2018 – A Year of Consolidation for Smaller Developers

 

Real Estate market is one of the most recognized sector. In India it is slated to grow at 30 percent over the next decade. According to a sectoral research Indian Real Estate market is expected to touch US$ 180 billion by 2020. But now a days the smaller developers are consolidating and have started merging with the Tier-1 developers for the sake of surviving into the field. This situation only comes as a basic need just for the reason to protect the related field from ending up under trouble. Hence it is termed as whenever there is consolidation in any sector, the general perception is that everything is going down the drain.

Tiers of Real Estate industry

Each real estate tier has defining characteristics:

  • Tier I cities have a developed, established real estate market. These cities tend to be highly developed, with desirable schools, facilities, and businesses. These cities have the most expensive real estate.
  • Tier II cities are in the process of developing their real estate markets. These cities tend to be up-and-coming and many companies have invested in these areas, but they haven’t yet reached their peak. Real Estate is usually relatively inexpensive here; however, if growth continues, prices will rise.
  • Tier III cities have undeveloped or nonexistent real estate markets. Real estate in these cities tends to be cheap, and there is an opportunity for growth if real estate companies decide to invest in developing the area.

Basically these tiers categorizes the territories as per its level of demand and assumption for the future demand and denotes the area’s growth and development. However the margin of risk is also associated with the area of tier which it belongs to.

Impact of new combination

It is obvious that the commencement of all the three regulations – RERA, GST and Demonetization have shaken the roots of the Real Estate industry’s overall regulations, as it regards to the unregulated practices of the Real Estate players. These regulations made an enormous change in the focus of documentation and process of the business too. Although RERA have commenced for the maintenance of the financial discipline, transparency, accountability, customer centricity and compliance these concepts were completely different concepts for the smaller developers, who belongs to Tier-I and Tier-II of the Real Estate industry.

As per RERA, 70 percent of the amount realized for the real estate project from the buyers, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose. These sort of norms would be acceptable for the Tier-I dealers, but for small developers would even quit from the business reason being the lack of financial flexibility.

Conclusion

On whole, the considered events have commenced only after a well-planned discussion by the experts related to the field and came into existence. Though there some considerable facts but the welfare of the majority will be taken as upper hand. Let it deal with any of the Tiers, the major objective of the commenced events are to maintain the dignity of the specified sectors. Thus it is very much necessary that the small developers must consolidate to clean up the field by following the norms which they are abided by, it turns to a great and healthier growth.

 

Disclaimer – the above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.

 

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