Real Estate Bill likely to make homes costlier

The mandate for a developer to keep 70 per cent of the buyers' funds in an escrow to ensure that money is used for that project itself is likely to put pressure on financing costs and debt reduction for builders. This is likely to be passed on ultimately to the consumer, as the builder is likely to protect his margins.

Also, the norm for charging on the basis of carpet area and not on a built up areas basis is likely to result in an increase per square feet, as the builder will have to charge more as the saleable area stands reduced.

Added to the worries for builders and consumers alike is the Land Acquisition Bill, which when approved will further increase the prices of land, pushing land costs up for the builder. They are in turn likely to pass this onto the consumer in the form of price increases, as the Land Acquisition Bill pushes for fair remuneration for land, which means it will be at elevated levels.

A leading builder was quoted as saying on a business channel that prices may go up by at least 50 per cent, on account of various factors and not only the Rel Estate Bill.

Another builder allayed similar fears, stating that in a move to make things transparent for the buyer, the Bill is likely to increase the costs for them.

To compound the misery of builders is the fact that lending exposure to the real estate sector, which as stipulated by the RBI is already stringent. Interest costs in the economy are not going down, which means financing costs are likely to remain at elevated levels.

Clearly, it may not be long before home prices start rising.

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