News: RERA may hit realtors’ pre-launch revenues-08.01.2017

BENGALURU | MUMBAI: Realty developers used to collect at least 20% of project revenues through pre­launches will find it difficult to do so from next April as the recently notified Real Estate Regulatory Act (RERA) delays any road shows before formal regulatory approvals are granted. "The recent regulation will delay the time of prelaunches as builders need to share the details of the project with the authority. This may further reduce the new launches and impact builders’ cash flow,” said Anshuman Magazine, chairman – India & South East Asia, at CBRE. Pre­launch refers to a process where a builder announces a project while the approval processes have either just been initiated or still in progress. The usual discounts of up to 15­20% offered to homebuyers during these prelaunches are also expected to be a thing of past. With pre­launches drying up, developer’s cash­flows are likely to come down resulting in more high interest, short­term money pouring into the sector. “The bill will certainly make the entire industry disciplined. It will encourage NBFCs in lending more in projects as the asset and credit quality will get improved ensuring lower delinquencies,” said Rajesh Sharma, director, NBFC Capri Global Capital. According to RERA rules notified earlier this week, no prelaunches of real estate projects will be allowed without approvals from the local municipal or development authority and without obtaining registration from the regulator. However, each state can decide what percentage of the property can be prelaunched by the realty developers. “Pre­launches will be difficult from now as builders will have to fulfill what they are committing with the home buyers. Builders who are transparent and deliver as per their commitment will survive. RERA will be good for the industry in the long term,” said BijayAgarwal, managing director of Salarpuria Sattva Group. 

Developers agree that the move reaffirms the government’s resolution to protect the consumer interest and make the industry mature. However, they also highlighted the issue of higher cost that would be passed to consumers. 

“With this, developers will also be working on the project with fewer uncertainties, but this will also take away their ability to offer discounts. Developers will have to seek more financial support from banks and private equity firms to be able to launch the project after receiving approvals or even post completion,” said Rajeev Talwar, CEO, DLF and chairman of realtors’ body NAREDCO. Until now, builders used to launch projects by tying up land and it need not have all the approvals in place. Builders accepted bookings before securing all the requisite approvals leading to risk of delay in completion, rise in construction cost or cancellation of projects due to clearances not coming through.