Discussed this further with my developer friends last evening. Just jotting down the points quickly. Excuse me for poor style of writing…
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“Good stable developers” will be manage to create a profitable model from this affordable housing boom.
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Working capital requirements to start a housing project has become a headache for the developers post RERA, as one will need to register a project first with the authorities (and for that the developers must have 60-75% of the building cost in bank upfront). I need to double check the amount. So for instance, if a developer wants to do a 50 cr project, he must have almost 30-35 cr in bank upfront (in white, of course). Post that, if the project is approved, advances now would go to an escrow account with bank. Developer can only use that amount for construction of this particular project (ethical). I am not sure if banks are going to charge anything for this escrow amount and what are the criteria set for the fund usage …stage by stage.
So all in all, RERA will present an opportunity to strong breed of developers (ethical, financially strong, and with a good on time completion track record) ans is going to be a messy affair for small time developers.
Gradually we are going to see some building norms coming into force (i think there are already some like 5 year maintenance and stuff). So, good developers while trying to profit from this segment will try to find building products that are good but unbranded. RERA has transferred power in the hands of the customer so unethical practices from the developer will result in nightmares for him. Though we need to see how strictly these things get implemented.
I believe this is a very good situation for strong housing finance companies and LAP vendors like Indiabulls housing finance. Huge working capital loans would have to be taken to start the project, and there are lots of legalities on how to use those funds. So, basically, funds will be used in the right project, which is very good for lenders. What used to happen earlier was that post sanction of loan, there was no control on part of the lender as to where the builder is using the sanctioned funds. So this was resulting in NPAs and stuff.