The RERA Act will bring much-required standardisation and professionalism to the real estate sector, leading to a healthy and orderly growth of the industry
By Pakshal Sanghvi
The Real Estate Regulation Act, which has been put to effect from 1 May 2017, is all set to bring transparency into the real estate sector. The RERA provisions have been put forth with a view to safeguarding the interest of buyers. It is a milestone for the Indian real estate industry. The Act is bound to forge a symbiotic relationship between discerning home buyers and genuine real estate developers. While the draft Maharashtra RERA rules had relaxed a few clauses of the central RERA, the final notification is quite in line with the central act. Maharashtra is yet to appoint a full time regulator and has appointed an interim regulator at the moment. According to us, we believe the Act may have the following implications for developers:
- All new projects are required to be registered with the regulating authority. This will help provide greater transparency about the project for the customers. If a developer fails to register his property, he will have to pay up to 10% of the project cost as penalty. Builders/developers/promoters cannot advertise or promote any project, without quoting a RERA registration number and website URL of RERA after July. If they fail to register post this period, they cannot continue with marketing and selling their respective projects.
- Developers will now have to get all the under-construction projects that have not received completion registered with regulatory authorities by July end.
- As per the new Act, developers cannot collect more than 10% of the value of the project as advance unless a sale deed has been executed.
- Developers must adhere to sanctioned plan and specifications. For customers this means that there won’t be delays in the construction schedule due to subsequent change in plan/layout made by the developers. Under the law if there is a delay in completion, the developer is liable to pay to the customer the same rate of interest as he is paying within his EMI.
- In case of any structural or other defects found within 5 years by the buyer, the developer has to bear the responsibility of repairs. This will boost demand for good quality construction, and buyers will have increased willingness to pay a good price for quality buildings.
- Developers have to put aside 70% of project funds in a dedicated escrow account linked to the project. This will act as an incentive for developers to use allocated funds for the specific project only, and prevent them from diverting the booking money to other projects.
- Norms on size of projects to be registered with RERA have been made 500sqm instead of 1,000sqm. The law states that super built-up area is no longer valid; properties have to be sold on clearly defined carpet area.
- Developers have to post details like project plan, layout plan, approvals, land title status, details of promoters, contractors, architects, date of completion, etc with the State RERA. Customers can access this information from the RERA websites.
- Any violation of an order by RERA Appellate Tribunal will invite jail term of three years or more. Most importantly, as developers will be held accountable for the furnished details, they will have to ensure that false promises are not made to homebuyers.
- Refund in 60 days to the buyers is another clause that the Act brings into place. For smaller developers it means that if several buyers seek to cancel at one go, it may jeopardise the entire project.
Ongoing projects have 90 days to comply with RERA regulations. This period is likely to witness less activity in the market as most of the developers will be busy complying with the new regulations. Pricing will be impacted with both GST and RERA becoming effective, but may take six to 12 months to pan out. Considering that many states are yet to notify the rules, we expect an impact to be visible in a year. We firmly believe that with RERA, there will be a consolidation in the market, and hence only fewer players may exist. To escape the heavy fines and jail terms, some builders are restructuring the modes of funding, prioritising the projects, and dividing the major ones into different phases to register them individually. Most of the malpractices by fly-by-night operators will be curbed, as builders now have to get all necessary clearances before they can sell the project. Properties have to be sold on clearly defined carpet area.
The RERA Act will bring in the much-required standardisation and professionalism in the real estate sector, leading to healthy and orderly growth of the industry. Specialised regulation and enforcement will ensure consumer protection, and curb fraudulent activities like money laundering. The Act promotes transparency and fair and ethical practices through disclosure of project details and contractual obligations between the project and the buyer. An established and separate regulatory mechanism will enforce accountability and speedy redressal of grievances.
We at Sanghvi Realty appreciate the bold move taken by the current government and Prime Minister in the interest of the larger section of the society. The real estate sector is the second largest employer in the country after agriculture, and ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. The housing sector alone contributes 5-6% to the country’s GDP.
India has huge potential to attract large foreign investments into real estate. In the coming years, the opportunities in the real estate sector will attract more global players and hence will help the industry to mature, become more transparent, improve management and adopt advanced construction techniques. RERA will surely give a boost to the real estate sector through its progressive and diversified role.
The author is director at Sanghvi Realty.