As you might expect from a bill which increases the regulatory burden on housebuilders in India, the response to 20 major amendments to the original bill has received a mixed response. The Indian real estate market has been identified by many experts as a major growth market of the future. It has a huge population, growing wealth and an economy which is well positioned for long-term growth. You would expect these to be the main ingredients of a buoyant real estate market but transparency and regulatory protection for investors and housebuilders has been sadly lacking.
The real estate regulatory bill has taken a little time to complete but has the potential to revolutionise the Indian real estate market.
One of the amendments to the original bill will bring projects of 500 m² or eight flats under the regulatory umbrella. The original proposal centred round developments of 1000 m² which would have focused on the larger projects. By forcing these developments to register with the regulatory authorities this will give investors more confidence.
Another interesting development relates to the deposit required by builders to complete developments which have been presold. Initially a figure of 50% of pre-sale proceeds would have been required to cover construction costs and this money would have been held in an escrow account. The recent changes include an increase in the 50% deposit up to 70% offering greater security for those looking to buy properties before they are completed.
Compensation and interest payments
Prior to this latest bill many of the regulations in place seemed to be skewed towards developers and construction companies. However, in light of the changes builders will now be forced to pay an equal rate of interest to homebuyers in the event of defaults or delays in completing developments. The liability of construction companies in relation to structural defects has also been increased from two years to 5 years.
There is no doubt that these changes will give confidence to investors who have perhaps been concerned about the regulatory cover in years gone by. It may be a different story obtaining compensation and interest charges from construction companies but that is a totally different matter and one for the courts.
One more encouraging outcome of the new real estate bill relates to the flow of finance for building projects, for both homebuyers and developers. This greater transparency, rewriting of the regulations and clarity with regards to financial obligations for all parties should give Indian banks greater confidence going forward. When you bear in mind the enormous potential for housebuilding across many areas of India this could be a game changer and one which could see yet more international investment pouring into the region.
Many of the pieces of the jigsaw required to complete the long-term growth plan for the Indian real estate market have been there for some time. A growing population, an increase in individual wealth and an appetite for investment from international investors but these have been dulled somewhat by the confusing regulatory scene. These latest changes have clarified many situations, introduced regulatory courts where disagreements can be resolved and should give the already growing Indian real estate market a long-term boost.