The Affordable Housing Game Is All Set To Have New Rules
Addressing India's affordable housing shortage requires a continuous collaboration between the public and the private sector, and developments on this front in the current year have been promising. First, after a long wait, the government awarded infrastructure status to the affordable housing, giving it a much-needed push. By ensuring easier access to institutional credit, this decision has helped to reduce developers' cost of borrowing for affordable projects, savings that in turn have been passed on to homeowners.
In addition to this supply-side incentive, the government's Pradhan Mantri Awas Yojana (PMAY) scheme, which provides a credit-linked subsidy to home buyers purchasing residences below 60 sqm, has significantly reduced the costs of buying a house and expanded the possibility of homeownership to larger number. With demand for affordable housing now set to increase by a further 25 per cent in the coming years, the PMAY has decisively contributed to the growth of this segment.
The government's latest intervention into the affordable housing market has, however, been met with mixed feelings. On May 1, 2017, the Real Estate (Regulation and Development) Act, 2016, came into force. While some have criticised these new rules as “arbitrary” and “draconian”, others have welcomed these tighter regulations as a way to introduce greater accountability into the industry.
What do the new regulations address? While the Act consists of a range of measures to increase transparency in the real estate sector, a few key issues stand out. First, the law obliges the developer to keep 70 per cent of the project funds in a dedicated bank account to ensure that developers are not able to invest in numerous new projects with the proceeds of the booking money from the first project, thus delaying completion and handover to consumers.
Concurrently, if the project is delayed, the developer is liable to pay the consumer interest at the same rate as that which the consumer is paying the bank. Finally, the law makes it obligatory for developers to provide all information on issues such as project plan, layout, government approvals, land title status and schedule for completion to the State Real Estate Regulatory Authority (RERA), which can then be accessed by consumers.
The increased transparency and accountability that will result from this law promise to benefit housing developers, as well as home buyers. Above all, the law could go a long way in restoring the broken relationship between developers and consumers. For a long time, the majority of developers that have been fair to their consumers have been brought down by the actions of a minority, to the extent that the sector has now become synonymous with delays, overpricing and shortchanging. If the act restores consumer trust, the sector could see greater demand flood in as homebuyers invest with greater confidence. Furthermore, by boosting the industry's credibility, the act could attract more sources of investment into the affordable housing sector and further reduce the cost of financing. Indeed, foreign direct investment could surge as a result of this increased transparency the new law will undoubtedly give the sector the go ahead by investment analysts.
The industry has a lot of reasons to cheer the implementation of the law. For the majority of affordable housing developers that have always served the interest of their consumers, these regulations merely promise to level out the playing field.
This article is authored by Rahul Nahar, Chairman, XRBIA Developers