With the Real Estate (Regulation and Development) Act, 2016 finally coming into force on May 1, India has now got its first realty regulator. The Act brings in much-needed transparency and a range of benefits for both, buyers and developers. Here’s a look at the Act and reasons behind Tamil Nadu failing to notify rules within the April 28 deadline:
RERA will bring almost 83,000 registered builders in India under its purview, and better regulation and accountability will spur investments from foreign and domestic financial institutions. The Act’s focus on mandating disclosure of projects, including details of the promoter, project, land status, clearances, approvals, etc. and the timely delivery of projects will help increase the credibility of developers as well, says Anshul Jain, Managing Director, India Cushman and Wakefield.
The various parameters of the Act include transparent pricing, swifter redressal mechanism, more accountability from developers and brokers, ensuring the buyer’s money is utilised for the same project, providing all information, approvals prior to the commencement of the project, to name a few. RERA also mandates builders to commit to a timeline along with the detailed cost plan, which will be the final cost for the customer.
As for penalty, both buyers and developers will be penalised for delays in payment and completion of projects respectively. The Act also mandates developers to deposit 70% of the project cost in a separate bank account to cover project development activity. This step will be substantial in ensuring timely construction of projects and act as a safeguard in the event of any delay as it would limit diversion of developers’ funds for other projects.
RERA also mandates that no promoter shall advertise, book or sell any plot, apartment or building in any project, which consists of land area (exceeding 500 sq.m. and more than eight apartments) without prior registration with the Authority established under the Act.
In case of a delay, the developer is liable to pay the consumer the same interest as the EMI being paid by him/her to the bank.
Developers are also liable for structural defects for a period of up to five years. The Act further lists information to be provided by the promoter, area on the basis of which the apartment is to be sold, interest to be paid in case of delays, method of utilisation of amounts received from the customers, warranty period and post delivery compliances.
N. Kalyanaraman, VP-Technical, Navin’s explains how, earlier, customers were not aware of the difference between carpet area and saleable area, and this was a big drawback. “Now, there will be more transparency as the saleable area will be based on the carpet area. RERA mandates us to sell only by carpet area, which has a clear definition. Therefore, there won’t be any ambiguity in selling the project.”
Developers are also hopeful that the concept of Title Insurance will be introduced. “In India, we still don’t have Title Insurance, and anyone can stall a project by raising legal objection on land titles well after the land’s purchase has been announced, advertised and project work has reached an advanced stage,” says Surendra Hiranandani, Chairman & MD, House of Hirnanandani. Unscrupulous elements have made a thriving and growing business to raise frivolous issues and obtain stay orders from the Courts, he adds.
Even property brokerage houses are under the ambit of RERA. Agents and agencies will have to ensure that they are duly registered with the regulator, and fraudulent ones operating in smaller pockets will be wiped out. Anuj Puri, Chairman – JLLR, explains how the Act renders brokers and agents punishable if they do not comply and abide with the regulator’s ruling. “Previously, smaller brokers were unrestricted, and many of them thrived on misinforming or under-informing their customers. With RERA, buyers will be protected and have access to quick legal redressal in case of faulty business practices,” he says. Along with the larger organised real estate advisory firms, these agencies will gradually gain a significantly bigger market share.
Online real estate platforms will also benefit. Based on verifiable information from government bodies, customers can choose their project by finding out about the developer’s credibility, past project delays, etc. The entire buyer and builder community needs to readjust to the concept of carpet area, cost of delays, project centric funding and expenses, and potential of significant penalties, says Manish Sinha, Head, QuikrHomes.
While the deadline for all states to draft their policies was April 28, Tamil Nadu (one of 14 states) has failed to notify rules within the given deadline. Developers are hopeful that the draft rules released by the State are finalised soon. Very few states have notified rules before the deadline, and this is due to two factors, explains Ramesh Bafna, President – CREDAI Tamil Nadu.
Firstly, it is due to the lack of adequate mechanism and secondly, the lack of clarity. He says many developers have the necessary approvals ready, but there is no mechanism in place to submit the documents and register their projects with the regulator. This is another reason behind delays in delivery timelines.
With the lack of clarity, buyers are unaware of their rights and processes under the Act. With no information about undergoing projects, developers are also worried that projects which are 50% percent (or more) completed, will have to undergo the registration process all over again. “Once the rules are notified, these issues will be resolved and buyers will be more secure about their investment, developers will be aware of the requisites of their project’s registration,” says Bafna.
He also explains how CREDAI member developers have to adhere to the internal Code of Conduct which carries most of the conditions that RERA has also implemented. “At the same time, we practice self-regulation through our Consumer Grievances Redressal Forum, which helps consumers resolve their concerns with member developers in a faster and much more cost-effective manner,” says Bafna.
Impact of delay
Builders anticipate the cost of construction to go up by 10 % to 15%. “Whether a sale takes place or not, we need to complete projects and hand them over to the buyer, for which we borrow money. Also, under RERA, we are required to maintain the project for five years, but this is a grey area as maintenance costs are not specifically addressed,” says Kalyanaraman.
As with the implementation of any new law, the realty community anticipates an initial period of uncertainty. It is important that the Government addresses concerns and streamlines the system to ensure that there are no further delays. “We may see a shift to the build-and-sell model to reduce the risk of non-compliance with the provisions of this Act. This will, however, increase costs for the end consumer,” says Bafna, who also expects a reduction in project sizes, the break down larger projects in to smaller phases by developers.
Why TN needs RERA
Buyers in the State will benefit from more accountability, transparency and buyer-friendly regulations in the sector, and the State government also plans to bring more housing projects under the new Act. Buyers here will further benefit with the compulsory disclosure of carpet area, super area, super built up area.