A well-regulated real estate market will spur the world’s biggest asset managers to look at India more seriously over the long-term, reports Mint newspaper.
Compared with most other big businesses, real estate remains one of the best to put your money into. At its core, real estate is the coolest even in failure.
Much of the surging value of real estate springs from picking obscure land on the cheap and watching the location turn into gold after everyone else realizes it’s right next to a Metro station.
Political interests in the sector and the need for cash in the business to pay bribes in order to get the dozens of required approvals gave real estate in India a bad image.
If real estate fails, lenders to the project still have the land and nothing as an asset gets as real as that.
That’s changing now with the implementation of The Real Estate (Regulation and Development) Act, 2016 or RERA.
RERA has a requirement that no project can go to market without approvals and that 70% of the money received from customers has to be spent only on projects for which they have been received.
This has knocked the bottom out of the earlier realty business model, which if transposed to another industry would look ridiculous.
In the short-term, RERA is bringing more pain than joy just as a major surgery does until convalescence and a journey to full recovery.
The pain is being felt mainly by homebuyers whose projects fall into default as their borderline builders are unable to cope with the stringent conditions of the Real Estate Act.
Once this phase is over, real estate in India will reflect its true place in the country’s economy.
Real estate accounts for about 7% of India’s gross domestic product (GDP) which is now at about $2.5 trillion, which means the sector creates $180 billion in wealth annually.
In China, real estate accounts for 14% of the country’s GDP and India will follow that pattern in a market well-regulated by RERA.
The size of India’s insurance market is currently about $60 billion, the telecom market is half of that. Real estate generates twice as much as both telecom and the insurance industries put together.