The ongoing churn in real estate sector led by string of reforms including Real Estate Regulatory Act (RERA) and demonetization is no-doubt a pre-cursor to a transparent business environment.
Apart from easing concerns of home-buyers, these measures would drive consolidation in the sector or one should say separate the men from the boys.
With estimated 22,000 realty developers operating across the country in various segments, the sector is certainly overcrowded and fragmented. With reforms like these, business environment is going to be tough for builders indulging in wrong practices and would make way for large developers.
Across the country, small developers may come up with interesting ways to deal with the pressures of difficult business environment. Some builders would opt for solution of joint ventures or even selling their incomplete projects on outright basis.
These solutions may allow breathing space to builders and move ahead with their delayed projects that are stuck for liquidity, permissions or even warring partners. Home-buyers would also welcome such moves given the possibility of delivery of their apartments than waiting or fighting for the same.
Going forward, such instances would rise in the backdrop of the Real Estate Regulatory Act that will make things difficult for players who are used to diverting cash flow to buy and hoard land parcels. It’s much better to hive off the project and monetize it than holding on to a stuck project, which would result in dire consequences given the new regulatory bill.
Certainly, the government’s recent move of demonetizing high-value currency notes has rattled real estate sector in a big way. But, the bigger factor would be implementation of RERA by April 30, 2017, the deadline for all states to establish a Real Estate Regulatory Authority. The process will drive the pace of consolidation in Indian property sector.
Essentially, this will also weed out not-so-serious developers from the system. Builders, will have to take these newly learnt lessons seriously and understand that combination of managing liquidity, quality of construction, brand visibility and home-buyers’ expectations would be the key to survive in the game hereon.