Pankaj Kapoor: Will the Real Estate Bill see a rise in property prices?
The Bill would result in better regulation of property prices
Jul 09, 2013
Source : The Economic Times

 

BANGALORE: Pankaj Kapoor, Founder & Managing Director, Liases Foras, a real estate rating and research agency No, 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.

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.

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