The proposed real estate bill, if implemented, will hamper cash flows and escalate the cost of capital of realty firms, besides limiting overall growth of the industry.
Of all the proposals, the most negative for the developer is the one that says the builder will have to set aside 70% of the payment from the buyer to be used only for that project. This means, most of the builder’s money will get blocked till the project is complete and cannot be used to buy additional land for future projects or service earlier debt
If the builder wants to invest in additional land, he will have to borrow money. The consequence of this could be fewer project launches and lesser projects in the pipeline, limiting growth.
Another proposal says the builder will not be allowed to sell or even advertise the projects until all the requisite clearances are received, which means there would be no pre-launches. This will delay the recovery of land cost, which was earlier 1-1.5 years. In other words, return on investments will be lower.