Will the Real Estate Bill see a rise in property prices?
With the Real Estate Regulatory Bill awaiting the final nod in the monsoon session of Parliament, speculation has begun on its impact on the realty prices. Amit Shanbaug talked to some of the leading experts in the real estate space and here's what they had to say on the subject
Jul 08, 2013
Source : The Economic Times


DELHI: Once implemented, the Bill will bring a lot of transparency in the sector, and all the developers support and appreciate it. However, one needs to understand that there are certain sticky points. Take the deposit of 70% of the cost of the project, which includes the land and construction cost, in an escrow account, which would suck up the liquidity from the market. The land cost is the highest one has to bear today, and currently, most developers are facing liquidity crises, which will be heightened due to the bill.

The developers would have to approach the banks to fund the construction cost. It is virtually impossible for banks to fund hundreds of crores of rupees as there is an RBI cap on lending. So, they would have to consider expensive sources of credit like private money lenders, and the cost of these high interest rates would have to be passed on to the customer.

The incidental costs, such as for raw material and land, have also gone up, and the developer needs to recover these from each flat. Since theproject would also need to be sold on a carpet area basis, he would have no option but to factor in all the costs in a smaller area. This will give an illusionary view of price rise. So, we anticipate a rise of 25-30% in property prices for projects.

Another factor is that fewer projects would come in the market as the developer won't be able to advertise before he gets all the approvals. So a lower supply would lead to a rise in demand and, ultimately, a price rise.

Before 1981, it would take just three months for the developer to get all the approvals, whereas now it takes 2.5-3 years. We have to face around 40 authorities to get 52 different types of approvals to start construction. With the Bill, we will have to face one more authority, so the developers' work will increase.

The Bill should also impose penal action for the government authorities that fail to give approvals on time. Rather, the regulator should take on the task of clearing approvals so that lesser time is taken for clearances. The Bill also doesn't have any feature to promote construction activity and doesn't take into account the problems faced by developers.

Pankaj Kapoor, Founder & Managing Director, Liases Foras, a real estate rating and research agency


The pricing for any product needs to be seen in relation to the demand-supply mechanism. However, real estate is one sector that does not adhere to any rule of economics. Realty prices in some of the top metros have always risen exponentially at around 3% every quarter even when there was virtually no demand. So, it would be wrong to say that prices will rise only if the Real Estate Regulatory Bill is enforced because prices have always risen regardless of the reasons.


In fact, the Bill would result in better regulation of property prices. Currently, the developer leverages the advance money, which gives rise to speculative activities. For instance, if he gets Rs 100, he pays Rs 10 as token money at 10 places, and to fund the rest, he takes expensive loan at rates as high as 30%. Or, he may call for investors for the 10 places he has paid the token money.

These speculators, too, keep the prices high as they have to recover their costs and make profit. The interest on the loan is ultimately passed on to customers. Once the Bill is passed, such leveraging opportunities will cease to exist as the developer will have limited resources to leverage. For instance, if he were to get Rs 100 as advance money, nearly 70% of this would have to be deposited in an escrow account.

Pankaj Kapoor

The Bill would also ensure that the project would be completed on time and the developer takes the necessary permissions and clearances before the project is marketed. Another major aspect is the carpet area rate on the basis of which the developer would have to sell his project. The super built-up area, which was around 40-45% of the carpet area, has gone up to 65-70% of the carpet area. Such malpractices would come to an end.

Also, there would be a lot of hidden costs that the developer would add to the cost of the project. So, when such practices are done away with, the customer would get a much cheaper property and would only pay for what is on paper. The Bill would also usher an era of transparency in the real estate sector.

However, the Bill also needs to focus on accountability on the part of the governing authority. It needs to ensure a time frame during which the authorities approve or disapprove the clearances for the project.

Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India

May be

The Bill will pave the way for transparency by regulating the housing sector. It covers all projects over 4,000 sq m in size and seeks to cover major private residential developments across the country. It will provide considerable relief to the ordinary buyer/investor who faces innumerable obstacles while buying property and is duped even by small developers, builders and brokers.

The strict regulation for promoters means that the construction will not only be completed on time, but the buyer will get the property as per the promised specifications. Besides, the setting up of the Regulatory Authority and the Appellate Tribunal will create a dispute resolution mechanism and address the grievances of the consumer who had recourse either to a prolonged litigation in a court of law or consumer courts.

Anuj Puri



However, it does not provide any relief to developers in terms of expediting the approvals and permissions process. Developers face long and inordinate delays, besides the difficulty in obtaining approvals from multi-headed government agencies, and have stressed on the need for a single-window clearance to cut through the red tape.

As for the real estate prices, one cannot say whether these will go up or down once the Bill is passed. It would depend on the project and the developer. The unorganised developers, who have just one or two projects in their hands and don't follow the rules of transparency, will certainly witness an impact on their bottom lines. They will increase the prices as their margins are bound to take a hit and they don't have a reputation to build.

However, the organised developers, who are known to be transparent in their dealings, follow the construction norms and prefer to have the transaction through cheques, will not be increasing their prices because they won't be impacted once the Bill comes in force. So the price hike in property would have to be seen purely on a case-to-case basis.

Latest Realty News

Realty regulatory bill to be introduced in Monsoon session
Jul 07, 2013
DELHI: The real estate regulatory bill that seeks to bring transparency and accountability in the realty sector will be introduced in the monsoon session of Parliament, a top government official said today.
Realty projects get big boost, MoEF to now ease control
Jul 06, 2013
DELHI: In a major boost to realty sector, the Centre has granted power to states to decide on new townships and construction and development projects, restricting the ministry of environment and forests to environmental sustainability aspects.
Green panel stays construction at Noida landfill site
Jul 06, 2013
DELHI: The National Green Tribunal has stayed construction activity on the landfill site in Sector 123 here after a commission appointed by it found that the project had been formulated without following the guidelines. The Noida Authority has also been restrained from carrying out digging or construction till the next hearing.
RWAs in Gurgaon to protest new societies Act
Jul 06, 2013
DELHI: Claiming that the Haryana Registration and Regulation of Societies Act, 2012 goes against the interest of the residents, a group of resident welfare associations is planning to hold a demonstration outside Haryana Bhawan in Delhi on July 4 morning. They say that this Act that has replaced the Societies Registration Act, 1860.
Finance minister advises public sector banks to cut lending rates
Jul 05, 2013
DELHI: The finance minister said on July 3 that banks have been advised to reduce their base rates and pass on the benefit of policy rate cuts to borrowers to help stimulate growth. FM reviewed the performance of state-run banks and financial institutions against the backdrop of a sluggish economy. The government is keen to boost growth, which has slowed to a decade low of 5% in 2012-13.
Farmers start agitation in Noida yet again
Jul 05, 2013
DELHI: Farmers have intensified their agitation yet again in the entire Gautam Budh Nagar district halting construction work at around a dozen developers’ sites. Noida farmers stopped construction work in Sectors 74, 79, 112 and 119, vandalized the equipment and even thrashed the labourers. Farmers have declared that they will not allow construction to resume till Noida and Greater Noida authorities honour the Allahabad high court order and give them additional compensation and developed plots.
Property consultant DTZ rejigs India operations
Jul 05, 2013
DELHI: Global property consultant DTZ today said it has restructured its real estate operations in India for better client service and business growth.
Wave City ties up with SBI for financing loans
Jul 05, 2013
LUCKNOW/NEW DELHI: Wave City, a 4,500 acres integrated township being developed by Wave Infratech has roped in State Bank of India to fund its projects.
This is an extremely strategic acquisition for L&W Construction Pvt Ltd, and one of Bangalore's larg...
Jul 05, 2013
DELHI: Property consultant Jones Lang Lasalle (JLL) India today said it has facilitated a 25-acres land deal in Bangalore being purchased by L&W Construction for Rs 100 crore.
Housing finance regulator to back HDFC application for $500-m ECB
Jul 04, 2013
BHUBANESWAR: National Housing Bank (NHB), the housing finance regulator, is favourably disposed to HDFC's application for a $500-million external commercial borrowing (ECB) for affordable housing projects in India.

Latest Realty News Of State

Realty Talk's