The Real Estate Bill Impact On Ordinary People

Manjula Chaturvedi, 64 has had a smile on her face since morning. Vishal Bhagat, 39 is particularly cheerful today. Sanchit and Payal Sinha, both 28, have scheduled a busy weekend for themselves. Suresh Anand, 53 is on his way to office, earlier than usual.

This is an unusual day for these five people. There’s news been trickling in since last evening. A long pending piece of legislation has finally been passed by the Rajya Sabha. The Real Estate Regulatory Authority Bill, RERA is on its way to becoming law.

Manjula, a retired teacher has accumulated about 43 lakhs from savings and her late husband’s retirement payout. Two years ago she had decided to invest in a high rise apartment project in Greater Noida, but then most friends and relatives advised her to stay away from the real estate sector. They caustically remarked her funds were safer with her banker than with a builder. Safer maybe, but they were actually diminishing in value. While she was aware about the kind of returns real estate can yield in the long run, she was particular that her money be invested securely, and safeguarded somehow. And then, this morning’s newspaper headlines brought a smile to her face.

Suresh Anand had been preparing for this day for almost a year. He was aware of every clause in the RERA bill. He had kept a track of every proposed amendment, and knew of the pressure exerted by the builders lobby while the bill was being drafted. After all, he was part of that lobby.

Vishal Bhagat had also been tracking the RERA bill journey with great interest. He knew the passing of this bill just might be the catalyst that would turnaround the depressed real estate market. For a serial investor like him, a upswing in market rates during the course of 2016 would help him exit from a few under construction projects giving him fresh funds to invest in newly launched projects. Newly launched and covered by the RERA bill provisions.

Sanchit and Payal Sinha are both corporate executives, living in a rented apartment in Gurgaon. Their housing loan was swiftly approved an year ago, and they’d been getting calls from broker and developer offices offering attractive projects to invest in. But Payal was clear that she didn’t want to invest in a flat with an uncertain delivery schedule. She also didn’t want to sign on a one sided builder buyer agreement. A few months ago she had told Sanchit that the passing of the RERA bill was just a matter of time. And yesterday, that time arrived.

For these five people, and a few million more across India, a timeline now divides Real Estate – A pre RERA era and more importantly, a post RERA era.

Manjula Chaturvedi is aware that out of every cheque she hands over to a builder, 70% of its amount goes into an escrow account from which funds can only be used for that particular project. Payal and Sanchit realise that this will ensure that their flat, when booked, will get delivered in time. Suresh Anand wasn’t too happy about this, he’d have preferred a 50% limit, but then non diversion of funds would mean happier customers who’d again invest in any new project of his.

Sanchit is reassured to know that every builder will have to file details of all approvals with the state regulatory authority, clearly mention the carpet area, take responsibility for fixing structural defects for up to five years, and set up an allotees association within three months of handing over possession.

There’s one provision in the bill that has Vishal Bhagat very relieved. Whenever his installment payment got delayed he’s had to pay penal interest @ 18 to 24 percent to the builder. However on those projects whose handing over is delayed, and he knows all of his are running behind schedule, the builder has got away with a measly penalty of a few rupees per square foot per month of delay. But now he’ll be on a level playing field with the builder. The rate of interest payable in case of default or delay will be the same for Vishal as well as the builder. Vishal now expects speedier construction in new projects. He also hopes the ambiguity about the bill’s provisions being applicable to existing projects gets sorted out soon.

But Suresh Anand is against RERA being applied to under construction projects. He feels he already has a lot of work cut out to meet the bills provisions. But somehow, he’s upbeat. He foresees a revival in the market.

That could, and will definitely happen. Payal and Sanchit have scheduled a visit this weekend to one of Suresh Anand’s new housing project site which is being marketed as RERA complaint. Maybe, Manjula might be a visitor there soon. Vishal Bhagat was once a regular investor in Suresh Anand’s projects. His serial investor instincts have been reawakened.

 

 

 

 

 

Get Real On Real Estate

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Are you someone who’s spent 2015 hoping that before the year ends, the Indian Real Estate market will suddenly surprise you by turning about.  Somehow, magically?

Don’t hope. It’s not happening.

2015 was similar to 2014. 2016 could also be similar. Of course, most investors would hope otherwise. Everyone connected with Real Estate in India would hope so too. Developers who had bought large land parcels on which they’d launched a number of attractive projects, Investors who went on a booking spree in these projects, Real Estate consultants who urged these investors to quickly close deals, everyone’s got stuck in this quick sand of stagnancy which swiftly broke down the perceived unshakable foundation of Real Estate as an asset class.

Did we see it coming? No one did or maybe no one wanted to. This was one long Bull rally whose reversal seemed impossible. On a macro level Real Estate is so much like the stock market. In the latter, trends can reverse in a matter of hours. In the former, trends can take years to reverse, so many years that no one would remember the last reversal. Now, when was that?

2008. Remember how the housing bubble burst?

It’s history. Who cares? The market bounced back, right?

But what really happened next? A lot of affordable  projects were launched in the residential sector. The commercial sector, except for Malls, got ignored. Some developers launched commercial projects in far off areas, with an assured monthly returns commitment. As long as the market rallied investors got these monthly returns while the projects crawled along. In the residential sector, money began chasing money. Projects were sold out on launch, the secondary market saw unexpected appreciation. You could book and exit in a few months time. And then reinvest again. And again repeat the cycle. And then one day, you couldn’t exit. That day turned into months, and now it’s been a couple of years.

When sellers become their own buyers an implosion is bound to occur. When developers see their funds drying up, they go super slow on construction. When an end user can’t shift into that Flat or office he booked years ago,  they’ll surely add their bit to the already negative perception about Real Estate.

So what’s happening now?

We’ve begun to see distress sales, we’ve started to hear distressed voices. This is when the market starts to bottom out. Investors and developers have inventories which they want to off load. Some desperately, some discreetly.

It’s time to get real on Real Estate. It’s time to buy Real Estate that’s real. Real enough to live or work in right away. A ready apartment, a ready office or shop. Buy it. Live / work in it, or rent it out. The rental market is booming. But that’s another article.

Get real on under-construction projects too. The journey from construction to finishing to registration can, and will be painfully slow. Keep looking for an opportunity to exit.

If you’re someone who’s sitting on funds to invest, then look beyond the metros and large cities. There’s very affordable land or realistically priced housing projects on offer there. If you’re willing to stay invested for a long time, you’re bound to get a return.

There are always some unknown opportunities available even in large cities. For example, if Delhi’s L Zone housing development gets all its clearances soon enough, this could just trigger off that Real Estate reversal that everyone’s hoping for.

2016 would then have a lot to look forward to.

 

Will Housing Go The Dotcom Way ?

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This article is not about housing.com, the realty portal that’s been much in the news recently. Let’s split this very user-friendly domain name and ask a simple question. Will housing go the dotcom way? Would you buy a house online, just as you’d buy a pair of shoes, or even a sofa set?

Let’s assume you’re looking to buy an apartment in a newly launched project.  You’ve seen that half page newspaper ad or have been chased by an online pop-up one and have now decided to drive down to the developers site. If you’re visiting one in Noida, then the drive’s a breeze, however in Gurgaon you’ll find that the final approaches to a few sites will severally test your vehicle’s shock absorbers. Anyway, you’ll finally arrive at a fenced off location which has a makeshift site office, and a couple of hoardings. You’ll also be surrounded by a few friendly brokers eager to show you around. By the way, if you’d have learnt about this project from your existing broker or someone who texted or cold called you, you would have been driven to the site.

Within a few minutes, the broker will reel off all that there’s to be told about the project. This done, he’d offer you a good deal too. A good deal need not necessarily be about the best rates available; it’s also about the follow-up services. But that’s another article.

So, you’ve been there, checked out the location, the approach and have formed a fairly good idea of how this project will look like in a couple of years. You’re now ready to fill up a booking form and write out a cheque. The broker solemnly hands you a ballpoint pen.

But what if this property was available to be booked online? Tempted by that persistent pop-up ad, you would have clicked onto the developers website and would immediately be drawn into a series of impressively designed pages. Site map, floor plans, price lists and a link to Google maps for the location. There’s also a CGI walkthrough of the project. And finally, a link to pay the booking amount online.

So, there you are staring at a web page, wondering whether to click on the payment option. You have been clicking on such links regularly to buy shoes and even once, a sofa set. But a house?

The chances are that you’ll shut down the web site and reach out for your car keys.

So, will housing ever go the dotcom way?

There has been a small beginning. A few properties are being bought online, a small fraction of the huge Indian property market. The buyers are mainly internet savvy consumers or a few NRI’s.

Let’s assume that a new housing project has been offered for online sale by a very reputed developer at a very good location. There’s a positive buzz about the project too.  Will you now revisit that payment page? Maybe not. At least, not yet.

What if the price offered online was much lower than that quoted by the developers sale team or your broker. That would definitely make you click on the payment link. But that link will not be available on the developers website. Where is it then?

We all know that most products are attractively priced on online shopping websites. The reasons could trigger off an online vs offline marketing debate, so we’ll steer away from that now. Your intended property could be available on a popular site like Snapdeal or Flipkart or even at a specialty realty portal like Housing.com at an eyebrow raising price. Would you buy it now? YES, you would.

It’s a win win situation for everyone. The sale adds to the GMV of the online retailer, the buyer gets a satisfactory deal and the developer besides getting a sale also gets an exposure to the very large customer data base of the online retailer.

The initiative to list a property online at such a portal has to come from the developer. They also can’t afford to antagonise brokers who provide most of the sale volumes at present. And online sales volumes won’t go up until the rates are attractive. It’s going to be a tough balancing act for developers.

It will take a while for buyers to move onto buying properties online. Many people still prefer to view and be told about a property rather than just read about it.

But eventually and inevitably, housing will go the dotcom way.

Is this the right time to invest in Real Estate in India?

Anyone who has invested in property over the last three or four years knows that the real estate market has slowed down. It’s almost crawling now, close to stagnation.

Investors have given up, waiting for property rates to hit rock bottom. End users are swarming the market, hoping to pick and choose properties as they believe they’ll find some sellers who are willing to negotiate. So while buyers are ready to go in for the kill, the truth is that deals aren’t really happening. Why so?

That’s because there’s a discernible gap between the expectations of buyers and sellers.

First time buyers are likely to get confused, and will easily give up or postpone buying a property unless there’s a compelling reason to do so. And most investors are saddled with properties which are in the final stages of construction, which also never seems to end. So, they’re willing to wait out the bad times. They’re seasoned hands; they’ve seen good times and know a reversal is a matter of time. Many of them are also paying huge EMI’s but as long as the economy is doing fine and their jobs or businesses are secure, they know have nothing to worry about.

Most builders have unsold inventories. But they’re not reducing prices. They might offer a scheme or two but that’s about it. They have high interest rates and rising construction costs to take care of. Money does come in for them, from new launches driven by attractive subvention schemes.

Property prices will never crash to levels they were sold at. Interest, inflation and the faith that Indians have in property as an asset ensures that current market rates remain steady.

So, the rock bottom might have already been hit. This is a false bottom, not visible to many. For end users or buyers who have to invest, this is the time to close deals. If you’re getting your desired location then don’t hesitate to handover a cheque. These pick and choose options weren’t available earlier when new projects were sold out in days and investors happily clung on to their bookings vowing to sell only after possession.

A few good resale deals and the sentiment driven property market will start moving upwards. This could be a slow, cautious sort of movement. So if you’re looking for medium term gains or immediate rental returns then this is the time to pick up well located, ready to move properties of reputed builders. If you’re a long term investor, then the market is flooded with newly launched options coupled with those attractive schemes mentioned above.

If you are an investor looking to exit under-construction properties then you might have to wait longer. These are the most difficult properties to sell nowadays because of uncertain possession dates.

By and large, the tide is about to turn. It’s time to take a ride on it.