The real estate sector in India has a watchdog now – the Real Estate (Regulation and Development) Act, 2016 (RERA). It came into effect from May 2017, after numerous amendments to the Act.
RERA sets out to regulate the realty sector by making builders more accountable in terms of pricing, timely completion of projects and quality of end products. By doing so, it intends to instil faith among the buyers.
For example, many a time builders sell projects to customers without formal approval of plans or even the acquisition of land. This leads to delay in project completion, and sometimes even indefinite stalling of construction. Then, sometimes, they go for shoddy construction methods, which not just results in deceiving buyers, but also endangering their safety.
These are just the issues the RERA plans to solve.
Under RERA, each state is to frame its own set of rules to govern the functioning of the regulator. So far, most of the states have notified rules under RERA and the centre has already framed the rules for union territories.
Overall, some of the prominent diktats of RERA are as follows:
- Commercial and residential real estate projects measuring over 500 square metres or having more than eight apartments, are required to register themselves with RERA in their respective states, before launch. Real estate agents, too, are required to register.
- Promoters or developers of projects are mandated to set aside a minimum 70 percent of the money received from buyers or investors for a particular project in a separate escrow account for that project. This money can only be used for the construction of the project and payment for land. It cannot be funnelled elsewhere.
- However, the most crucial provision of RERA – meant to fulfil its primary objective of bringing about transparency and credibility in the hitherto unregulated real estate sector – is the mandatory submission of original approved plans for ongoing projects by builders.
- Builders are also required to furnish information on how funds received from allottees are being used. Further, they need an authorised architect, engineer or a practising chartered accountant to approve details of construction timeline.
- Another provision aimed to benefit buyers is the five year warranty against structural flaws needed to be provided by builders.
- As per the Act, buyers no longer can be charged on the built-up or super built-up area. They are to be charged only on the carpet area.
- Developers or promoters cannot alter the approved plan of an apartment without written consent of a minimum two-third of the allottees of the residential projects.
- Details of all registered projects, builders’ track records, litigation and other important details are to be put up on a website for public access.
- The Act also mandates establishment of appellate tribunals under the respective state regulators. The job of the tribunals will be to speedily resolve grievances and complaints.
Impact of RERA
RERA’s ambitions are laudable no doubt. But it has not been able to produce too many good results so far. Along with the GST and the demonetisation, on the contrary, it has considerably slowed down the growth in the real estate sector. Jury is still out on if it would succeed in the long run.
As of now, with stringent regulations, small players particularly, are finding it difficult to conform. Charging buyers based on the carpet area instead of the built-up area or super-built up area, mandatory escrow account to be maintained by developers, restriction on pre-sales or sales (builders need proper approvals for that) and other diktats have raised costs and made it difficult for such small players to secure funds.
Many small realty firms, not entitled to bank loans because of little creditworthiness or size, are seen approaching non-banking financial companies (NBFCs) or expensive private lenders for capital.
Such hiccups have already affected the number of new projects.
Anarock, a property consultant, revealed in a research study that there has been a drop of over 50 percent in the launch of new units in the leading seven cities of India, up until the third quarter of 2017, from the same period in 2016.
Such a trend might even drive up prices of homes, making it expensive for buyers.
Over the years, industry pundits predict that the realty sector might see smaller players – unable to align themselves to the new regulatory norms – evaporate and only their deep-pocketed counterparts survive. As a result competition would lessen and property prices rise.
Not just that, it would also reduce choices for buyers, who currently have plenty of options to choose from on account of small and mid-scale developers providing units having fewer amenities at lower rates.
However, there have been a few positive developments too post rollout of RERA. Many developers have already been asked to pay back homebuyers for delayed possessions and overall most are trying to complete projects on time to avoid punitive measures.