JOIN USThe real estate industry in India has always been a significant contributor to the country’s economy. In fact, it’s the second highest employer after agriculture and contributes close to 9% towards nation’s GDP. Since
Foreign Direct Investment (FDI) regulations were introduced for real estate, it has taken a larger chunk of the FDI contribution to the total economy. In the last few years, there appeared to be a need to regulate the industry.
In this transient yet buoyant market, has emerged the need for the Real Estate (Regulation and Development) Act (RERA). The Act envisions an environment where the entire gambit of the real estate landscape with all the various players to sit under one umbrella with a defined set of rules and responsibilities, geared towards being customer-centric.
The government has envisioned RERA as the custodian of the rights and obligations of all the stakeholders (customers, developers and agents) involved in the ecosystem. The Act would aid to bring more transparency and structural reform to the real estate landscape across the country. Each state and Union Territory will form its own Regulatory Authority (RA) which will frame and implement the guidelines in accordance with the RERA, without diluting the spirit of the actual Act.
RERA has come to the picture with the focus on promoting accountability, bringing transparency and efficiency into the system for both buyers and developers. All construction activities, both residential and commercial,
covering at least 500 square metres or eight apartments will fall under the gambit of RERA. Thus, the correct
interpretation of the Act becomes paramount for successful implementation of the same.
The potential impact of RERA
- Market consolidation: Currently, the industry has a combination of both players, small and large, which makes the market more speculative and opaque. But with a regulatory body in place, there will be stricter guidelines and along with constant supervision for the ongoing and new projects for every phase. The cost of adherence to compliance may prove to be a burden on some of the smaller players, allowing for market consolidation among the larger players.
- Fiscal discipline: RERA developers have to place into an escrow account 70 % of the funds received from sale of project, which is solely for the purpose of construction activities for that project. This should address the concern of incomplete/unfinished projects that leave customers stranded, as the cash flow becomes more predictable.
- Transparency & clarity on the size of the apartment: Under RERA, projects are to be marketed and sold on the specific carpet area not only on the Super Built Up area, bringing clarity about the cost per square feet to the buyers. This absolute clarity allows the customers to make informed decisions with higher certainty of “what they see is what they get”.
- Streamlining for completion of the project: RERA will be treated as a boon to the customers as the law contains specific provisions listed for timely completion of projects. In case of any delays, or if the buyer is not satisfied with the development of the project, there are provisions of interest compensation.
- Construction safeguards: There is another provision in the Act that stipulates that customers can bring to the attention of the builder any structural defects up to a period of five years from the time of possession.
- No discrepancies in amenities: Customers can be rest assured of the amenities which are promised at the time of booking, as RERA has made provisions for marketing collaterals to also align with the final actual product that is being offered.
RERA will change the Indian real estate industry by bringing in structural changes in the existing ecosystem. These changes will help narrow the widening trust deficit between developers and consumers. It will not only bring back confidence in the end users, but will give the customers better clarity to make an educated and informed decision before buying a home!
(The author is managing director, Puravankara)