Pre launch offers will become extinct under the new Real Estate regulation Act (RERA) to be implemented by 2017 in Bihar. It has already been notified by central and many states government. Financial prudence and transparency have to be carried out under the Act. This will impound the “free” (according to whims of developers) flow of cash and the diversion of funds from one to another project will be a thing of past. Each project is supposed to have a separate ESCROW account. The developers in Patna will therefore have to change a lot of older ways in which they have been conducting business till now. A lot of consolidation will take place in Patna property market. Clear and transparent deals will be struck. RERA will compel developers in Patna to look towards Technology to control and lower costs. Project management and ERPs will be implemented and therefore the entry barriers will rise. It will be advantage for established and organized builders of Patna.
The crowded arena of Builders and developers will get organized into EFFICIENT few. In Patna real estate one has seen varied backgrounds of the builders. The jewelers, the churi (bangle)walas, confectionary, cloth merchants and who not diving in this pool to earn some quick buck. After RERA the plunge will need more planning and more long term commitments.
All this will also change the way the Joint ventures or conversion deals as it is called in Patna real estate is conducted at present. The tradition of paying a non-refundable amount popularly known as NON will have to be called off. In fact the NON amounts put pressure on the cash flow from the planning stage of the project and leads to builders compromising on essentials like marketing, consulting etc. The project management has lot to do with cash flows and a tightening by RERA will mean more scarce cash flow if not well managed from the very start. With fewer builders as buyers or takers of the land, the land owners too will have to wake up to the realities.
A Joint-Venture (JV) OR CONVERSION works in a couple of ways in Patna currently..
- 50–50% ratio – Wherein investment and profit sharing is equally divided.
- 50% of the total saleable area: This is generally provided to the land owner, wherein the developer pays nothing for land, but the investment is entirely owned by him. In turn, the developer offers 50% of the total inventory to the land owner.
- Premium (NON) & Inventory Sharing: The developer pays a premium to the land owner (not the total value of the land, just some premium) plus a share in inventory, say around 40% or 50%
- 60–40%: In this scenario, the land owner wants to get associated with a brand in the construction industry and hence, is OK to offer his land for free. In turn, the owner gets to learn the know-how of the construction industry, gets a brand for his project plus a 40% stake in the entire inventory.
It is the number three; Premium (NON) and inventory sharing that will come under the lens after the RERA. The land owners in Patna will have to understand the new ways of business and the advantages of have a fixed turnaround time for projects. The lure of initial money delays the projects. A Project completed within the stipulated time is always more beneficial for all stakeholders, rather than delayed ones. The onus is also on builders to educate the land owners and show transparency in all works of the project.
Changes in the taxation aspect of JDA (Joint Development Agreement) in the budget of 2017 that tax liability will kick in only on project completion will greatly encourage more land owners to partner with developers in Patna that will benefit the real estate developers in Patna and in turn likely to benefit end consumer. It allows the project to manage its cash flows in a more optimal way. Better project cash flows will also help home buyers in Patna get better deals and pricing.
It may take time to sink in but the Joint Ventures will no more be the same in Patna Real Estate. It will be for better, more transparent and will save Patna’s real estate from a number of ills.