Impact of RERA on commercial real estate

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Ever since RERA got implemented, there has been a lot confusion in the minds of various stakeholders in the real estate sector. While the provisions of the Act are most likely to impact the unorganized residential sector, the impact of the same on the commercial market cannot be denied. In fact, as opposed to the residential sector, the commercial sector has been witnessing growth and thus it seems to be an ideal time for RERA to become a reality.

HDFC Realty takes a deep dive at how and to what extent RERA is expected to impact the commercial real estate in the country. India, being one of the exuberant hubs of commercial real estate required a transparent and process driven structure to enhance the accountability of the sector.

RERA is set to enhance the transparency quotient of real estate, as registering the projects with RERA requires a higher level of detailing regarding the project as well as developer. These details regarding the projects would be easily accessible on RERA’s website.

Availability of authentic information will make it easier for various investors to gauge the financial strength and past performance of the developer. Even the cost and time required to perform preliminary research and to some extent due diligence will reduce.

Availability of layout plans by RERA registered projects would lead to the process of space standardization. The pre-lease deals in commercial real estate are likely to close faster as under RERA, commercial real estate transactions would become more structured, transparent and streamlined.

Further, it is mandatory for all developers, including the Grade B commercial developers, to provide all facilities, amenities and occupancy services marketed by them to the customer. Moreover, under the legal veracity of RERA, it is mandatory to disclose the land title of the project. Hence, clarity on the ownership and type of land, which is imperative in any real estate transaction, would be easily available to the prospective customers.

Developers under RERA cannot offer pre-launch schemes to prospective customers. This would directly hit the cash flow of the project, as almost 20% of the project cost came from this strategy. This dent in the cash flow would result into an additional risk for the projects offering assured returns. Hence, we can expect an increase in the interest rate charged by the NBFCs. However, this might create an environment that is conducive for private equity players of the real estate market. So, investment by private equity player in commercial real estate is expected to increase and these private equity players will act as promoter as stated by RERA in development of a real estate project.

RERA can be considered as a catalyst for REITs as well. REIT is setup to boost investment in commercial real estate market in India. Hence, in order to bring in more domestic and foreign investors on board, it is imperative to regularize the sector and eradicate as many risks as possible, which RERA is expected to accomplish.

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