What is RERA
Real Estate sector has been growing over the past few years, but has been unregulated from the perspective of consumer’s protection. This sector has acquired certain disrepute, adversely impacting investment climate and hurting the interests of lakhs of home buyers every year. This Act was passed in the lower and upper houses of the parliament in 2016, and shall come into force on May 1, 2017 to verify and formulate rules for the functioning of the regulator. According to RERA, each state/UT has its own regulations framed and including the National Capital. This Act enhances the overall transparency, accountability and efficiency in the construction industry. The Central/ State Governments enforced section 2, sections 20 to 39, sections 41 to 58, sections 71 to 78, and sections 71 to 82 of the RERA Act in May 2016. Certain sections of the Act were not notified then, as the institutional structure weren’t established then, namely the Regulatory Authority and the Appellate Tribunal. The remaining sections of the act came to effect in May 2017. According to the Regulatory Authority and Appellate Tribunal, projects can be sold only after they are registered with the Authority.
Until now home buyers have been facing problems regarding cost escalations, delays in projects, one-side contract terms, arbitrary changes to plan etc. With the execution of this Act:
- Developers have to register all new projects with “Real Estate Regulatory Authority” before booking, selling or offering new projects.
- Ongoing projects have to receive completion certificates within a period of three months of commencement of the Act.
- Developers have to disclose all details about the project on Regulator’s website including:
- Details of the promoter such as registered address, type of enterprise.
- Details of the project launched by the promoter whether completed or ongoing in the past five years including current cases, delay in projects, pending payments and details of land type.
- Proposed facilities and location details are to be provided along with the sanctioned plan, layout plan, specifications of the project and plan of development works.
- Project status has to be updated at every three month interval.
- Developers have to deposit 70% of funds received from the buyers in a separate bank account and entitled to withdraw the amount to cover the cost of the project.
- Developers are subjected to penalty for delay in projects.
- Developer should sell the projects only based on carpet area where buyers can use. This implies the area covering external walls, service shafts, balcony and open terrace are excluded, but area covered by internal walls are included.
Impact of RERA
RERA has it impact on two key stakeholders i.e. builders and buyers. The act brings in more transparency between the builder and the customer, and ensuring the flow of institutional funds. Moreover, the home buyers are shielded from potentially unscrupulous activities of the builders.
With developers improving the delivery of quality product, contactors have to focus on quality of service, cost and time. The cost of capital for developers is bound to go up as the builders cannot sell the homes before the project approval is complete and that the 70% of the money from the buyers has to be deposited in an escrow account, hence debt is the only way of financing the projects.
New sectors are emerging as major drivers such as e-commerce, logistics and start-ups along with IT and ITES companies in the commercial real estate sector. Investments in infrastructure has also increased in cities such as Hyderabad and Pune with good demand in both MNC’s and start-ups.
RERA will help in boosting the buyers sentiment and the confidence and hence can actually lead to purchase of homes. Hence the act actually brings in regulation but not strangulation. This Act also improved the lending options from lenders and availing finance became easier with reducing litigations.
To sum up with, RERA is a growth oriented act to balance the key priorities of buyer’s interest, investors’ confidence, good governance and to build truest between two major real estate stakeholders: builders and buyers.
As per CBRE (Commercial Real Estate Services) report Real Estate Sector in India is about to hit $100 billion investments by 2020 from witnessing a $7 billion investment in 2017. As a result of improved investor confidence and better policy reforms, India is one of the fastest growing G-20 economy in the world.
The supply under residential market has jumped by 70% in January – March period with biggest jump in Bangalore, Hyderabad, Pune and Kolkata. Housing sales have risen by 70% with the biggest sales in Hyderabad, Bangalore, Pune and Chennai.
World Development Report of UN states that India stands fourth in developing Asia for FDI inflows and real estate sector in India so far attracted $32 billion private equity.
The GST and Benami Property Act will also have major impact on the real estate business. With the Government moves like demonetization and digital economy, the unorganized and less organized segments of the real estate sector will have to move towards the organised segment or will have the suffer the natural death from the sector.
Indian Real Estate Sector is going to witness a healthy growth and demand in 2017 with credible, reputed and organized players. RERA is going to help builders reorient their methodology and helps real estate sector overcome hurdles it faces and contributes to growth of Indian economy.