The new realty law (RERA) is anticipated to bring in more transparency and discipline into the Indian realty sector which in turn will attract many institutional investors such as private equity (PE) funds and non-banking financial companies.
As of now, a developer relies on funding collected from property buyers during their project pre-launch which can be done just after the first set of approvals. This collected cash helps the builder start the construction. Later, once the full approval is done a formal launch can be set at a higher price.
The new realty law, once imposed by the respective state, rules out the pre-launch offer and prompts the developers to arrange for financing from the time of buying land till they get the final approval which easily takes a year or more, according to Anuj Puri, Chairman & Country Head at Property Advisory, JLL India.
Also, RERA will mandate registration of ongoing and new real estate projects, disclosures related to the delivery timeline of a project and cash flow management to avoid any delays and fraudulent practices. The RERA will have punitive provisions against such cases. Furthermore, the builders will have to disclose project details on the website of the regulator, along with a quarterly update on its progress.
“Investors like us will be happy to invest and also commit equity because regulatory risk will be reduced and approvals are expected to come in fast,” says Anuranjan Mohnot, MD, Amplus Capital Advisors.
“However, there will be risks in the financial closure of the project in the RERA regime, and investors will ask the developer to put money upfront in case there is delay in a project or shortage of funds,” he added.