How Does The Real Estate Industry Work?

How A Real Estate Company Works?

• The real estate industry in India is the second-largest employment industry and accounts for over 6% of the nation’s GDP.
• It has traditionally been considered a reliable and safe form of investment.
• By 2030 the value of the real estate industry is projected to be at US$ 1 trillion.
• If you are looking to get a piece of the action by working in the real estate industry, then you must understand how the industry is set up.

What is the Indian Real Estate Industry?

1. Rapid urbanisation, the emergence of nuclear families, and the rising household income have become the main driving force of the real estate industry in India.
2. It consists of the growth of residential, commercial, and retail spheres.
3. In 2019, the real estate industry saw private equity investment of US$ 1 billion while foreign private equity investment totaled US$ 14 billion during the period from 2015-19.
4. There are four categories of real estate – residential, commercial, land, and industrial.
5. The residential real estate category consists of apartments, mobile homes, vacation rentals, and single-family houses.
6. Commercial real estate refers to any structure that is used to produce income and includes offices, hotels, and stores.
7. Industrial properties are used for manufacturing such as warehouses, research institutions, and factories.
8. Land can include vacant land, reclaimed sites, farms, and ranches.
9. The real estate market refers to all the properties available for sale in a given area.
10. Like most other markets, it is also subject to internal and external forces with its total value varying through time.
11. Recently, many new policies and agencies like RERA, Benami Transactions Act, and REIT have made the industry more transparent and reliable, making it more lucrative for investors.

What is RERA?

• The Real Estate (Regulation and Development) Act of 2016, is a parliamentary act issued to protect the interests of buyers while also boosting investment into the real estate industry.
• The act established RERA, or Real Estate Regulatory Authority, for each state.
• RERA regulates the real estate market of its region and also provides resolutions in case of disputes.
• The Real Estate Act requires any construction projects on land that is bigger than 500sqm or eight apartments, to register with RERA.
• This provision was designed to increase transparency.
• The act also requires all real estate agents to register themselves with RERA.
• Their registration number must be provided in any sale made by them.
• The act protects buyers by stipulating that builders cannot ask for more than 10% of the value of the property as a booking or application fee.
• It also states that 70% of the payment must be done through a bank account.
• This policy is put in place to remove black money from the real estate industry.
• Builders must provide the price based on the carpet area rather than the super built-up area.
• Now that you are familiar with how the real industry is set up and the regulatory authority, you can now get into how you can enter the industry as an agent.

1. The real estate industry in India is the second-largest employment industry and accounts for over 6% of the nation’s GDP.
2. It has traditionally been considered a reliable and safe form of investment.
3. By 2030 the value of the real estate industry is projected to be at US$ 1 trillion.
4. If you are looking to get a piece of the action by working in the real estate industry, then you must understand how the industry is set up.

What Is The Indian Real Estate Industry?

• Rapid urbanisation, the emergence of nuclear families, and the rising household income have become the main driving force of the real estate industry in India.
• It consists of the growth of residential, commercial, and retail spheres.
• In 2019, the real estate industry saw private equity investment of US$ 1 billion while foreign private equity investment totaled US$ 14 billion during the period from 2015-19.
• There are four categories of real estate – residential, commercial, land, and industrial.
• The residential real estate category consists of apartments, mobile homes, vacation rentals, and single-family houses.
• Commercial real estate refers to any structure that is used to produce income and includes offices, hotels, and stores.
• Industrial properties are used for manufacturing such as warehouses, research institutions, and factories.
• Land can include vacant land, reclaimed sites, farms, and ranches.
• The real estate market refers to all the properties available for sale in a given area.
• Like most other markets, it is also subject to internal and external forces with its total value varying through time.
• Recently, many new policies and agencies like RERA, Benami Transactions Act, and REIT have made the industry more transparent and reliable, making it more lucrative for investors.

What is RERA?

1. The Real Estate (Regulation and Development) Act of 2016, is a parliamentary act issued to protect the interests of buyers while also boosting investment into the real estate industry.
2. The act established RERA, or Real Estate Regulatory Authority, for each state.
3. RERA regulates the real estate market of its region and also provides resolutions in case of disputes.
4. The Real Estate Act requires any construction projects on land that is bigger than 500sqm or eight apartments, to register with RERA.
5. This provision was designed to increase transparency.
6. The act also requires all real estate agents to register themselves with RERA.
7. Their registration number must be provided in any sale made by them.
8. The act protects buyers by stipulating that builders cannot ask for more than 10% of the value of the property as a booking or application fee.
9. It also states that 70% of the payment must be done through a bank account.
10. This policy is put in place to remove black money from the real estate industry.
11. Builders must provide the price based on the carpet area rather than the super built-up area.
12. Now that you are familiar with how the real industry is set up and the regulatory authority, you can now get into how you can enter the industry as an agent.

How Does Project Begin?

• The first step to creating a real estate project is to find the right piece of land to develop.
• This will depend on the local government body regulations and zoning laws.
• Certain tracts of land might be earmarked by the government as special development zones in which real estate companies can invest based on a subsidy.
• Otherwise, a real estate company will outright buy the land from either the government or the owner of the land.
• Once the land for the project is settled upon, the project will go into the pre-development phase.
• This is probably the longest phase of the project.
• It entails the following:

1. Property zoning
2. Local government policies
3. Construction design
4. Tenant negotiations
5. Cost analysis and redesigns
6. Market analysis
7. Community public input

• Once these phases are actively executed, then the project can move into the construction phase.

How Is The Construction Phase Executed?

• Many big real estate companies have two or three models to finance their new project construction.
• You might have seen pre-construction sales offered on projects where a customer can buy a part of the development before the construction begins or just after it begins.
• This is done to drum up the required expenses and the customers will get the property with a bigger discount.
• Bigger real estate companies will have many projects at different phases which allows them to use a portion of funds from other projects for their new construction.
• However, certain laws put a cap on how much of the funds from other projects can be diverted to new projects.
• India has welcomed its first REIT or Real Estate Investment Trust which works like a mutual fund geared towards real estate projects.
• It is set up to finance new construction projects.
• Big real estate companies have their construction crew who will execute the plans developed by the design team.
• Some companies will outsource certain aspects of the construction or design phase to other companies.
• All new constructions must follow all the local by-laws and construction rules.
• The project will be periodically assessed by local government authorities to ensure that all codes are followed.

What Is The Post-Development Phase?

1. Once the construction phase is completed, the project moves into sales and marketing, and asset management.
2. While a certain number of units might have been sold during pre-development, many will still have to be sold after construction.
3. A dedicated sales team will work with potential clients to showcase the project in the best possible light.
4. This team can be either in-house or given as a contract to a third-party marketing firm.
5. A crucial aspect of post-development is asset management.
6. A real estate company simply cannot develop the project and leave it up to the new owners to figure out how to manage it.
7. For example, in a new apartment complex, the builder will take care of the maintenance of the property for at least the first year.
8. This allows the residents to understand the scope of work required.
9. At the end of the period, the residents can form an association and maintain the property themselves or give a contract to a third-party management team.

In Conclusion

• The real estate industry in India has always been a lucrative enterprise since most people view the property as an investment.
• With better regulatory bodies and new policies drafted to increase transparency and ease of business, the industry is set to become one of the largest in the country.
• If you’re looking to become a real estate agent, there is no time like the present.
• Do your hard work and learn as much as you can about the industry.

Also Read:

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