The Real Estate sector continues to play a key role in contributing to India's economic growth story and is one of the largest sources of job creation, making it a strategic sector for nation-building. Unfortunately, in the absence of a regulator, the sector has been in the past characterised by high levels of information asymmetry, often leading to mistrust and low confidence amongst stakeholders -- including home buyers, financiers and developers. The Real Estate (Regulation and Development) Act or RERA passed by the Parliament of India in 2016 is a fresh take at resolving these lacunae. The RERA Act was enacted keeping in mind the interests of home buyers long exposed to widespread vulnerabilities, which impacted demand and resulted in sales slowdown.
RERA's aim to promote higher transparency, accountability and to safeguard homebuyers' interests brought in a new era in the real estate sector and led to a turnaround in home sales. Despite being in the nascent stage, it is encouraging to note that we have witnessed a decline in some of the common complaints such as delay in deliveries, false promotions and incorrect charges for excess areas etc.
Hence, it is not surprising that in its first two years of operation, RERA has witnessed wholehearted participation from major Indian states. According to the latest data available, out of 36 Indian states and Union Territories, general rules of RERA were notified in 30 states, web portals were set up in 23 states and permanent regulatory authority was established in 20 states. Though there is a long way to go, it is a remarkable feat to receive acceptance, especially, since there were several apprehensions during the formation of the act that took close to 10 years of deliberations. Today, 39,855 projects and 30,824 agents across India have been registered under this act.
RERA's future success will depend on its effective and uniform implementation across India. A uniformly regulated environment will instil trust and strengthen business conditions. Taking a cue from the rapid progress within the first two years, we are confident this would soon be a reality.
The key tenets of RERA that struck a chord with buyers as well as real estate financiers included:
- Project to be registered only after receiving all clearances
- Developers can advertise a project post registration
- Model contract document
- Creation of an escrow account for a particular project
- Timeline to be provided for project completion
- Consent of 2/3rd of the allottees to modify the layout
Over the last two years, RERA regulatory authority has strived to develop processes to make registered developers compliant with these requirements. This is starting to show early results and buyers and financiers are more confident about their investment decisions today than they were two years ago. Rising confidence will spur home demand in the days to come and developers are realising this fast. In fact, developers are now viewing the RERA registration tag as a branding tool and proactively registering their projects to attract buyers and flexible financing facilities. This arrangement is leading to a win-win situation for all the stakeholders.
In our opinion, one area of improvement that can help the act to become more relevant is by enhancing the rights of the RERA regulatory authority. It should be empowered to exercise its power over all stakeholders including government agencies and authorities responsible for approvals/certificates etc. In fact, pursuant to RERA objectives, all state governments should develop a single window for registration and processing of applications related to this act. This window's performance should be monitored under RERA. Fast-tracking the decision-making process will further expedite project completion timeline as envisaged by RERA.
According to the World Bank's Ease of Doing Business Index, India has significantly improved its global ranking for dealing with construction permits from 182nd to 52nd in a span of four years supported by a steady decline in days required and processes required for such permits. This can be improved further by closing some of these last mile gaps in implementing RERA.
RERA has bestowed a crucial authority on home buyers by including them in the committee of creditors that can invoke insolvency proceedings on a developer. This will greatly impact the power equation between buyers and developers as compared to that in the pre-RERA regime. However, to benefit home buyers who prefer delivery of homes instead of a refund of investments, the RERA authority should be given a chance to resolve a dispute between allottees and builder before invoking insolvency proceedings, subject to a specific time frame.
Finally, there appears to be a lack of awareness amongst real estate agents who play a vital role in the promotion of the sector and spreading awareness among buyers. For example, out of approximately 1 lakh agents in Maharashtra, only about 20,000 have been registered under RERA. Hence, it is necessary to educate this group of participants in order to prevent instances of mis-selling or fraudulent transactions.
To conclude, RERA has brought about a significant amount of standardisation in real estate. In the coming days, a refined and efficient implementation across the country would promote a more equitable and fair transaction between the buyer, developer and financier by fostering high levels of transparency and trust amongst each other.
(The writer is Managing Director, Piramal Capital & Housing Finance)
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