Monday, 24 July 2017

Builders' FY18 performance may be hit on delayed implementation of RERA ICRA

The agency expects RERA, which became effective from May 1 this year, to increase customer confidence and improve demand prospects over the long term


NEW DELHI: Delayed implementation of the the Real Estate (Regulation and Development) Act, 2016 (RERA) and transition to the new regulatory framework is expected to impact the operational performance of real estate developers during financial year 2017-18, according to rating agency ICRA.

Howeever, the agency expects RERA, which became effective from May 1 this year, to increase customer confidence and improve demand prospects over the long term.

“The current transition period of RERA implementation is expected to be challenging for developers as they need to realign their business operations to comply with the new regulations," said K Ravichandran, Senior Vice President and Group Head, ICRA.

Ravichandran also expects the constraints imposed by the Act to adversely impact the business model of unorganised developers and to bring some level of consolidation in the 
industry.

"This will benefit larger developers who have the resources and financial flexibility to withstand the near term challenges and scale up execution levels as required," he added.

The provisions of the Act will also significantly impact developers’ financial profile as it will raise their working capital requirements and increase reliance on equity or debt financing, according to the rating agency.

"With the commencement certificate being a pre-requisite for registration and sale of projects, developers will no longer be able to part-finance some of the pre-development costs with customer advances, said Shubham Jain, Vice President and Sector Head, ICRA.

Moreover, Jain feels the restrictions on withdrawal of customer advances will reduce cash flow fungibility across projects and increase working capital requirements.