3 top measures that can boost transparency and confidence in the property market


Property buyers, for long, have been the victims of unscrupulous practices and lack of transparency in the real estate sector. We examine three measures announced by the government that could change this scenario

When it comes to tackling black money, three measures introduced by the government, are expected to make the real estate sector more transparent and bring in long term confidence in the market. These measures are: the Real Estate Regulation Act (RERA), the Benami Transaction Act, 2016 and the demonetisation of Rs 500 and Rs 1,000 currency notes.

 

Impact of the Real Estate Regulation Act (RERA)

“For long, real estate transactions were perceived to be lopsided and heavily favouring the developers. With the RERA and the government’s model code, the transaction between the seller and the buyer of real estate will be more equitable and fair, especially in the primary market.

“Hopefully, the states will not dilute the powers in the act, when they introduce their respective state’s regulations,” point out Amit Oberoi, national director – knowledge systems, Colliers International India.

 

Benami Transactions (Prohibition) Amendment Act 2016

The Benami Transactions Act, is intended to crack down on property ownerships, where the source of income is not known. The Benami Transactions (Prohibition) Amendment Act, 2016, is an effort by the government to strengthen the earlier Benami Transactions (Prohibition) Act, 1988. The act prohibits benami transactions and allows for heavy penalties on such benamidars, including confiscation of the affected property.

If properly implemented, it will go a long way in creating trust in the minds of end-users, feels Rajesh Krishnan, MD and CEO, Brick Eagle Capital Group.

“The advantages can be huge, especially for the affordable housing sector. In any project, the developer runs the risk of selling only to speculative investors (some of which may be benami transactions), which then reduces the project to a ghost project. The real success for an affordable housing developer, is when customers shift into the completed project,” maintains Krishnan.

See also: Ban on 500 and 1,000 rupee notes: Short-term shock, long-term benefit for property market

 

Demonetising of Rs 500 and Rs 1,000 currency notes

The real estate fraternity has unanimously welcomed the government’s move, to demonetise 500 and 1,000 rupee notes.

Nevertheless, this will cause a major slowdown in the market for the first few months, due to reduced liquidity in the market. Land transactions, secondary sales of homes and the commercial segment, are likely to witness a significant negative impact.

However, over the medium and long run, demonetisation will positively impact high-value transactions in the real estate sector, eliminating black money. The affordable housing segment, where the value of homes is largely in the range of Rs 10 lakhs to Rs 20 lakhs, is not expected to be impacted.

 

“In the long run, all the three measures, will bring about much needed corporate governance to our industry. Greater transparency, will help to weed out unscrupulous market participants. There will be more interest from international investors and developers and a greater role for Indian developers with a good track record. Interest rates may also fall in the medium term and sales will eventually pick up, in the long term,” adds Oberoi.

Experts, however, conclude that more work is needed from the government, in terms of digitisation of land records, simpler and faster process of obtaining approvals which will also improve the ease of doing business, faster changes in circle rates that reflect ground realities and an overall improvement in the economy.

 

“The drop in property prices will be higher, in markets where the black money dealing was higher and less in markets dominated by the working population”- Amit Oberoi, national director – knowledge systems, Colliers International India.

 

“You have RERA on one hand and a clean-up of unaccounted cash on the other. Some of the smaller developers may find it difficult to cope with RERA. For others, this may be the beginning of a great innings”- Rajesh Krishnan, MD and CEO, Brick Eagle Capital Group.

 

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