by Soumya Prakash
If we take homebuyers’ complaints into account, real estate transactions have been found tilted heavily in favour of the developers for long. The primary aim of RERA (Real Estate Regulation and Development Act) was to upset this in favour of the buyers. RERA and the government’s model code, aim to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market. By bringing in better accountability and transparency, RERA is expected to make real estate purchase simpler, provided that states do not dilute the provisions and the spirit of the central act. This Act makes it mandatory for each state and union territory, to form its own regulator and frame the rules that will govern the functioning of the regulator. The Indian real estate industry has got its first regulator in RERA now. Through this framework the governmental machinery’s hold on the real estate sector will improve, thereby reducing disputes to a great extent.
The most positive aspect of RERA is that it provides a unified legal regime for the purchase of flats, apartments, etc., and seeks to standardise the practice across the country. Other provisions include: timely completion of the projects and delivery to the consumer; stress on construction quality through defect liability period of five years; sharing information project plan, layout, government approvals, land title status, sub-contractors; consent of 2/3 allottees about any other addition or alteration; consent of 2/3 allottees for transferring majority rights to third party; allottees are required to be informed about any minor addition or alteration; no launch or advertisement before registration with RERA; formation of RWA (Resident Welfare Association) within specified time or 3 months after majority of units have been sold; protection of the interests of the stakeholders, accumulating data at a designated repository and creating a robust grievance redressal system; to prevent time lags, the authority has been mandated to dispose applications within a maximum period of 60 days; and the Real Estate Appellate Authority (REAT) shall be the appropriate forum for appeals.
As per a report by Shishir Baijal, CMD, Knight Frank India, published in ET Realty (dated 10 October, 2017): While the missing consumers’ confidence plaguing the sector is showing signs of revival, the transition process under RERA has not been seamless for developers. Market sentiments indicate that initial process of registration and information sharing was a time consuming and cumbersome. While it was easier to feed new projects into the new system, the exercise turned equally complicated for ongoing projects. For some projects the process had to be restarted from the drawing board. It meant educating architects, contractors, chartered accountants and every small stakeholder involved in a particular real estate project.
RERA has made developers rush to sell ready-to-move-in properties. Ready-to-move apartments with occupation certificates (OCs) are kept out of the purview of RERA and GST, making it much easier for builders to market these products.
The report published in the e-paper of LiveMint (dated May 29, 2017) underscored this post RERA trend. The report carried Vikram Goel’s take on this: “Builders are pushing to sell ready-to-move-in properties and that is a drift from what has happened in the past. Since under-construction projects could not be marketed as they need to be registered under RERA, developers are focussing on ready projects as it does not fall under the new law”. Mr. Goel is the chief executive officer, HDFC Realty Ltd, a property advisory arm of Housing Development Finance Corp. (HDFC).
He further said while investments have slowed down in the last two-three quarters, actual users continue to buy, particularly ready-to-move-in apartments in the mid-income range between Rs70 lakh to Rs1.5 crore. Last week, HDFC Realty ran a campaign to help customers buy houses in completed projects across the suburbs of Mumbai. The firm is now planning to run a similar initiative across the country.
The report further stated: With a new real estate law slowing new launches and sale of under-construction projects, large builders like Lodha Group, Tata Housing, Hiranandani Communities and Raheja Universal are aggressively promoting ready properties, in sharp contrast to the established practice of marketing new launches and projects under construction.
Under RERA a large number of property brokers in the country may shut shop while bigger brokerages would be forced to consolidate as the new realty law aims to bring transparency and accountability to the real estate market reported LiveMint’s e-paper (dated May 29, 2017).
RERA mandates all property brokers to register with regulators in their states. The law has also made them liable for any misinformation about the projects they sell or in case of default by developers they represent. They will have to pay a fine of up to 5% of the total property cost if they fail to comply with rules. “Why will I want to stick my neck out when we will be penalised for mischief of builders,” the report quoted Avinash Mordani, a real estate agent as saying.
The report quoted real estate agent body National Association of Realtors-India (NRA) to state that around 75% of total brokers may close down business in the next three years as regulatory reform sweeps over the real estate market. The prediction of Confederation of Real Estate Brokers Association of India (CREBAI) was reported stating that almost 50% of local property agents may not exist as the sector becomes more competitive and compliances evolve. RERA does not have any answer to problems faced by brokers, so there is a good chance many people will exit the industry, it said.
The report goes on to give some trends in the sector. Brokerages, too, have been consolidating in the recent past. Apart from JLL India, which sold its housing business to focus on other new growth areas, Mumbai-based online realty portal firm Housing.com merged with News Corp.-backed PropTiger earlier this year. Faridabad-based Franchise India’s real estate unit BusinessEx.com recently announced the acquisition of a majority stake in RE/MAX India for around Rs100 crore. Vikram Goel, chief executive officer of HDFC Realty Ltd, was reported as saying that the brokers’ community is headed for a major consolidation as they explore ways to work together. Recently, the firm also adopted a partnership model where it is looking to collaborate with local brokers to sell properties as part of its expansion plan. So far, around 7,000 real estate agents have registered. It plans to take it to 15,000 by year end. “We started this drive in anticipation that local brokers would want to align with someone who would educate and train them post the implementation of RERA. We have received a massive response so far,” he said.
The Other Important Post RERA Trends
# There has been an indisputable switch in focus towards building affordable homes. # Advertisements are becoming more factual; that means no more ambiguous or misleading Ads. # Developers are stressing on detailed written agreements as under RERA, the ‘promoter’s promise’ has a legal standing. # Banks to shut out builders not registered under RERA. # As RERA mandates a slew of regulations to free the real estate sector from shady deals builders are now more cautious about their new launches.
Soumya Prakash is a writer who has been contributing in different fields of mass media under various capacities in the last two decades. His blogs on city infrastructure and real estate are pathbreaking!