Recent initiatives in Reality Sector

Recent initiatives in Reality Sector

The real estate sector is one of the most globally recognised sectors. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade.

Thus to improve the Real Estate Sector following initiatives have been taken:

A. Real Estate (Regulation and Development) Act or RERA: The much-awaited Act was passed in March 2016. Some of the broad features of the Act are:
• Mandatory registration with real estate regulatory authorities (RERA) of projects.
• Project developers will now be required to deposit at least 70% of their funds, including land cost, in a separate escrow account to meet the cost of construction.
• Appellate tribunals will adjudicate cases in time bound manner. Act also includes provision for imprisonment of promoters, real estate agents and buyers for violation of orders of appellate tribunals.
• A clear definition of carpet area.

Impact of Real Estate (Regulation and Development) Act

The legislation would promote transparency in the sector. It would facilitate greater volumes of domestic as well as foreign investment flows into the sector. The confidence of home buyers in the property market is also likely to return. A regulator will bring in credibility for the sector in the long run. This is further likely to open up funding avenues and bring down lending costs for the sector. The sector will undergo some major changes such as consolidation of players, and increasing incidences of joint ventures.

B. Real Estate Investment Trusts (REITs): Real Estate investment Trusts or REITs are mutual fund like institutions that enable investments into the real estate sector by pooling small sums of money from multitude of individual investors for directly investing in real estate properties. They are regulated by the SEBI.

Impact of REITs

• REIT would be beneficial to both developers as well as investors. Developers are struggling to reduce debt, it would give them access to capital, while on the other hand it gives investors the ability to participate in country’s property market which otherwise may be out of their reach due to the sheer size of the amount to be spent for acquiring such properties. Thus, from the perspective of investors, holding units of REITs is a substitute for investing directly in real estate.
• REITs would also enable diversification of the portfolio of the investors and provide the investors a new product that is regular income generating.
• The freeing up of developer’s capital is expected to bring in more investments in real estate, thereby stimulating growth. Funds locked up in various completed projects can be released to facilitate new infrastructure projects to take off.
• REITs will force much needed transparency at least in the commercial sector, and lower the reliance on financing from banks. It will help the investors in making more informed investment decisions as returns can actually be analyzed rather than be based upon anecdotes.
• In time, it will help develop a more mature and liquid market with broad participation from investors.

C. Insolvency and Bankruptcy Code 2016: The Insolvency and Bankruptcy Code 2016 provides legal and institutional machinery for dealing with debt default in line with global standards. The salient features of the code are:-
• Clear, coherent and speedy process for early identification of financial distress and resolution in business firms.
• Debt Recovery Tribunal and National Company Law Tribunal to act as Adjudicating Authority and deal with the cases related to insolvency, liquidation and bankruptcy process.
• Establishment of an Insolvency and Bankruptcy Board of India to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and information utilities.
• Enabling provisions to deal with cross border insolvency.

Impact of Insolvency and Bankruptcy Code 2016

It will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters. This means easy exit of firms and recovery of loan by banks and consequently easy flow of funds for future projects in real estate sector.