May 1 marks the second anniversary of the Real Estate (Regulation and Development) Act (Rera) 2016 coming into effect. While it is still “work in progress”, especially when it comes to implementation by states, experts suggest that it has definitely ensured that the “Wild West days of Indian real estate” are certainly over.
RERA came into effect from May 1, 2017 and Maharashtra was the first state to implement it by setting up MahaRera. The act ended the practice of real estate developers diverting funds collected from homebuyers to other projects or for land purchase. Moreover, as it is now mandatory for developers to park 70 percent of the amount collected in an escrow account, its introduction did coincide with the slowest growth in the real estate sector, according to experts.
So what has changed over the last two years? While the legislation and other reforms such as demonetisation and GST did send shock-waves in the real estate industry, RERA is gradually gaining acceptance. “The supply side has clearly begun learning the dynamics of this ‘changed’ environment, and has been redrawing its business models,” said a real estate expert.
RERA and real estate prices
The period of negative growth in prices coincides with, and is closely linked to, demonetisation, temporary ban on construction in Mumbai, implementation of GST, and a little later, the liquidity crisis of 2018.
“All of these, along with RERA, contributed to the slowdown in the industry, leading to falling sales every successive half-year as well as negative price growth. GST implementation, the other structural change apart from RERA, can be said to have contributed significantly to the ways of doing business in residential real estate,” said Gulam Zia, Executive Director – Valuation and Advisory, Retail and Hospitality at Knight Frank India.
It is evident that while prices declined between 2013 and 2016, the cycle turned negative in the period immediately following the implementation of RERA. Evidently, sales dipped and projects began to struggle to cope with the rigorous requirements of the now regulated industry, he stressed.
RERA still work in progress
Maharashtra and Madhya Pradesh have taken the lead in implementing the act, while Haryana and West Bengal have some catching up to do.
MahaRERA at the end of 2018 received as many as nearly 5,000 complaints and passed over 3,100 orders. Until end-2017, 79 percent rulings were in favour of homebuyers, according to data shared by Knight Frank India.
As it stands, 22 states and 6 Union Territories have already notified their RERA rules, from these, 19 states have active online portals. West Bengal too has an active portal for its own real estate laws.
However, there are cases wherein despite RERA notifications to defaulting builders who have been summoned to pay penalty to buyers, they are delaying payments or not attending hearings.
Moreover, developers now have more accountability and cannot get away with breaking RERA norms. In several instances, developers have been reprimanded by the concerned authorities and have had to pay penalties to homebuyers. While the redressal of complaints is not satisfactory for many, consumers are coming forward in large numbers to register complaints across states. The Wild West days of Indian real estate are definitely over, said Anuj Puri, Chairman – ANAROCK Property Consultants.
Registration numbers are on the rise
Project and real estate agent registrations have been on the rise across most states since November 2018. For instance, the numbers in Andhra Pradesh have gone up from mere 61 registrations in 2018 to 307 in April 2019.
Maharashtra is currently the most active state with 20,718 projects registered under MahaRERA and nearly 19,699 RERA-registered real estate agents. Project registrations in Karnataka currently stand at 2,530 and 1,342 RERA-registered real estate agents, according to data shared by ANAROCK.
Gujarat has 5,317 RERA-registered projects and 899 registered agents and agencies.
Rahul Grover, president, Sales and Operations at Sai Estate Consultants said that RERA accompanied by reduced GST rates have given a boost to the buyer segment, it has helped bringing back consumer confidence and trust which the industry lacked.
However, the government should expedite the single window clearance mechanism for the real estate sector. The clearance and approval process for residential real estate projects has been an impediment for a long time. Since the launch of RERA, it has become important to ensure that all clearances and approvals are seamless so that there are no execution delays due to procedural hindrances, said Amit Ruparel, Managing Director, Ruparel Realty.
More needs to be done
Homebuyers face major issues due to lack of confidence, hence execution of RERA orders by real estate developers and setting up of forums to address complaints need to be initiated.
Despite projects being RERA registered, consumers are not sure whether projects would be completed within the stipulated timeline and therefore are not coming forward to risk buying under construction properties.
One reason for this is that RERA authorities are not taking proactive steps to ensure all provisions are being complied by builders. Moreover, they are not monitoring the progress of projects, which if stalled could further dent consumer confidence. Authorities should ensure that projects are granted extensions only under exceptional circumstances, said Abhay Upadhyay, President of Fight for RERA, an umbrella body of homebuyers.
Most orders passed by authorities are not getting executed with most stating that they do not have the teeth or powers to execute them. It would be prudent for authorities to sit across the table with district collectors and state government officials to find a mechanism for execution of orders on priority basis, he added.
With multiple legal fora now available, buyers are confused whether they should file complaints under RERA, NCDRC or move the Supreme Court.
Last but not the least, none of the states till date have amended their diluted rules despite pressure from homebuyers, he pointed out.