Real Estate Regulatory Bill which is expected to be tabled in the monsoon session of the parliament in the month of August this year, was approved by the government in June, 2013. While property developers are proclaiming how the Bill would trigger a further price rise, there is a section of real estate experts who are reasoning that rather than increasing, property prices would be regulated and could possibly come down.
PROPERTY PRICES DO NOT FOLLOW RULES OF ECONOMICS
Generally, the price of any commodity is decided by the supply and demand for the product in the market. So, if the demand for the product is high and the supply is less, the prices for the product will go up. However, the same is not true for real estate prices in most top metros in India. Despite the demand for real estate offerings going down in the last few quarters, the prices for houses have been going up consistently every quarter. Real estate prices in some of the top metros have always risen exponentially, to the tune of around three per cent every quarter, even when there was virtually no demand. So, it would be totally wrong to say that prices would rise only if the Bill comes into action because prices have always been rising, regardless of the reasons.
THE BILL WOULD RESTRICT LEVERAGING BY DEVELOPERS
In fact, if anything has to happen, it would be more regulation of property prices. The developer leverages on the advance money that he gets, which gives rise to a lot of speculative activities.For instance, if he gets Rs 100, he pays Rs 10 as token money at 10 places and to fund the rest, he takes expensive loans with interest rates as high as 30 per cent. Alternatively, he may call on investors for all the 10 places he has paid the token money at. These speculators too, keep the prices high as developers have to recover their costs and make profits on it, he adds.The interest on the expensive loan is ultimately passed on to the customers. Once the Bill is passed, all such leveraging opportunities would cease to exist as the developer would have limited resources to leverage upon. For instance, if he were to get Rs 100 as advance money, nearly 70 per cent of that would have to be deposited in an Escrow account.
REGULATION OF PRICES, A POSSIBILITY
The Bill will also ensure that the project will get completed on time and that the developer has taken all the necessary permissions and clearances before the project is marketed to the customer. Also, the super built-up area which was around 40 to 45 per cent of the carpet area, has gone up to around 65 to 70 per cent of the carpet area these days. All such malpractices would come to an end. There would be several hidden costs which the developer would add to the cost of the project.So, when such practices are done away with, the customer will get a much cheaper property and will pay for only what is on paper.
MIS-SELLING WOULD STOP
At present, there are a lot of unscrupulous elements in the real estate broking business.There are many who hide facts and also fabricate many details about a particular property, which results in the property being sold at a higher cost to the customer. These unscrupulous brokers are just concerned with their brokerage fee as the developer at times even offers higher commission to sell their projects. Once the Bill is enacted, many fly-by-night brokers would be ousted from the industry forever. They would have to get a license to operate in the industry and even file income tax returns which many of the brokers don’t do at present. Dalal explains that with only serious players operating in the industry, the customer would get good options to choose from. Even the brokers would be held accountable. So, whatever would be applicable to the developer would be applicable to the broker as well.
PROPERTY HIKES WOULD BE RESTRICTED TO CERTAIN POCKETS OR DEVELOPERS ONLY
Larger developers who are already following transparent business norms will not be impacted much. They tend to have all clearances in place and make full disclosure of all aspects of the properties they sell.” Puri is of the opinion that smaller developers will be more affected.
Source-TOI
Posted By -
Alok Kumar Upadhayay