Real Estate Regulation Bill to draw fair industry practices, accountability

FICCI- EY report states the Rs 55 lakh crore investment in the 12th Five-Year Plan would be a big boost

The Real Estate Regulation and Development Bill is set to encourage fair practices in real estate dealings and will fix accountability with the developer at every stage of development, according to real estate experts.

The Real Estate (Regulation and Development) Bill 2013 seeks to establish the Real Estate Regulatory Authority to protect the interest of consumers in the real estate sector. The Bill is for regulation and promotion of the real estate sector and to ensure sale of plot, apartment of building, as the case may be, in an efficient and transparent manner.

The Land Acquisition and Rehabilitation & Resettlement Bill is expected to reduce litigations and delays in projects by providing defined guidelines for land compensation. Furthermore, the changes to the Special Economic Zone with respect to relaxation to the minimum built up area criteria are a step in the right direction, providing an impetus to real estate developers, according to latest report on real estate by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young (EY).

Said Venu Gopal, executive director, EY: "Revisions in SEZ guidelines helps unlock value from investments and assists in faster completion of the project, thereby easing liquidity pressure. The focus of funding has moved from plain vanilla equity deals to debt and structured products. Valuation presents a significant challenge to equity deals. Mezzanine debt and structured funding helps bridge the gap between the expectation of promoters and investors."

Developers are shedding non-core activities to de-leverage their balance sheets and reduce the outgo on account of interest. Several developers are exploring asset-light models such as joint development agreement (JDA) to reduce the impact of funding land purchase. "In tight liquidity conditions, JDAs help developers make optimum use of capital by simultaneously entering multiple projects. Better realisation on account of an upside from future cash flows helps land owners as well," added Venu Gopal.

According to the report, the Indian real estate sector is going through a paradigm shift, driven by regulatory developments and new trends in the industry, which will facilitate increasing efficiency and transparency. The country's demographic advantage, rising urbanisation and income levels, growing middle class and planned infrastructure investment of Rs 55 lakh crore in the twelfth Five-Year Plan (FYP) indicate a robust long-term prospects for the sector.

FICCI - EY's white paper on "Building New Dimensions For Real Estate Growth", addresses issues in the sector including IT-enabled business transformation, fraud vulnerability and mitigation, and effective workforce management. It also highlights several policy interventions in the sector, new emerging asset classes and developments in the South Indian real estate market.

Developers have started focusing on new asset classes such as affordable housing, senior living, education and healthcare real estate which provide promising investment opportunities. The medical city concept is gaining visibility on the back of extensive budgetary focus on health and family welfare by the Indian government. Medical tourism is also set to grow in future due to India's cost advantage and is likely to be the primary driver of health cities. Entertainment-related real estate, such as sports cities and amusement parks are unique emerging asset classes in India.The report added that 'transit-oriented real estate' (TORE) involves development of industrial hubs, townships, retail and office space around major airports, industrial corridors, dedicated freight corridors and metro rail.

The modernisation of major international airports, development of dedicated freight corridor and national manufacturing zones (NMZs), existing and upcoming metro rail projects in key cities have driven the growth of TORE in the country, as per the whitepaper.

Said J C Sharma, chairman, FICCI sub-committee on South India Real Estate and VC & MD, Sobha Developers Ltd, "Traditional methodologies in the industry have been put to test, providing an exciting phase for developers to evaluate new growth channels. Development of these emerging asset classes is gaining momentum in almost all urban centers of the country. The need is to harness the potential in an efficient manner."