‘RERA Good For Industry’s Future; Transition Issues May Affect FY18 Performance’
The basic objective of the Act is to protect the interests of the consumers through improved transparency levels and accountability of real estate developers
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The effective implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA) that became effective from May 1, 2017 should result in increased customer confidence and improved demand prospects over the long term, says Indian credit ratings agency ICRA.
The basic objective of the Act is to protect the interests of the consumers through improved transparency levels and accountability of real estate developers.
Shubham Jain, Vice President and Sector Head, ICRA said, “Some of the prominent benefits likely to ensue from the new regulations include elimination of non-compliant developers and agents, facilitation of informed decisions by the buyers, increased standardisation, improved accountability for timely execution as well as the appropriate use of customer funds.”
“The intent of the Act is to implement a level playing field between the developers and the buyers, which till now had been tilted in favour of the developers owing to information asymmetry and lack of a dedicated regulator.”
A key requirement for the Act to become effective is the role states are expected to play. However, implementation of the Act has seen delays as very few states have been able to create the required regulatory infrastructure till now. Moreover, the transition to the new regulatory framework is expected to constrict the new project launches and increase working capital requirements of developers.
These short-term challenges are expected to put pressure on the operational performance of developers during FY2018 also.
State governments under the Act need to frame rules with respect to the various provisions, and set up a state level regulatory authority to implement these rules, added ICRA in an official statement.
As per ICRA, the provisions of the Act will also significantly impact developers’ financial profile as it will raise their working capital requirements and increase reliance on equity or debt financing.
K Ravichandran, Senior Vice President and Group Head, ICRA said “The current transition period of RERA implementation is expected to be challenging for developers as they need to realign their business operations to comply with the new regulations. The constraints imposed by the Act will adversely impact the business model of unorganised developers and it can be expected that there will be some level of consolidation in the industry.”
“This will benefit larger developers who have the resources and financial flexibility to withstand the near term challenges and scale up execution levels as required.”