Article On Rera And Real Estate Financing Cost.pdf

RERA – Can it bring down Real Estate Financing Costs ? The RERA Act has set in and indeed is what the doctor ordered for the ailing real estate industry. If implemented in its true spirit and word, it can be fairly anticipated to correct lot of ills in the sector and positively impact it. For one it should reduce financing cost for the sector even if by a few basis points. There are 3 major risks anticipated in any project by financial institutions viz. approval risk, construction risk and market risk and which substantially impact costs of private institutional finance to real estate projects. Post RERA, these institutions would get virtually approval risk and construction risk free projects to finance. This will be possible as projects would be coming on board only after obtaining most approvals. Violation of project completion timeline will also be penalized by the regulator. Thus, these two risks should be taken care of substantially and costs built in for them by private institutions should now be negligible. The third risk is market risk. While this risk will always be subject to market forces, RERA compliant projects in urban areas will atleast not be avoided by consumers in their early stages for fear of project delays or not being completed at all. This should soften view of most investors earlier taking a hard discerning view on developer background to establish marketability of their current projects as well. As a positive outfall of RERA, it is quite likely the real estate sector could see private institutional investors competing to finance even relatively newer players. However, what awaits all this is the implementation of the Act in its true spirit. With debates on its dilution by states before adopting it already setting in and some states yet to establish an independent regulator, its still a wait and watch game. Nevertheless, if set in fully it does make a case for reducing the cost of financing real estate projects specifically from private institutional investors. Nishkam Gupta – Director, Finearth Capital Advisory Services