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Developers wary of Maharashtra's plan to include real estate in MPID
DNA  |  March 13, 2018

Varun Singh

The suggestion by the state government to include real estate companies in the Maharashtra Protection of Interest of Depositor Act (MPID) which is mainly to book those who float Ponzi schemes and focused to recover investors' money has shaken the industry. Developers say, if not implemented properly and finance completely stopped then real estate industry may come to a standstill. Housing experts also warn that funding for real estate will be hit badly.


Many developers, take deposits from public in return of interest that is marginally higher than the fixed deposit schemes of banks. This helps them in generating liquid that is used for carrying out the real estate projects. Rajesh Vardhan, MD, Vardhaman Developers said, "This is a double-edged sword, it does have a positive side that the investors will have a security, but then if not properly implemented then it also has the capacity of bringing the projects to a grinding halt."


Adv Sanjay Chaturvedi, another housing experts, says that now, easy money will become difficult for developers. "Real Estate doesn't get loans from the banking firms easily, via this method they would generate funds that helped them in starting the project, but now this also if stopped it will mean real estate projects won't be able to move because lack of cash," he said.


Experts also claim that while this is a positive step, but it will also bring a halt to funds that developers get via deposit schemes.


"The suggestion by the Maharashtra government to include real estate companies in the Act is a direct measure on the central government's decision to term assured returns in real estate investment as 'ponzi' schemes. The central government's primary intention is to safeguard buyers' / investors' interest. However, this will imply that there will be a loss of cheaper funding sources for developers. Today, the cost of funding can be anywhere between 15 per cent to 25 per cent for tier two developers which is much higher than the 9 per cent to 12 per cent that investment schemes of this nature would command," said Ramesh Nair, CEO and Country Head, JLL India


Nair suggests that to ensure the investment schemes are safe, real estate developers should ensure they take cues from SEBI regulations. Further, it is important that developers and projects are registered with the state RERA Act, which will ensure that they comply with statutory requirements. "A rating system could be devised for developers, on similar lines of stocks and credit ratings. This independent rating system would rate companies on parameters such as construction risk, legal risk, financial risk and marketing risk. A strong rating for companies will be a definite way of attracting investments, both from institutions as well as on the retail level," he said.