SECTORUPDATE

REALESTATE
MaharashtraHousingBilltodrivetransparency
IndiaEquityResearch|RealEstate

The Maharashtra Housing (Regulation and Development) Bill, 2012, has been passed by the Lower House of Maharashtra Legislature and now awaits nod of the Upper House and presidential assent; latter two approvalsexpectedtobeproceduralinnature.Theregulationisexpected toprovidegreatertransparencytobothconsumersandinvestorsinterms of disclosures and greater control. However, costs for developers are likelytoincreasemarginally,asbesidescomplianceexpenses,weexpect cost of unorganised funding also to increase. We maintain Overweight stanceonthesector.

Keyfeaturesprotectingconsumersareonlymoderatelyeffective
Thestatedobjectiveofthislandmarkbillistopreventsundryabusesandmalpractices prevalent in the real estate sector. Key benefits to consumers will be greater transparency in terms of disclosure requirements by developers to consumers and greater consumer control over changes in project design. However, penal clauses for project delays can still potentially leave buyers shortchanged as the bill leaves significant elbow room for developers to renegotiate project delivery timelines, a key grouseofahomebuyer.

Billtodrivegreatertransparencyforinvestors
The bill requires developers to disclose project details related to carpet area, utility areaanddetailsofFSI,additionalFSIandTDRconsumed,alongwithdetailsofphasing andprojecttimelines.Developersarefurtherrequiredtopostapprovalsasreceivedon the regulators website. We expect these disclosures to significantly enhance transparencyforequityinvestors,drivingreturnsinthelongrun.

Costofunorganisedfundingmayincrease
ThecostofHNIfundingtotheindustrymayincreaseasthebillalsocontainsprovisions thatmandatesigningandregisteringanagreementwiththebuyerifthedeveloperhas collectedmorethan20%ofthesalevalueasadvance,increasingtransactioncostsfor the bulk buyer (who eventually looks to sell it for a profit). Additionally, the interest payablebythedevelopertothebuyerhasbeencappedat15%.Whileclarityisyetto emerge on the scope of applicability of this cap, a general applicability may create hurdles for the sale and buyback financing arrangement, as prevalent in the industry. However, developers may choose to pay interest above the threshold in cash to circumventthehurdlecushioninganypossibleimpactofthisprovision.

Anotherlayerofapprovalsfordevelopers
The real estate industry is currently grappling with multiplicity of regulators and requirementofalargenumberofapprovals.Thebillwilladdanotherregulatorylayer for the industry to navigate. We also highlight that the central government is also planningitsownversionofarealestateregulatorybillwhichmaygetfurtherimpetus postpassageofthebillbyMaharashtra.
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AashieshAgarwaal,CFA +912240635491 aashiesh.agarwaal@edelcap.com July18,2012 EdelweissSecuritiesLimited

RealEstate

KeyFeatures

Statusofthebill
The Maharashtra Lower House has passed the Maharashtra Housing (Regulation and Development)Bill,2012,whichnowawaitsnodoftheUpperHouseandthepresidential assent;thelattertwoapprovalsexpectedtobeproceduralinnature.Accordingtomedia sources, the Upper House is expected to clear the bill in the monsoon session while presidentialendorsementisexpectedinanothersixmonths.

Applicabilityforprojectregistration
Every promoter of a project shall make an application to the Housing Regulatory Authority(HRA) fortheregistrationoftheprojectand for displayingtheproject on the websiteoftheHousingRegulatoryAuthoritygiventhefollowingconditions: Theareaofthelandproposedtobedevelopedexceeds250squaremeters. Morethanfiveflatsareproposedtobedeveloped. Thepromoterhasnotyetreceivedanoccupationcertificatefromthelocalauthority inrespectofsuchproject.

Disclosurerequirements
Every promoter who intends to construct or is constructing a block or building of flats shallberequiredtogivethefollowingdisclosures: Nature of his title to the land, including encumbrances, if any, on which developmentisplanned. Information relating to number and size of plots, layout plan, carpet area, utility areaanddetailsofFSI,additionalFSIandTDRconsumed. Detailsofthearchitect,structuralengineer,contractorsinvolved,authorisedagents, property dealers, brokers and details of technology and materials used in constructionofthebuilding. Allowinspectionofstructuraldesignandplansascertifiedbythearchitectwhenthe project plan is not approved. Where the project plan is approved, inspection of approvedplansandspecificationsistobepermitted. Buildingwisetimescheduleofcompletionofeachphaseofprojectandscheduleof connectivitytomunicipalservices,liftsandotherfixtures. Thedatebywhichpossessionoftheflatandallamenitiesistobehandedover.

Restrictionspriortoregistration
Thebillhasplacedarestrictiononanytransaction,includingsaleandmarketingfor sale,offlatsinanewprojectwithoutpriorregistrationanddisplayoftheprojecton thewebsiteofHRA. Marketingforsalewillincludeissuingorpublishinganadvertisementorprospectus, offering for sale or otherwise, any flat or inviting persons who intend to take such flatstomakeadvancepaymentsordeposits.

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Restrictionsonamendmentstoplans
The promoter shall not make any alterations to the structure described in the agreement with the buyer, as approved by the regulatory authority, without the previousconsentofthebuyer. Thepromotershallnotconstructanyadditionalfloorsorwingsthatarenotdisclosedinthe agreement,withoutthepriorconsentofallthebuyersinsuchbuilding. No alterations to be made to the layout including location of recreation ground, park,garden and playgrounddisclosed along with thebuildingplansto thebuyers, withouttheirpriorconsent.

Penalties/recoursefordeveloperdefault
Failuretogivepossessionwithinspecifiedtimeorfurthertimeagreeduponbythe parties and a period of three months thereafter shall make the promoter liable to refundtheamountsalreadyreceivedwithinterestratesasprescribed,subjecttoa maximumlimitof15%,shouldthebuyeraskforarefund. Failure to complete construction of the project and obtain occupation certificate within the date specified as per agreement, or any further date agreed by the partiesorasmaybedecidedbytheHRAshall: Makethepromoterliabletorefundtheamountsalreadyreceivedwithinterest rates as prescribed, subject to a maximum limit of 15% and additional penalty asdeterminedbytheregulatoryauthority. Alternatively, a legal entity of 60% of the flat purchasers can be formed for taking over possession of the project and land appurtenant thereto. It may be notedherethatadeveloperisprecludedfromselling10%oftheprojecttillOC isreceived.Incaseswherethelegalentityashighlightedtakesovertheproject, theretained10%getstransferredtoittofundtheprojectcompletioncosts.

Additionalrestrictionsimpactingbulkpurchases
The promoter can take a maximum advance of 20% of the sale price prior to enteringintoawrittenagreementforthesaleofproperty. Interest rates on refund of amounts already received are capped at 15% as per various provisions of the bill. While clarity is yet to emerge on the scope of applicability of this cap, a general applicability may create hurdles for sale and buybackfinancingarrangementsasprevalentintheindustry.

SetupofHousingRegulatoryAuthority
A Housing Regulation Authority shall be set up by the state government whose primary function will be to ensure compliance of obligations cast upon promoters undertheAct,tocauseaninquirytobemadeintocomplianceofitsorders,tolevy fees and other charges, to host and maintain the regulatory website and perform suchotherfunctionsasmaybeentrustedbythestategovernment. Inadditionto the HousingRegulatory Authority,a Housing Appellate Tribunalshall be established by the state government to adjudicate any dispute between the concernedpartiesandHRA. LegalrecourseagainstdecisionsoftheHousingAppelateTribunalshallrestwiththe HighCourt.

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RealEstate

EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098. Board:(9122)40094400,Email:research@edelcap.com
VikasKhemani NischalMaheshwari NiravSheth HeadInstitutionalEquities CoHeadInstitutionalEquities&HeadResearch HeadSales vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com nirav.sheth@edelcap.com +912222864206 +912240635476 +912240407499

Coveragegroup(s)ofstocksbyprimaryanalyst(s):RealEstate
BrigadeEnterprises,DLF,GodrejProperties,JaypeeInfratech,MahindraLifespaceDevelopers,OberoiRealty,OrbitCorporation,ThePhoenixMills

1,150 950 750 550 350 150 Buy

RecentResearch Date 17Jul12 28Jun12 Company Title Price(INR) Recos

(INR)

Godrej Amarginalpositive; Properties EdelFlash

Buy Brigade HULlandpurchase NAV Buy Enterprises neutral; EdelFlash

DLF Seeksapprovalforsaleof windmills; EdelFlash

DistributionofRatings/MarketCap EdelweissResearchCoverageUniverse RatingDistribution* *1stocksunderreview MarketCap(INR)

> 50bn Between 10bn and 50 bn < 10bn Buy Hold Reduce Total

J ul-08 Aug-08 Se p-08 Oc t-08 Nov-08 De c -08 J a n-09 Fe b-09 Ma r-09 Apr-09 May-09 J un-09 J ul-09
19Jun12

RatingInterpretation Rating Buy Hold Reduce appreciatemorethan15%overa12monthperiod appreciateupto15%overa12monthperiod depreciatemorethan5%overa12monthperiod

Expected to

104

60

18

183

114

58

11

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SectorUpdate
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