more sustainable growth,â€ť says Mehta.
Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group maintains that RERA policy announcement will bring in additional transparency and accountability in the real estate sector. This will only help us better our customer service and help increase the value proposition quotient.
â€śAll branded developers have always had a positive intent for completing projects on time. Our strategy at Rustomjee has always been to serve our customers better and complete projects on time, and we will continue to offer higher quality homes to our buyers,â€ť says Hateria.
Beyond this usual stance of welcome but concerned with RERA, the larger issue today is whether this strategic shift will help the sector or the buyer. A section of analysts feel the developers do not have a choice and till the time they clearly understand the functioning of the regulator and the possible grey areas, the strategy would be to how to avoid any arbitration.
Nikhil Hawelia, Managing Director of Hawelia Group believes there is nothing wrong in shifting the buyers to the next tower if the developer has only sold a few apartments in the newly launched tower. According to him, the strategy is basically to avoid any penalty and at the same time not hurt the buyer.
â€śAny strategy will work so long it does not rub the existing buyers the wrong way; failing which there will be more trouble with the regulator. So, I think it is a good move to shift the buyers in completed projects and look forward to the feasibility of build & sell model. My only concern here is that it may escalate the funding cost of the developers and hence make the houses more costly,â€ť says Hawelia.
Not many within the built environment are ready to believe alternate strategies would make the houses more costly. It is generally felt that the alternate strategies like build & sell, smaller project execution or escrow account would rather wipe out speculative middlemen from the market who make the money during the construction cycle. It will rather make houses relatively cheaper as the ready to move apartment, even with developersâ€™ higher borrowing cost, will not change very many hands before an end user actually buys it out.
Beyond the cost & benefit analysis of pricing index, it is very obvious that the business model and sales methodology of the developers will definitely be witness to tectonic shift in the year ahead. After all, no developer would like to be hammered by a new law that has many grey areas to be addressed. For the home buyers, only 2017 can define whether the developersâ€™ escapist strategies will help or hurt their cause.
By: Ravi Sinha