On May 1, 2018, it will be a year since the Real Estate (Regulation & Development) Act was enforced to resolve the problems of the languishing residential property market. But there is little reason for optimism. Developers are saddled with unsold inventory, several ongoing projects are stuck for want of funds, new launches are low-key and stranded homebuyers are still looking for a solution.
According to Anarock Property Consultants Pvt. Ltd (formerly JLL India), the pace of launches in the March quarter was 17.5% slower than the year-ago and only around a third of what it was two years back. The confidence in the sector, be it from the viewpoint of a developer, agent or customer, is still low.
One reason is that the implementation of RERA by the states has been patchy. Maharashtra and Karnataka got it off the ground quickly and even have full-blown websites with a redressed mechanism in place. However, others still do not have the system in place.
Although some states have spelt out penalties, we hardly hear of customers being compensated.
The bigger problem is the unwillingness of financial institutions to support stranded projects. According to Kotak Securities Research, “our channel checks suggest a slower pace of re-financing from non-banking finance companies (NBFCs), during a seasonally strong quarter for lending.” That RERA registration is mandatory for new projects seeking finance extends the time taken for new launches too.
Right now, it is a catch-22 situation, where buyers are cautious, deferring purchases until the return of better times and developers are stuck for want of finances. So, while there may be a slight improvement in sales over the December quarter in a few regions such as Mumbai Metropolitan Region (MMR) and Bengaluru, it is too early to call it a revival.
After all, the unsold inventory, according to Anarock across seven key cities as at end-March, was 711,127 units, with MMR and National Capital Region (NCR) holding more than half.
Meanwhile, even large realty firms in the listed universe are known to be offering discounts to rid themselves of unsold inventory in order to generate cash flows. Costs of compliance are high apart from the fact that developers are not allowed to market any housing project until clearances and the registration is completed with RERA.
The struggle is far from over for firms with high exposure to the high-end housing segment. Indeed, RERA aims to bring about greater transparency in the sector and curb the proliferation of fly-by-night operators. But perhaps it needs more teeth at the central level to hasten the process of recovery.