The Real Estate Act 2016 is all set to boost investments in this sector by shielding the consumers. The new bill sure does bring joy to long to term investors and consumers but alas it is expected to new projects launches sluggish. There are many contributing factors to it –
- The bill outlines that builders should upload details of all layout plans, registered projects, approvals, land status, agreements etc. along with details of contractors, real estate agents, structural engineers, architects etc. on the website of the Real estate Regulatory Authority (RERA). The single window clearance systems are yet to be drafted and executed across the states of India. To ease the process of project approvals the bill gives one year to the states to form their local RERAs.
- The bill specifies carpet area of a property as ‘net usable floor area’, excluding the area covered by under shafts, its external walls, terracesandbalconies. Developers would have to upgrade their carpet area efficiency by doing quality value engineering during design stage, to become competitive.
- The bill outlines the builders to keep 70 percent of the amount collected for a project in a separate escrow account and use it only for the development of project. Realty developers use funds of one project to fund other projectsorbuy new land to, in times of capital deficit which creates a lot of pressure on them and endangers the time line for possession of consumers.
- The bill states, developers will be responsible for fixing structural defects for five years after transferring the property to a buyer. A clear addition in the project expense category, which is expected to be nearly 1-3 per cent (may be more) of the total project cost.
- The bill assures penalty of 10 per cent of the total project cost for the developer for misleading the consumers or not meeting his end of bargain. This would require builders to take up a huge re-analysis, thinking andre-engineering approach coupled with a long-term vision for their projects.
- The land acquisition act s expects the developer to have all the necessary documents and approvals before taking on a construction and development. It hopes to make things transparent for the consumers.
- Construction costs have seen a continuous rising trend from last 10 years due to less effective andnon-existent inflationary measures and increase in wage bill for the benefit of labor. Design cost has also increased marginally due to increase in service tax imposed recently.
- Project funding costs are at a whooping high rate as realty has not yet received an industry status. Developers have to borrow capital at higher rate to procure raw materialsandland.