Even though it is taking some time, the Indian authorities are certainly tackling the problem of confidence in the Indian real estate market. To be fair there are other markets around the world, such as Dubai, which have also suffered from a lack of confidence but the regulations in India seem more in depth. This comes at a very important time for the Indian real estate market with demand for houses set to increase but confidence in property developers on the wane.
Latest regulation to be introduced
The Real Estate (Regulation and Development) Act, also known as RERA, will be fully implemented next year but the latest batch of regulations has certainly caught the attention of developers and investors. Builders and developers will be forced to pay 12% interest to homebuyers if there is any delay in handing over apartments. There is no doubt that both Indian and overseas investors will welcome this move but does it go too far? Is the element of risk now lopsided against property developers?
Every investment has a risk
Before we begin to look at the pros and cons in detail, if we take it back to basics, every investment has a risk hence the potential returns vary so much. If the majority of the risk is taken away from investors and placed in the hands of developers how will this pan out in the longer term?
If we look at any real estate market in the world there are those who adhere to the highest moral and business standards while others push the boundaries of acceptance as far as they can. There are many fraudsters and scam artists in all walks of life and real estate certainly has more than its fair share. Will those that are intent on fraudulent activity be put off by the new regulations or will they simply ignore them?
More government intervention
All property developments across India will now be monitored more closely by the authorities with a register of future property development projects already in place. This will ensure that investors, as well as property developers, have someone to go to in the event of problems or delays. When you bear in mind the size of the Indian real estate market this is certainly a good move and will instil confidence but is too much government intervention potentially counter-productive?
There are many governments around the world who have tried to micromanage their local property markets, China for example, with limited success. The fact is that the majority of investors around the world prefer to work on a “free market” basis which allows for light regulation with much of the direction left to market forces. So, would it be fair to suggest that the Indian government may well be on the path to micromanaging the sector – which could prove off-putting for domestic and overseas investors?
It is very difficult for any government around the world to find the right level of “interference” in real estate markets to protect investors and property developers. Time will tell whether the Indian authorities have gone a step too far or whether they have indeed found the correct balance. In the meantime markets across India are now starting to adjust to the new regulations and the next few months will certainly be interesting to say the least.