Buyers and developers have been anxious since the implementation of the Real Estate Regulation and Development Act, 2016 (RERA). The new laws prohibit builders from pre-launch sales. This prompted developers to avoid entering into sale agreements before their projects were registered under RERA. Similarly, buyers were apprehensive to invest in unregistered projects.
The new laws also affected the housing finance sector, which saw a marginal decline during the first quarter of the current financial year. Here are six FAQs related to RERA and its impact on the housing loan industry.
- Will the home loan sector see a slowdown?
After the implementation of RERA, pre-launch sales are disallowed. Historically, developers depending on pre-launch bookings and allotments prior to the delivery were a common practice. Since the implementation of RERA, the higher end of the home loan market may witness a slowdown.
- How much has the slowdown been?
The number of loan applications since the implementation of RERA has seen a growth. However, the value of the transactions has come down. While the volume has increased, the value has shown a growth of five to seven percent during the last few months.
- Is the growth rate for the industry expected to decline in the next few years?
Most experts believe that the housing finance industry may see a slowdown in the current financial year. However, the favorable environment created by the government policies is expected to benefit the economy and take it to the next level. As a result, the housing sector in India is expected to grow, which will boost the demand for loans. Favorable home loan interest rates are also expected to enhance its growth.
- How will RERA impact builders and homebuyers?
RERA requires greater compliance for the developers and brings transparency and accountability to the real estate sector. However, there is a possibility that homebuyers may have to pay more to buy a home. Additionally, stringent compliances may delay the project launches and increase the construction costs. Under-construction properties must also register under RERA, which may increase demand for existing inventories and boost the prices in the short term.
- What is the impact on carpet area calculation?
A huge change provisioned by the RERA is that properties will now be sold on the basis of super area or carpet area. Prior to this Act, builders sold properties on the basis of the super built-up area (SBA). In most cases, the carpet area was 30% to 35% lesser than the SBA. However, buyers will now have clarity on the actual area of the properties before they purchase the home. However, the builders may increase the per square foot rate to balance the lower area calculations.
- How will RERA prevent delays?
An important impact of RERA is that project delays would be eliminated. If the builders are unable to meet the deadlines, they will have to pay 12% interest to the purchasers. However, developers may transfer the responsibility on timely completion to the contractors, which may increase the construction costs. Additionally, restrictions on the sale of car parks, fund management, compliance costs, and common area regulations may increase the property prices.
Although RERA may seem confusing, buying a home at this time may be the right decision especially if the buyers would avail of a loan. The property prices have witnessed some correction and individuals may be able to afford a home. Interest rates are at their lowest since 2008 with special prices for women borrowers. It is recommended that a prospective homebuyer checks his home loan eligibility and takes advantage of the positive impact of RERA on property prices.