Decoding the RERA Act

The recent implementation of RERA Act has raised many concerns amongst the real estate community. Sonu Abhinandan explains the many nuances of this ac

With the implementation of the Real Estate Regulation Act (RERA) on May 1, 2017, the real estate industry took a big step towards its transformational journey of becoming a more reliable, accountable and transparent sector. As the prolonged RERA has finally come into effect, the Indian real estate sector may expect better transparency between buyers, builders and agents. It will help to bring more clarity and fair practices, which will protect the interests of buyers from errant builders and brokers. Improved transparency in real estate will also lead to more participation from institutional and foreign investors by infusing much-needed confidence and trust in this sector.

RERA is established for:

• Registration and regulation of projects and real estate agents.

• Maintaining a website of records of all real estate projects.

• Maintaining a database of the promoters and real estate agents.

• Hearing complaints filed by an aggrieved person against any promoter/allottees/ real estate agent for violation of the Act.

 

Key RERA rules

• Projects must be registered with RERA before any sales, marketing and advertisements.

• All relevant documents like site plans, unit types and approval details to be submitted to RERA.

• Advertisements should be realistic.

• In case of any damage caused by false advertisement, the buyer would be entitled to return of amount, if he intends.

• All real estate entities to be registered with RERA with relevant documents.

• Promoters need to submit their personal information along with financial details.

• Promoters need to mention details of real estate agents, contractors and architects affiliated with the project.

• List of defaulting promoters will be made live on the RERA website.

• The promoter must deposit 70% of the amount in a separate account with a scheduled bank realised by the buyers.

• Promoters shall not take a sum more than 10% of the cost of the dwelling unit as an advance payment or application fee.

• Brokers to maintain books of accounts, and comply with other requirements of documentation related to a project.

• Promoters should sell units only on carpet area.

• Builders need consent from at least two-thirds of the buyers’ group to make any changes in common areas or building.

• The promoter will be liable to repair any structural defect which occurs within five years of the possession date without charging money to the buyer.

• In case of a delay or inability to give possession as per the agreement, the promoter shall return or pay applicable interest to the buyer, if the buyer intends.

Impact on buyers

• Buyers can be more assured about a project’s timely delivery.

• Buyers can feel more secure and safe about their money being put in an escrow account.

• They may receive money if claimed for return in case any rule is violated by the builder.

• Prices are bound to increase as the additional cost borne by builders will eventually be transferred to the customers.

• Now, buyers cannot be cheated easily with size manipulation based on super area, and they will be liable to pay on the basis of net usable area.

• Buyer can be ensured of better construction quality.

• Buyers may feel more empowered as builder can’t make any alterations easily in common areas of projects or in individual units.

• They may face hurdles within buyer groups, sometimes for necessary structural changes due to the requirement of the consent from two-thirds of the buyers’ group.

• Buyers will be safe from the uncertainties of prelaunch projects and unrealistic advertisements.

• On the possession, customers will get exactly what they are offered or promised by builders at the time of buying the property.

• Projects with RERA registration numbers will enable buyers to track all crucial detail of projects before making any decision.

• It will enable the customer to be selective while choosing the right party to deal with based on the track records of builders and brokers available on RERA.

Impact on builders

• Better control on pricing of projects for big builders, as very few small builders may exist with lesser small projects

• No pre-launches, so it will be difficult to get initial running capital. Only financially strong builders can survive.

• Builders may postpone or pause new launches.

• May face more hurdles and additional cost for multiple clearances, which may also cause an unwanted delay in project launches.

• Now, builders will be discreet while marketing or advertising projects through different sources.

• It will be a less competitive market as small-pocket builders may be wiped out of the market.

• May face the unnecessary complexity of multiple government windows.

• Difficult to penetrate for a new entrant with feeble financials.

• An overall accountability of all participating entities and the game of passing the buck may stop.

• Builders may feel a liquidity crunch for unaccounted expenses, mostly incurred at the initial stage of project launch.

• There might be a hazard in maintaining multiple escrow accounts and getting these accounts audited frequently. It might cause additional cost to builders.

• They will not be able to reroute money received for one project to another project.

• Financially indiscipline builders may deteriorate or become extinct.

Impact on brokers

• Limited projects and inventory to sell as they will be obliged to sell only registered properties.

• The broker and buyer trust deficits will be reduced. Now, brokers can be reasonably sure that commitments made by builders are reliable. Although, they have no direct control and cannot ensure that builders stick to their timelines or promises.

• Inadvertently or intentionally, they will refrain from making any deceitful commitment to home buyers.

• Brokers can be well-informed about projects and builder details, which will be available on the RERA website. Brokers will avoid picking flawed builder’s projects to sell or offer to buyers. It will save them from becoming the scapegoat.

• Agents may face the unnecessary complexity of multiple government authorities clearance and licensing.

• Many small, one-time or unorganised agents may be wiped out.

• More professional and large players to enter and exist in the market.

• Many agents may face a dearth in their product portfolio, as builders may mention or appoint only limited agents with RERA to sell their projects.

• Most of the transactions which were unnoticed before will come under the ambit of law.

• They might see a decline in the cash inflow with lesser opportunities to get unaccounted money, which they used to get earlier from both buyers and sellers.

• Rules may evolve the Indian real estate broking business to behave and operate in a more professional way.

• We might see a better code of conduct in the day to day business practices of real estate.

• A better ecosystem will be built between buyers and brokers due to the accountability of builders for quality construction, transparency on usable units sizes and constrain for misuse of the Floor Area Ratio (FAR).

Over and above, the current slowdown in the property market is presumed to be short-lived and things will start improving over the coming months. RERA is set to push the unorganised real estate sector in the country by making it more transparent, buyer-friendly and accountable. RERA will become the norm going forward, development of brand value beyond RERA will be the game changer for industry stakeholders.

RERA is a fantastic change for the industry and people at large.

(The author is head, QuikrHomes)