‘Real estate regulations are much simpler in India than in West Asia’

New Delhi: After RERA was implemented, Karnataka has the second most populated real estate regulator website, after Maharashtra. J.C. Sharma, vice-chairman and managing director, Sobha Developers Ltd, which is based in Bangalore but has a presence in various parts of India as well as West Asia, shares his views on the regulatory transformation and outlook for the real estate sector. Edited excerpts:

How have the past few years for residential real estate sector been in terms of regulatory changes, demand and supply, and prices?

Year 2017 has been a year of structural transition at micro and macro levels. At the macro level, there was demonetisation; then implementation of Real Estate (Regulation and Development) Act (RERA), 2016, from 1 May 2017; and Goods and Services Tax (GST) implementation from 1 July 2017. The government also came out with several benefits for the affordable housing segment.

The structural changes had positive and negative impacts since developers were not ready. Others, too, were not ready for demonetisation. The economy was not ready for the transition to GST regime from value-added tax (VAT) and service tax regime. Earlier only 6 million people were registered under VAT; now the number has crossed 10 million under GST. So, it’s a great transition.

Similarly, developers were not used to launching projects with all approvals. They would launch as per their will, collect money, get approvals... there wasn’t any process.

So when we talk now, we need to understand what would have happened if the government had not taken those steps, and what is happening despite those steps?

What we have found is that new launches have come down drastically. Year 2017 will be remembered for the lowest number of launches in 10-15 years. I doubt if any price appreciation happened, though interest rates were coming down. It was also the year when the industry recognized and realised for the first time that if it doesn’t prepare for the changed environment, it won’t have any role to play.

As far as demand and supply are concerned, there is pent up demand. Sales are down due to the regulatory changes, but supply is gradually reducing. Transactions are happing, though at a slow rate; new launches are almost nil. In the future, when supply dries up or reduces, and demand picks up, coupled with inflation, prices will also go up. This may not be in the next 6 months or a year, but certainly after some time.

How was the transition for your company?

It was smooth for us. There were hiccups in the initial stages, but not anymore. I think we have registered about three dozen projects, without any problem.

Once you realise that there will be problems in the initial stage, you are not agitated. Instead of cribbing and crying, we embraced it. We knew RERA is good for customers, and we knew that if it is good for customers, it is good for developers and the real estate sector. We believed in RERA; and we believed that developers have to walk the talk.

Sobha Developers also has projects in West Asia. How stringent are real estate regulations there? Is RERA at par?

RERA is much simpler in India than (the rules) in West Asia; for developers as well as home buyers. Here, developers have been given the right to withdraw 30% of the payment received from customers. There you are not allowed to withdraw any money, till you have all the money to build. The customer too can’t withdraw booking at will; otherwise, he will have to pay a hefty penalty for withdrawal.

So from both perspectives, Dubai real estate regulations are far more stringent than RERA. Developers are not even allowed to take money from the escrow account, even for the land. Though withdrawing for architectural fee and overheads is allowed, this is just 2-4%.

Where does RERA lack? What are the things that you think should be added or amended?

According to me, this (RERA) is evolving. As the economy, and all the stakeholders—be it banks, government, developers, customers, vendors, or municipal authorities—evolve and start to understand that they have to improve, changes will keep happening. However, while we are responsible for completing projects, the occupancy certificates, no-objection certificates, environmental clearances... all these things are with a third-party. Even power, water and other utility connections, and certificates needed after completion are not under RERA purview. It is a valid demand to bring these also under RERA.

The government has given a push to affordable housing, and there is a lot of demand from homebuyers too. What is your company doing in this segment?

We are trying to give more focus to affordable housing, though we have been doing it for long. Our project, Dream Acres, was launched before the affordable housing schemes were launched. It happens to be Bangalore’s largest ever single housing project with 6,945 apartments, with an average size of 1,040 sq. ft. built-up area.

Another project that has been recently approved by Bangalore Development Authority (BDA), has about 1.8 million sq. ft, consisting of about 1,800 units. In Bangalore, there are two processes: first you need to have approval from BDA and then from Bruhat Bengaluru Mahanagar Palika (BBMP). We are looking forward to getting approvals and will launch the project in the next fiscal.

With the emphasis that the government is putting on affordable housing and the huge demand at the bottom of the pyramid, this segment is likely to emerge. This is the product that most developers, including us, will focus on.

Do you think government incentives are enough to attract home buyers and developers?

I personally believe that the government has done much more than what we could have anticipated. For instance, it has tweaked the size of apartment to be considered under the affordable housing policy; it has given financial incentives; reduced the applicable GST; given income tax exemptions, and so on. Something can always be added, but we live in a free economy, and in a competitive environment, so we should not expect more.

But if I still have to address your question, I think it (real estate) is a state subject, and state governments must be more forthcoming in giving approvals, and giving occupancy certificates. Besides that, though the central government is incentivising, state governments should be more proactive in providing the required infrastructure, for affordable housing to develop. Take the example of Dwarka Expressway (Delhi NCR). Infrastructure development should have happened 10 years back; it is still not complete. In the master plan, agriculture land on the right side of the expressway was earmarked as developable land. Licences were given and huge investments were committed. Giving licences today and not providing infrastructure later should not happen. Urbanisation has to happen, but both developers’ and the government work must happen parallelly. Rather, infrastructure development should happen first. For instance, for Gift City, the Gujarat government created world class infrastructure first. Then it is putting commercial and residential spaces.

If you ask me, it has nothing to do with affordable or other housing projects; it is all in the context, and it helps the ecosystem better.