Without a doubt, 2018 was a very difficult year for the Indian real estate industry, and even the normally resilient Pune market did not escape trouble. Among the policy interventions that hit the market hardest, RERA and GST certainly dealt the severest blows. A majority of Pune’s real estate developers suffered business setbacks even as they struggled to adjust to the new regulations.
Elimination of Shady Builders
RERA has caused many of Pune’s smaller developers to reconsider their long-term plans for staying in the real estate business. More specifically, builders who depended on lack of regulation to conduct their businesses in questionable ways.
These underhanded ways included soft-launching projects with no real intention of completing them, diverting capital collected from the market, not obtaining all the required clearances, building on non-approved land parcels, cutting corners on construction quality and short-changing customers on the promised flat sizes and project-level amenities and facilities.
RERA, which the Maharashtra Government implemented with higher determination than in any other state, proved to be the downfall of many smaller developers in Pune. No one questioned the need for this long-overdue regulation which finally made the customer king again. However, only Pune’s larger, organized developers could endorse RERA with honesty because they are the only players who could adapt to it.
Massive Capital Crunch
One of the hallmark features of RERA is that it closed the door on informal soft launches. For a pre-launch to be legal under RERA, the developer must formally register his project and thereby make a legal commitment to complete it as per promised schedule. Obviously, this eliminates developers who were only in the business to syphon cash from the market with no intention of delivering.
2018 also saw the full implications of GST on the real estate market become evident. While it replaced multiple other taxes which applied to real estate purchase, it increased the overall tax burden on buying into incomplete projects. Only ready-to-move projects with completion certificates became exempt, which caused most buyers in Pune to look only at ready-to-move projects.
While RERA and GST were launched in 2017, 2018 saw the full force of both these landmark regulations come into play. There was a massive realignment of buyer sentiment towards bigger organized developers.
The NBFC Crisis – The Final Straw
If this impact on smaller developers was not hard enough, the crisis that hit non-banking finance companies (NBFCs) in the last quarter of 2018 was, in many ways, the final straw. Already financially struggling developers in Pune who could not raise capital from the market anymore and depended on NBFCs to get their projects going were struck hard. Again, only stronger and adequately capitalized developers could survive this impact.
Two Important Positives
There is no gain without pain, though 2018 brought a lot more pain than gain for Pune’s real estate market. Nevertheless, the Pune property industry benefited in two very important ways.
2018 empowered Pune’s homebuyers more than ever before. This one year brought more clarity and confidence for customers than several preceding decades put together. Property prices in the city reached their lowest point, with many areas and projects correcting by as much as 15%. Simultaneously, there was lots of supply of ready-to-move properties, which gave customers not only a way around GST but also the comfort of knowing exactly what they are paying for.
Despite the pain, or rather because of it, the massive shakeup among Pune’s real estate developers in 2018 resulted in a much healthier property market. The year signed the death warrant on unscrupulous players who were crippling the market. The inherent strength of reputed developers became evident, with many of the smaller builders selling their incomplete projects or land holdings to stronger developers. With this process of consolidation came the assurance that projects which had no chance of being completed would now be delivered under reputable banners.
Pune’s real estate developers will remember 2018 as the year that they either came into their full strength or exited the market with no chance of further survival. As such, 2018 will go down in the history of Pune’s real estate market as a year of genuine, long-lasting change – change which will ultimately benefit all stakeholders.
About the author
Anil Pharande is CMD of Pharande Spaces, a leading real estate construction and development firm famous for its township properties in West Pune. Pharande Promoters & Builders, the flagship company of Pharande Spaces and an ISO 9001-2000 certified company, is a pioneer of townships in West Pune. Anil Pharande is also Vice President – CREDAI (Pune Metro) and a MahaRERA council member.
[This is an authored article by Anil Pharande, Chairman – Pharande Spaces. All views, opinions and expressions are personal and limited to the author.]