Developers to face liquidity crunch due to RERA, debts may double

With the clause in RERA making it compulsory for the developers to hold 70 per cent of a project’s sale proceeds in a separate account, restricting their ability to use the sale revenues for further investment.  

Moreover, the developers will also have to buy the land and finalise all the details before launching the projects, thus increasing the requirement of funds in the initial stages of the projects.

Due to restrains on nationalised banks to fund for all purposes, the developers will most likely have to resort to NBFCs and private equity funds.  

Post demonetisation, real estate sales have slumped and, with increasing inventories the developers are left with less opportunity to increase the prices, resulting in a negative cash flow and piling debt.  

BSE Realty Index companies recorded a combined debt of Rs 52,598 crore as of September, 2016, up by 7.3 per cent from the previous year.  

However, positive customer sentiment in the market with the introduction of RERA,  the government’s plan to provide affordable housing and increasing urban youth population and nuclear families, the demand for real estate is likely to boost up in the near future. Furthermore, the stock market's recent record high is also likely to reflect on real estate demands, according to industry experts