The Death Of Pre-Launch Properties In India

In the world of real estate development, pre-launches were never really legal. They only helped gauge the future prospects as far as developers were concerned, and helped book flats at a comparatively lower prices as far as the buyers were concerned. It must be mentioned here that pre-launch is a project development stage at which a developer has not got any approvals in place.

Pre-launch and the way to save

Those with a risk appetite could save as much as 15-20 per cent of the property cost by investing in a pre-launch property. A good way of ensuring this was to go with a reputed developer. Since project delays had been the order of the day in the past couple of years, most homebuyers preferred going in for ready-to-move apartments. So, the demand for possession-ready homes had gone up in the last two years. Those who sided with new launches did save a little on the overall cost, but ran the risk of uncertain timelines of project delivery. The real estate law is bringing about a shift.

Here's how.

The Real Estate (Regulation & Development) Act, 2016, enforces that a developer cannot advertise about a project before registering it with the state authority concerned. Even registration with the state regulatory body requires developers to produce the approvals, which means project constructions would take a longer time, and the risk levels as also the opportunity to enter at a lower entry cost has been completely withdrawn. Previously, developers could raise funds from prospective homebuyers. Now, the entire corpus to buy land, initiate approvals, etc., must come from the developer's side. This could also lead to higher costs for homebuyer because now project launches would be more expensive for a developer for he must borrow from banks and private equity firms.

So, while your developer is becoming more financially disciplined, the concept of pre-launch is nearing death.

Key points to note

• Price escalation between pre-launch and official launch that was earlier available to developers is now gone. This means that the holding cost of a project for developers will go up. This additional holding cost will be passed on to buyers.

• Input costs for land have to be made through transparent and legal channels, especially after demonetisation. This means a developer would have to raise funds without diverting it from his other business ventures.

• The new law has facilitated the marketing of unlisted ongoing constructions till July 31, 2017. however, new launches cannot be marketed without registration.

• Developers aren't allowed to raise more than 10 per cent of the funds from a prospective homebuyer without signing a sale agreement.

• Some states such as Madhya Pradesh have allowed a provisional registration process. In order to weigh the market demand, a developer may advertise before registering a project, but it is binding upon the developer to represent only what he intends to deliver.

In the meantime...

Minister of Housing and Urban Poverty Alleviation M Venkaiah Naidu has asserted: “Most of them (the states) have done it (notified RERA rules), and some have provisional rules in place. By July, if they do not appoint a regulator or an appellate tribunal, you cannot register projects and everything will come to a standstill. There will be chaos in the market. Keeping that in mind, I have been sensitising states, and most of them have said that they would be able to notify rules and appoint a regulator by end of this month.”

What is the status of RERA in states? Find out