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.
EdelweissResearchisalsoavailableonwww.edelresearch.com,
1
BloombergEDEL<GO>,ThomsonFirstCall,ReutersandFactset.

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.

EdelweissSecuritiesLimited

SectorUpdate
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.

EdelweissSecuritiesLimited

RealEstate

EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:research@edelcap.com
VikasKhemani

HeadInstitutionalEquities

vikas.khemani@edelcap.com

+912222864206

NischalMaheshwari

CoHeadInstitutionalEquities&HeadResearch

nischal.maheshwari@edelcap.com

+912240635476

NiravSheth

HeadSales

nirav.sheth@edelcap.com

+912240407499

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

950
750

(INR)

RecentResearch

1,150
Buy

Date

Company

17Jul12

Godrej
Amarginalpositive;
Properties EdelFlash

28Jun12

Buy
Brigade
HULlandpurchase NAV
Buy
Enterprises neutral;
EdelFlash

550
350

Price(INR)

Recos

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

150

Title

19Jun12

DLF

Seeksapprovalforsaleof
windmills;
EdelFlash

DistributionofRatings/MarketCap
RatingInterpretation

EdelweissResearchCoverageUniverse

Buy

RatingDistribution*

104

Hold

Reduce

60

18

183

*1stocksunderreview

MarketCap(INR)

> 50bn

114

Between 10bn and 50 bn

58

Rating

Total

< 10bn

11

Expected to

Buy

appreciatemorethan15%overa12monthperiod

Hold

appreciateupto15%overa12monthperiod

Reduce

depreciatemorethan5%overa12monthperiod

EdelweissSecuritiesLimited

SectorUpdate
DISCLAIMER
GeneralDisclaimer:
ThisdocumenthasbeenpreparedbyEdelweissSecuritiesLimited(Edelweiss).Edelweiss,itsholdingcompanyandassociatecompaniesareafullservice,integrated
investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking
activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any
transaction.Theinformationcontainedhereinisfrompubliclyavailabledataorothersourcesbelievedtobereliable,butwedonotrepresentthatitisaccurateor
completeanditshouldnotbereliedonassuch.Edelweissoranyofitsaffiliates/groupcompaniesshallnotbeinanywayresponsibleforanylossordamagethat
mayarisetoanypersonfromanyinadvertenterrorintheinformationcontainedinthisreport.Thisdocumentisprovidedforassistanceonlyandisnotintendedto
beandmustnotalonebetakenasthebasisforaninvestmentdecision.Theuserassumestheentireriskofanyusemadeofthisinformation.Eachrecipientofthis
documentshouldmakesuchinvestigationasitdeemsnecessarytoarriveatanindependentevaluationofaninvestmentinthesecuritiesofcompaniesreferredto
inthisdocument(includingthemeritsandrisksinvolved),andshouldconsulthisownadvisorstodeterminethemeritsandrisksofsuchinvestment.Theinvestment
discussedorviewsexpressedmaynotbesuitableforallinvestors.Weandouraffiliates,groupcompanies,officers,directors,andemployeesmay:(a)fromtimeto
time,havelongorshortpositionsin,andbuyorsellthesecuritiesthereof,ofcompany(ies)mentionedhereinor(b)beengagedinanyothertransactioninvolving
suchsecuritiesandearnbrokerageorothercompensationoractasadvisororlender/borrowertosuchcompany(ies)orhaveotherpotentialconflictofinterest
with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your
information.Thisinformationshouldnotbereproducedorredistributedorpassedondirectlyorindirectlyinanyformtoanyotherpersonorpublished,copied,in
wholeorinpart,foranypurpose.Thisreportisnotdirectedorintendedfordistributionto,oruseby,anypersonorentitywhoisacitizenorresidentoforlocated
in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would
subjectEdelweissandaffiliates/groupcompaniestoanyregistrationorlicensingrequirementswithinsuchjurisdiction.Thedistributionofthisdocumentincertain
jurisdictionsmayberestrictedbylaw,andpersonsinwhosepossessionthisdocumentcomes,shouldinformthemselvesaboutandobserve,anysuchrestrictions.
The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this
information.Thisinformationissubjecttochangewithoutanypriornotice.Edelweissreservestherighttomakemodificationsandalterationstothisstatementas
mayberequiredfromtimetotime.However,Edelweissisundernoobligationtoupdateorkeeptheinformationcurrent.Nevertheless,Edelweissiscommittedto
providingindependentandtransparentrecommendationtoitsclientandwouldbehappytoprovideanyinformationinresponsetospecificclientqueries.Neither
Edelweissnoranyofitsaffiliates,groupcompanies,directors,employees,agentsorrepresentativesshallbeliableforanydamageswhetherdirect,indirect,special
orconsequentialincludinglostrevenueorlostprofitsthatmayarisefromorinconnectionwiththeuseoftheinformation.Pastperformanceisnotnecessarilya
guidetofutureperformance.Thedisclosuresofintereststatementsincorporatedinthisdocumentareprovidedsolelytoenhancethetransparencyandshouldnot
betreatedasendorsementoftheviewsexpressedinthereport.EdelweissSecuritiesLimitedgenerallyprohibitsitsanalysts,personsreportingtoanalystsandtheir
dependents from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information provided in these
documentsremains,unlessotherwisestated,thecopyrightofEdelweiss.Alllayout,design,originalartwork,conceptsandotherIntellectualProperties,remainsthe
property and copyright Edelweiss and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the
copyrightholders.Edelweissmightbeengagedormayseektodobusinesswithcompaniescoveredinitsresearch.Asaresult,investorsshouldbeawarethatthe
firmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldtakeinformeddecisionandusethisdocumentforassistanceonly
andmustnotalonebetakenasthebasisfortheirinvestmentdecision.

AnalystCertification:
Theanalystforthisreportcertifiesthatalloftheviewsexpressedinthisreportaccuratelyreflecthisorherpersonalviewsaboutthesubjectcompanyorcompanies
anditsortheirsecurities,andnopartofhisorhercompensationwas,isorwillbe,directlyorindirectlyrelatedtospecificrecommendationsorviewsexpressedin
thisreport.

Analystholdinginthestock:No.

AdditionalDisclaimerforU.S.Persons
This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The
researchanalyst(s)preparingtheresearchreportis/areresidentoutsidetheUnitedStates(U.S.)andarenotassociatedpersonsofanyU.S.regulatedbrokerdealer
and therefore the analyst(s) is/are not subject to supervision by a U.S. brokerdealer, and is/are not required to satisfy the regulatory licensing requirements of
FINRAorrequiredtootherwisecomplywithU.S.rulesorregulationsregarding,amongotherthings,communicationswithasubjectcompany,publicappearances
andtradingsecuritiesheldbyaresearchanalystaccount.
ThisreportisintendedfordistributionbyEdelweissSecuritiesLimitedonlyto"MajorInstitutionalInvestors"asdefinedbyRule15a6(b)(4)oftheU.S.Securitiesand
ExchangeAct,1934(theExchangeAct)andinterpretationsthereofbyU.S.SecuritiesandExchangeCommission(SEC)inrelianceonRule15a6(a)(2).Iftherecipient
ofthisreportisnotaMajorInstitutionalInvestorasspecifiedabove,thenitshouldnotactuponthisreportandreturnthesametothesender.Further,thisreport
maynotbecopied,duplicatedand/ortransmittedonwardtoanyU.S.person,whichisnottheMajorInstitutionalInvestor.
In reliance on the exemption from registration provided by Rule 15a6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain
businesswithMajorInstitutionalInvestors,EdelweissSecuritiesLimitedhasenteredintoanagreementwithaU.S.registeredbrokerdealer,MarcoPoloSecurities
Inc.("MarcoPolo").
TransactionsinsecuritiesdiscussedinthisresearchreportshouldbeeffectedthroughMarcoPolooranotherU.S.registeredbrokerdealer.

Copyright2009EdelweissResearch(EdelweissSecuritiesLtd).Allrightsreserved

AccesstheentirerepositoryofEdelweissResearchonwww.edelresearch.com

EdelweissSecuritiesLimited