RERA Rears Up
T he RERA Act, 2016, is expected to be one big change for the housing sector in 2017. It seeks to empower all stakeholders engaged in the business and consumption of real estate.
According to a recent report from PropTiger Datalabs, many states such as Tamil Nadu, Karnataka, Delhi and Maharashtra have finalised the draft rules under the RERA Act; other states will join the league this year. The Central government has also notified the final rules for five Union Territories: Andaman and Nicobar Islands, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Chandigarh.
"With its absolute implementation," Pradeep Aggarwal, Chairman, Signature Global, says, "the sector will become more disciplined and organised, reinforcing the credibility of real estate as a whole." Pointing to the flip side, CN Raghavendran, Managing Director, CR Narayana Rao (Consultants), says, "Problems faced by developers, including multiplicity of approvals and lack of adequate funding avenues, continue to remain unaddressed in the Act."
Hence, while many in the industry are optimistic about RERA, there is a degree of pessimism too. As Rohit Gera, Managing Director, Gera Developments, explains, "RERA is different for different people at the developers' end." He explains, first, the builder has to upload all the information on the website. But many builders are victims of "political terrorism", as he calls it, by a local operator. They are blackmailers who tie up with industry stakeholders, have RTI activists in their groups and threaten developers. Second, there are inherent risks of approval, title, labour shortage, material shortage, strikes, imperfect quality control, etc., which lead to delay in possession.
To date, the consumer has been bearing the risk of the commitment (project completion date) the developer makes. What if the government now says the creditor must bear the risk and not the consumer? Now, the developer is okay with taking the risk, but does the market have the ability to pay for that risk being transferred to them? What impact would this have on cost structure and profitability? And, thirdly, one of the financial models in real estate is the joint development model. So, the builder offers the landowner 20-30 per cent of the profit of the proceeds of the project instead of the land. This serves as a win-win situation for both; the builder pays a small deposit to the landowner, puts his board on the site, and as he starts selling, he pays the landowner and for the approvals.
- SHRIYAL SETHUMADHAVAN
- The Act requires compulsory registration of the property and the developer;
- The registration must be done before the developer can advertise, market or sell;
- The Act devices a mechanism wherein the RERA can initiate investigations into the affairs of any builder not only upon receipt of a complaint from buyer but also by a suo moto action.
- Increases credibility of project delivery;
- Increases transparency;
- Regulates broker environment;
- Visibility of the developer track record;
- Emphasis on financial discipline;
- All project details in disclosure.
- Not all states have notified the draft rules; possible delay in implementation;
- Not applicable on projects of less than 4,000 sq m;
- Absence of responsibility for timely plan approval for projects.