Developers are cheering Mumbai’s new Development Plan 2034 (DP 2034) not only because it offers them a higher floor space index (FSI), but also because the premium they have to pay to the government in exchange for the extra FSI has been lowered.

DP 2034 proposes to charge 60% of the ready reckoner (RR) rate for both residential and commercial constructions against 60% of the RR (for fungible FSI) in residential developments and 80-100% of RR for commercial constructions. (The FSI is a measurement that defines the extent of construction permissible on a plot. An FSI of 5 means a built-up area of up to five times the size of the total plot. Fungible area is the additional permissible constructed area such as flower beds, terraces, voids and niches).

Nonetheless, Mayur Shetty, MD, Marathon Group and president, Confederation of Real Estate Developers Association of India (CREDAI), said, “CREDAI had asked the government to fix the premiums in a range between 25% and 40%,” suggesting that their demands have only been partially met. “The premium is decided based on the land rates which have been going up every year. Therefore, today, the base rate is very high. However, this is still a good move by the government,” he added.

Manohar Shroff, vice-president, Maharashtra Chamber of Housing Commerce (MCHI), Navi Mumbai, said, “It is a boon for developers. However, once the supply comes into the market, there will be a downward pressure on prices.” Ghulam Zia, executive director, Knight Frank India, agreed, “The supply will impact the market after two-three years. By then, if the demand still supersedes the supply at that time, prices may hold, else they would fall.” The immediate impact of the increased FSI will be felt on the affordable housing and the commercial segments, he added. “In both these segments, there is huge demand. Prices have been holding for affordable housing and going up for commercial buildings. With this opportunity for more stock, prices will normalise in future,” Zia said, adding that the mid to high end luxury housing segment would continue to remain under stress.

Residential FSI in the suburbs has seen a small increase to 2.5 from 2 while for south Mumbai, it has been increased to 3 from 1.33. The FSI for commercial construction has been increased to 5 from the existing 2.5 in both the city and suburbs. This decision was taken after much discussion among the planning committee of the Municipal Corporation of Greater Mumbai (MCGM) as a measure to “repopulate” the island city, where the last census showed a drop in population. For redevelopment of housing societies more than 30 years old, DP 2034 also offers 15% additional FSI free of cost.

PUNE: Citizens who plan to invest in real estate can get the exact location of Real Estate Regulatory Authority (RERA) registered projects on the website in about two months.
A Geographical Information System (GIS) will be available on the Maharashtra Real Estate Regulatory Authority (MahaRERA) website to enable such a search.

MahaRERA will be a year old on May 1. The GIS facility will mark the occasion, MahaRERA authorities said. “The new feature will enable mapping of registered projects. This, in turn, will allow prospective buyers to get an idea of projects in their area of interest, details and amenities in the vicinity,” MahaRERA secretary Vasant Prabhu said.

The GIS will add more to the project’s profile than a developer advertising about his RERA registration, he added. Chief minister Devendra Fadnavis has been advocating GIS mapping of all registered projects since last year. However, technical issues delayed the launch. All the 16,000 registered projects will be GIS mapped, Prabhu added.

The RERA Act has made it mandatory for new and ongoing projects to register with the regulator. It has created a database of projects. Currently, around 16,125 projects are registered on the website. MahaRERA authorities said the database will help streamline the real estate sector and the GIS-enabled system will help streamline it for developers and investors.

Maharashtra CREDAI president Shantilal Kataria said the initiative will boost investors confidence in investing as the mapping is done by MahaRERA. It will be streamlined, Kataria said, adding that more projects were announced this year after the government took measures to revive the sector.

According to RERA authorities, the technology will enable homebuyers to find the home of their choice as the projects will appear as pins on the map and buyers can scan the amenity spaces option.

The GIS mapping pins will help prospective buyers. GIS captures, stores and analyses data on the earth’s surface. MahaRERA is trying to harness the system to develop a platform that stores details of projects. Apart from approvals and timelines, the platform will indicate amenities like schools, transportation facilities and hospitals.

The national real estate body Credai is pushing for more reforms in the sector to enable speedy growth across asset classes including the nation’s ambitious affordable housing programme. In a letter addressed to Hardeep Puri, Ministry of Housing and Urban Affairs, Credai sought to initiate certain amendments. It expressed concerns over the lack of ease of attaining construction approvals from the Government authorities which is causing a negative impact on project costs and delivery, holding the government authorities responsible.

Credai national president, Jaxay Shah, told Telangana Today, “In affordable housing, though the tax incentive that developers are getting looks reasonable, there is no last-mile effort from the government.”

Credai has been urging the Government to address other issues such as reducing the high GST rate of 12 per cent on all homes purchased and not only those under Credit Linked Subsidy Scheme (CLSS) and providing means for land financing to build houses under the affordable housing segment. Of the total 70,000 beneficiaries under the CLSS, MIG beneficiaries account for less than 5,000. Income should be the criteria for affordable housing allocation and not the unit measurement, he points out.

The real estate body believes that despite the segment being granted the infrastructure status, it is very difficult for developers to obtain finance to build affordable houses as banks and financial institutions still do not recognise the infrastructure status and no advantages of the same are being offered to the developers of the segment.

Time for reforms

A reform such as adoption of the environmental norms in the local building bye laws of respective States / development authorities has also been stuck in legal imbroglio after the National Green Tribunal (NGT) passed its observations on the amendment.

Shah added, “Currently, there are a number of pressing issues pertaining to the Indian real estate sector that need to be addressed on an immediate basis. For a start, attaining construction permits and approvals is an extremely tedious task for real estate developers in the country. The Government authorities need to understand the severity of the situation, especially given India’s poor ranking of 181 in the ‘Dealing with Construction Permit’ category in The World Bank’s ‘Ease of Doing Business’ report.”

“We are requesting the Ministry of Housing and Urban Affairs to implement the single window clearance mechanism which will not only largely resolve some of the operational issues prevalent in the industry but could also reduce property prices by around 25-40 per cent. If administration reforms do not happen, Centre’s efforts towards affordable housing will not be fruitful. Typically, projects are taking 18 months to get all the approvals, pushing the project costs up. Short supply of housing units may lead to price escalation in the next 3-4 quarters,” he said.

Though India is encouraging ‘Make in India’ and ‘Startup India’, there is no much room for developers to contribute towards affordable housing. Only those developers who have land and money can take up the projects. There is neither land financing nor project financing. Real estate activity should be sustainable for developers. Several other industries are dependent on the sector’s health.

Since there are no clear guidelines by the RBI, banks and financial do not lend money for land purchases for affordable housing projects. Banks see such funding to be high-risk. They should realise that funding is sought for affordable segment, not for luxury housing, he point out.

The real estate sector in India is likely to reach a market size of $180 billion by 2020, from $126 billion reported in 2015, a report said. “The housing sector’s contribution to the Indian GDP is expected to almost double to more than 11 per cent by 2020, up from estimated five to six per cent,” said the CREDAI-JLL report released at the inaugural session of CREDAI Conclave 2018 here on Wednesday. The Confederation of Real Estate Developers’ Association in India (CREDAI) is the apex body of private real estate developers in the country, while, JLL is a professional services firm specialising in real estate.

According to the report, the Real Estate Regulatory Act is expected to consolidate the real estate sector in the country as it would force out unscrupulous developers. The report further said: “Private equity and debt investments in real estate increased by 12 per cent on year-on-year (basis) across 79 transactions in 2017.”

“Private equity inflows in office and information technology and information technology enabled services during 2014-2017 (year-to-date) are 150 per cent higher than the previius seven years’ inflow combined,” it added.

In the wake of the ongoing non-performing assets (NPA) crisis in the banking industry, the State Bank of India (SBI) has decided against funding the interest during the construction period on the loans taken by the corporate sector, including real estate. The decision is aimed at de-risking the bank’s loan book, SBI chairman Rajnish Kumar told Economic Times.

The real estate sector is already reeling under pressure due to shortage of funds, unfinished projects, and unsold inventory amidst lack of buyer interest. Now, what will this move by the country’s largest lender mean for the beleaguered real estate companies? Will it influence homebuyers in any way? According to Anuj Puri, Chairman, Anarock Property Consultants, “SBI and other banks’ decision to tighten project finance norms by not funding the interest during construction will definitely have an impact on all real estate-associated sectors.”

How it will impact builders In a real estate project, builders generally assume that 30 percent will come from the buyer, 30 percent from their own sources and the remaining 40 percent by borrowing from financial institutions like banks. Now, with builders depending so much on funding from banks, there in for tough times as lending norms can become stricter. SBI’s decision may make other banks follow suit and come up with stricter rules for financing of projects in the coming months. More banks will be reluctant to lend to the real estate sector due to lack of transparency and other issues. “Banks are also often reluctant to lend to the developer given the challenges in the sector,” says Amit Ruparel, Managing Director, Ruparel Realty, a Mumbai based real estate developer.

This in turn can spell bad news for homebuyers, as getting loans, especially for under-construction properties might become more difficult. However, a home buyer in recent times has the Real Estate (Regulation and Development) Act or RERA to fall back upon.

Role of RERA RERA ensures that the builder comes up with a deadline to deliver the project and most importantly does not siphon funds to other projects. According to RERA guidelines, if a promoter fails to complete or is unable to give possession of the property within the agreed time period, he has to return the total amount with interest at such rate as mentioned in the sale agreement. Further, 70 percent of the amount realised for the real estate project from buyers, from time to time, shall be deposited in a separate account to be maintained by a bank to cover the cost of construction and the land cost and will be used only for this purpose. “With RERA in-place, developers are bound by the committed construction timelines and if these are not adhered to, there are harsh penalties. As a result, any tweaks on project finance and related norms should not worry buyers, as it is in the developers’ prerogative to arrange funds and complete the project as per the committed timelines. However, it may so happen that developers add an additional buffer to the committed completion timelines so that they can arrange necessary funds,” says Puri.

Farshid Cooper, Managing Director, Spenta Corporation, a Mumbai based real-estate developer says, “Rules as specified by MahaRERA are clear and projects in the current regulatory scenario cannot be launched without relevant approvals being in place. Once the approvals are in place and with healthy sales and collection volumes, risk on project completion or delay goes down considerably.” In the past, builders used to get loans sanctioned even without paying the earlier ones. With banks hitting the brakes, builders may have to source funds from alternate sources. Puri informs, “Previously, many companies, including real estate developers, used to take loans to service another loan. With this no longer permitted, there will surely be financing restrictions and developers will have to resort to other modes of funding during the construction stages.”

How it will impact buyers If you are buying a RERA compliant project, then things may not be as bad. The authority is supposed to furnish the registration number to the project once all the requisite documents and permissions are in place. “Ideally speaking such a move should not adversely affect residential real estate buyers. It might have some impact on large-scale infrastructure projects but by and large retail investors would be safe from any such move by banks,” says Cooper. The commitment and disclosures made by the builders to RERA will, however, need to be followed up more stringently by the real estate regulator. Preventing builders to divert customer money into other projects will go a long way in delivering projects on time and restoring some lost trust in the sector. Puri adds, “Although this (SBI’s move) seems to be a harsh move, it will further imbibe much-needed financial discipline in the Indian real estate sector.”

What a homebuyer should do Newly launched projects fall under the purview of RERA and may cost less than ready-to-move in homes. Homebuyers may give preference to RERA complaint projects which are to be completed anytime within the next 12-15 months. Even better would be to go for a complaint and ready for possession property. This is because moving into a ready-to-move home will keep the uncertainties involved in timely delivery and cost escalations at bay.

A bench comprising Justices Madan B Lokur and Deepak Gupta asked the DDA’s counsel how the conversion charge for commercial use of upper residential floors of various markets in the national capital had been reduced.

The Supreme Court came down heavily on the Delhi Development Authority (DDA) for slashing the one-time conversion charge for commercial use from Rs 89,000 per square metre to around Rs 22,000, and asked why such a step was taken.

Observing that the DDA seemed to be under a “lot of pressure”, the apex court, while hearing an application related to sealing in defence colony market here, sought to know from the DDA and other civic agencies as to whether the constructions allowed were in accordance with environmental laws and the steps they had taken for fire and other safety measures, availability of water, electricity, footpaths for pedestrians and adequate parking facility.

A bench comprising Justices Madan B Lokur and Deepak Gupta asked the DDA’s counsel how the conversion charge for commercial use of upper residential floors of various markets in the national capital had been reduced.

“Will you (DDA) do whatever you like to do? Please file an affidavit. It appears that you are under lot of pressure. What about environmental law and fire safety,” the bench asked DDA and directed the authority to apprise the court on what basis the conversion charge was reduced. It asked the DDA to file an affidavit in this regard within two weeks.