“The effectiveness of rules lies in improved growth in any sector” and the effect of RERA (Real Estate Regulatory Authority) has stood the test. The implementation of RERA in real-time has substantially boosted the sales figures. The enhancement of procedure, better transparency and the strengthened trust were reflected in the increasing confidence of the homebuyers. A similar trend can be seen in the home loan credit scenario. The growth in cumulative home loan credit by the banking sector is an indicator of the impact of RERA on overall residential demand. Although one cannot accredit the growth solely to RERA implementation, the positive change is the market sentiment increased the trust factor, ultimately strengthening the foundation for the growth. An overview of the flow of capital after the RERA implementation reveals the following trends:

1. Home finances indicate improved market sentiment.

The net home loan credit prior to the establishment and implementation of RERA was ~INR 4.6 lakh crore. However, post the implementation of RERA in more than 85% of the states and union territories, the same figure has witnessed a close to 80% growth with the figure reached ~INR 8.2 lakh crore. This growth cannot only be attributed to RERA implementation; there were other reforms like GST and Benami Prohibition Act led to a strategic shift in the residential sector.

Another specific observation is that the covid era saw a steep spike in the growth of home loans owing to lower interest rates, policy incentives, and a steady revival of normalcy.

RERA also uplifted the dominance of reputed developers with better management and transparent practices. That, in turn, digresses the attention of buyers to these projects, even if it requires a stretch over budget. The increase in sales improves the liquidity of the developers therefore reducing the need for resorting to institutional financing.

*78% growth seen in net home loan credit between pre and post RERA period.

Figure 1.

2. Higher sales àBetter financial à Reduced dependence of institutional finances!

RERA being introduced revived the pouting image of residential supply end. The progress of the sector with entrusted market sentiment results in better sales figures. This helps improve the financial position of the developers, reducing their dependence on institutional finance.

Initially, developers relied heavily on loans from institutions in their construction phase; they acted as the primary source of financing. Since most homebuyers’ resort to home loans, payments received by the developers on the completion stage of the projects help the need for other sources of finance. The progressive rise in housing sales after the implementation of RERA led to a decreased dependence on institutional finance. The residential sector saw an influx of USD 9.8 billion in capital during 2013-17, i.e. before RERA. However, the need for funding was reduced by 44% to USD 5.5 billion.

*Data and excerpts taken from JLL Research.