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RM Reports

Beware of the Danger Zone

developer

by Anushree Ghosh, 

A real estate developer is responsible for dealing with the purchase or sale of raw/developed land or renovating the already existing property. Developers take over the process to monitor the course of development from its inception to completion. Looking after the construction is not in the job list but some developers might take up the construction management too. A developer is the common link between all the element that comprises the process of development – architect, civil engineer, a company lawyer, real estate agents, promoters and the buyers. They also organize the finances and seek the mandatory approvals before finally selling out the property.

RERA (Regulation and Development Act) impacted the dynamics within the real estate sector with many rules for the developers. Earlier there were no strict laws for the ‘ would be’ or existing real estate developers in India. There were no eligibility criteria or financial restraints. The area of development required to undertake the task was not defined. So, interested people with land and labour could become a developer.

Real estate was the safest bet for the people with the surplus amount of money looking for investment opportunities, as the market was growing. But, with RERA, demonization, and GST into action; real estate is in a grave state of stagnancy. Now, it has become obligatory for the developers to put forward the ground plans for the projects in progress and changes are to be mentioned accordingly. Other details like the project duration, funds generated from the advance received, and the review report by the architect must also be submitted on time.

Developers are not allowed to sell or invest on a project before registering with the authorized body. Their legal document, balance sheet, and other documents must also be up-to-date. Although these steps are to regularize the sector due to lack of lucidity, developers are still in the process of understanding the nitty-gritty of the rules rather than being on the stage of implementation.

With uncertain rules governing the future of the real estate sector, it is definitely not recommended for the developers to invest in new projects.

The major factors that caused the slowdown are –

Unsold Inventory- currency crises, lesser jobs and non-recovery from the recession of 2008 had taken away the purchasing power of a many high-end people, who could have invested in real estate if the conditions would have been different.

Loans at higher rates – Unreasonably high-interest rates are being charged by the banks in India, i.e. around 10%. This has led to a decrease in the demand of property, thus making people spend on other sectors with lower interest rates. However, as GST now replaces other taxes like service, excise, and VAT, we doubt how much longer would it be to come back on the track.

Postponement in Possession: No transparency and lack of single window clearance for real estate project are obstacles for their successful completion in time. Buyers don’t get the possession on time but are compelled to pay back the loans.

The right strategy would be to wait and act when the right time comes when purchasing power increases and demand improves.

Anushree is a versatile writer, theatre actress with an immense passion for any form of art. Her blogs will take you through the different horizons of infracultural stories.

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