Indian Real Estate is In deep trouble as “Raghuram Rajan RBI Governor note on Real Estate…”

Raghuram Rajan read out the riot act to the real estate lobby. He wanted them to do their bit, in reducing the cost of real estate, before the banks actually reduce interest rates.
Here are 9 reasons why a fall in real estate pricing is most important to India:-

♠1. The enormous unsold inventory has to be brought down. It starts with the cost of homes and not interest rates on home loans.

♠2. Much of the parallel economy (read Black money) starts and ends with real estate. Bring down the cost, and the black money evaporates. Real estate is bigger than those we are searching in Swiss banks.

♠3. It is only in India that the rental yield on real estate is 2% and interest cost is 12%. Only fools still borrow to invest in real estate. Especially, when there is zero capital appreciation. This gap is because of black money. They have to converge, and it starts with the cost.

♠4. The rental cost of real estate for business is as high as 10%. Businesses cannot survive with such high cost. Many businesses will become viable if real estate costs come down.

♠5. The surest way of hitting at politicians and Mafia is by reducing cost of real estate. It breaks their spine and hits them where it hurts the most.

♠6. Real estate is now a bubble. It has to be burst before many ordinary people get sucked into it. We have to save their hard earned money from being evaporated.

♠7. Real estate in India costs as much as in US or any other developed country. However, Cost of living is not even 1/3. The difference has to be bridged.

♠8. Housing is a need, not a luxury. And land is a national asset, not to be hoarded or profiteered. State intervention through market forces and fiscal interventions must be ex existed to make home buying affordable.

♠9. Reducing real estate costs reduces inflation and allows RBI to work on reducing interest rates. The cycle kicks off with real estate lobby than with RBI

Private Equity Investments Rises Sharply in Real Estate Sector

Private equity (PE) investments from foreign funds in Indian realty sector rose by 33 per cent to Rs. 14,974 crore during last year, according to property consultant Cushman & Wakefield.

In a recent report entitled ‘Opportunities for foreign investors in Indian Real Estate’, Cushman & Wakefield has reported that Mumbai accounted for about 35 per cent of the total foreign investments in 2015, followed by Delhi NCR accounting for about 25 per cent of the investments.

“Total private equity (PE) investments from foreign funds in Indian real estate increased 33 per cent from $1,676 million (about Rs. 11,306 crore) in 2014 to $2,220 million (about Rs.14,974 crore) in 2015,” C&W said in a statement.

“The three large cities – Mumbai, Bengaluru and Delhi-NCR – continue to attract the highest investments in India and account for about 75 per cent of these investments,” said Sanjay Dutt, Managing Director, India, Cushman & Wakefield.

However, he said that other cities in India are likely to witness rise in private equity investments going forward on the back of government initiatives to relax foreign direct investment norms and focus to improve infrastructure across the country. “These initiatives have made India as one of the largest markets for real estate investments offering a huge investment potential to foreign investors that were largely restricted until now,” Dutt said.

Source:- NDTV NEWS

REAL ESTATE BILL PASSED IN RAJYA SABHA & LOKSABHA on 10th March 2016

Real Estate (Regulation & Development) Bill, has passed on 10th March’ 2016 in the Rajya Sabha and the Lok Sabha, is set to ease the home-buying process. The bill has undergone several amendments and will be effective in bringing transparency and accountability in the real estate sector, thus increasing consumer confidence and benefiting the sector as a whole.

The bill sets a firm foothold in the real estate sector and would be a foundation for this sector for many years to come. With the changing skylines in many cities, it takes within its ambit many factors, including development and redevelopment, thus paving the way for a smooth road ahead. It will impact the sector, positively at two levels—first at the Micro level of Home-buyers, and second at a Macro level of the entire real estate sector.

Micro-level impact

Home buyers have so far got a raw deal, especially with regards to their dealings in the real estate sector. The bill, when it becomes an Act, will embolden them, make them more confident, which in the long run will help the sector grow.

Timely completion and delivery: Project delays are one of the major issues currently plaguing the real estate sector. In the residential property sector, a delay of three to four years is the accepted norm; in certain cases, it is more than seven to eight years. Over-leveraging by developers is the primary reason for such delays.

Developers will now have to deposit 70% of the collections from home buyers in a dedicated account to be used only for that particular project. It has been clarified that if the land cost has already been incurred by the promoter, he can withdraw the amount to that extent.

Level playing field: At present, rights of both the developer and the home buyer emanate from the agreement for sale. But these agreements are heavily loaded in favor of the developer. For example, interest on late payments for consumers is as high as 18%, but the compensation to them by developers in case of a project delay, is abysmally low and varies across contracts. Henceforth, both developers and consumers will have to pay the same rate of interest for delays on their respective parts.

Developers will now have to deliver on time, adhering to the level of quality stated in the information provided to the regulatory authority during registration.

Better quality buildings: To counter issues related to building defects and promote good practices in the sector, some developers provide a warranty for structural damages for 1-3 years. Extending this period, the bill states that the liability of the developers for structural defects will now be five years from the date of handing over possession.

Majority to hold sway: Developers cannot make alterations or additions in the sanctioned plans and specifications of the building or the common areas without the consent of at least two-thirds of buyers. Such provisions in the bill will ensure that home buyers are getting the exact apartment for which they have paid and have a say in layout revision. However, this provision of obtaining consent of two-thirds of buyers may cause delay. Buyers may raise unnecessary objections and it may result in legal proceedings.

This may be a problem in cases where it is not affecting the premises or flats already sold and the open or common areas, as also in cases where the total layout allows construction of more buildings in compliance of the building rules or building bye-laws or Development Control Regulations.

Macro-level impact

Provisions in the bill will without doubt make the process of home-buying much easier, but on a larger scale, they will also have repercussions on the entire real estate sector.

The real estate market is largely non-transparent. Most stakeholders operate in their own silos. This is true especially among developers. The absence of a regulator is to a great extent responsible for this plight. With a regulator in place, the sector will be more efficient, prices will be more rationalized and most importantly, the regulator will ensure that malpractices are weeded out well in time.

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