Understanding RERA and its implications
August 26, 2017
Every game has a referee to ensure fair play. A regulator’s job is similar to referee’s i.e. not only to manage and normalize the situation but also to ensure that all the players play according to the rules. With Real Estate Regulation and Development Act 2016 (RERA), real estate got its referee. In effect from May 1, 2017, RERA has changed the whole dynamics of the real estate industry in India. With every passing day, the state is getting more active, the sector is getting more regulated, and the buyers are getting more confidence.
Before proceeding further, let’s understand the major provisions of this act:
- Developers to park 70% of project funds in a dedicated account for the project being sold which can’t be used for other projects.
- It becomes mandatory for developers to post all project related information such as land title status, project plan, layout, approvals, timelines etc. with the authority.
- Builders can’t dupe the buyers on the basis of super- build up area anymore. Projects to be sold on the basis of carpet area.
- The developer can’t make changes in the approved plans, without the written consent of the buyers, ratified by the authority.
- Penalty on delayed projects, in the form of interest costs for missing project deadlines and a jail term of up to 3 years any violation of the law.
- Mandatory for all projects with areas in excess of 500 sq.mt. to register with RERA authority.
The real implications of RERA can only be gauged over a period of 2-3 years, but it will bring in a whiff of fresh air for the real estate sector so far reeling under a lack of funds and missed deadlines.Over a period of time, we expect RERA to result in:
Transparency: The onus will be on state regulators to bring in transparency and discipline. It will lead to a revival of the trust between the builder and the customer and improve the overall sector.
Demand uplift: RERA will boost consumer confidence resulting in demand. Lot of fence-sitters, investors who had been lying low, will come back to the market
Consolidation: RERA will act as a catalyst for the much-needed consolidation in the industry. A lot of small and medium developers will have to improve their delivery capabilities to survive. The consolidation will bring better funding into the industry thus tackling the supply side issues including timely delivery. With the overall health improving, it will also result in an increased flow of funds from foreign institutional investors.