RERA: Transforming the real estate sector, though challenges remain


Four years since the real estate act came into force, we look at how it has transformed the realty sector in India for the better and the road ahead for this path-breaking legislation

India has emerged as one of the fastest-growing economies in recent times and is slated to bounce back strongly, once the COVID-19 pandemic dies down. The World Bank and the International Monetary Fund (IMF) have estimated the country’s GDP growth to be in the range of 7.5% to 12.5%, considering the initiatives taken by the government, for vaccination production and distribution. Contributing to the economy’s growth is India’s real estate sector. The development of this sector is crucial for the growth and faster recovery of the economy. The real estate market is expected to grow to Rs 65,000 crores (USD 9.30 billion) by 2040 and is likely to contribute 13% to the country’s GDP by 2025.

 

How has the RERA changed the real estate industry?

The real estate sector is one of the most transformed sectors today and has leapfrogged in numerous ways. The industry is no more at the mercy of middlemen, physical signatures, time-consuming processes and ambiguities. This has been possible due to the various measures taken by the government over the years, in the form of significant reforms such as SWAMIH fund, RERA and GST that have added liquidity in the banking system and restored buyers’ confidence in the housing sector. One of the most impactful reforms that has enabled the housing sector, was the enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA) that came into complete effect in May 2017. The pre-RERA period saw lack of transparency, one-sided agreements with limited opportunity for customers to address their problems and delayed project timelines without adequate protection for compensation. With the implementation of the RERA, the realty sector has been given a new lease of life. Although it has been tough for builders, the RERA, in the past few years, has garnered trust and confidence among its stakeholders by bringing in transparent and accountable measures, thereby, restructuring India’s second-biggest employment-generating sector.

RERA has restructured the sector by registering projects and agents. It ensures that all relevant information, duly scrutinised, is available to the customer before he invests in a project. Appropriate documentation of PAN card, ITR, property size, details of the land, ownership documents, team involvement details, etc., are now required to be submitted on the RERA portal for verification. This has helped to control fraudulent constructions and fly-by-night operators, thus, ushering in a kind of reformation for the real estate industry. Maharashtra was the first state to set up its regulatory authority (MahaRERA) and has over 28,000 projects and agents registered. All states have complied with the RERA regulations, except J&K and West Bengal. RERA has proven to be a major progressive step in the right direction.

 

RERA’s benefits for home buyers and developers

A home has always been one of the most significant investments in one’s life. RERA not only scrutinises the paperwork but also does an in-depth investigation about the project. Thus, it safeguards buyer sentiments and penalises the defaulters. By making it mandatory to quote ‘carpet area’, RERA has ensured that developers demarcate the size of the plot or apartment clearly, bringing in the much-needed transparency for buyers and investors. Additionally, RERA’s enforcement has ensured timely completion of projects with occupation certificates being given, bringing relief for the buyers. In case of a delay the customers are adequately compensated, as per the RERA guidelines.

RERA’s implementation has been beneficial for developers, as well. By initiating stage-wise payments, buyers too are made accountable for timely payments. Additionally, the imposition of an escrow fund has stipulated that all real estate builders transfer 70% of the funding received for a specific project to an escrow account maintained with a scheduled commercial bank with complete disclosures. This way, the diversions of funds to other projects have been controlled, project funds and timelines have been streamlined, speeding up project deliveries. This has resulted in significant rise in interest from offshore equity investors, large corporates and high net-worth individuals (HNIs) to invest in the Indian real estate industry.

RERA’s growing acceptance among the builder-buyer-investor-developer community, is indeed a remarkable accomplishment. While the current COVID-19 situation has slowed progress in the sector, RERA authorities have taken preventive measures across the nation, to minimise the Coronavirus’ damage on the industry. Its support, in terms of a deadline extension, loan relief, payment penalty exemption and consideration of the force majeure provision for the developers and buyers during the COVID-19 pandemic, is a testimony to the extensive efforts undertaken by the regulators, for the benefit of the industry.

 

The importance of RERA in a post-COVID-19 world

In residential housing, we are witnessing a shift in buyers’ preferences, such as, the need for more space, amenities and the sudden realisation of owning one’s own home during these difficult times. All the above RERA measures that we see today in housing, have essentially brought transparency and accountability in the sector. The sector, which had been perennially afflicted by poor accountability and severe transparency issues pan-India, is now emerging as a force to reckon with. India has become one of the most preferred real estate destinations globally and also a preferred destination for NRIs to invest in the Indian market. According to Colliers International’s new Global Capital Markets 2021 Investor Outlook, approximately 60% of investors in all regions want to increase their portfolios by more than 10% this year, while 23% want to improve their portfolios by 20% or more. This would indicate the increased demand for houses even amid the COVID-19 crisis.

While RERA has established itself significantly in the last few years, continuous efforts are required for the progressive growth of the sector. State governments should align with the guidelines set up by the central body and ensure the revival of the real estate. The lockdown gave many lessons, especially the need to own one’s own real estate and how important it is to invest in a long-term asset like a home. Further government support like granting industry status, rationalising of GST rates (by allowing input tax credit), improving access to funds and ensuring longer repayment cycles, lowering tax on raw materials and increasing the tax rebate of Rs 2 lakhs on housing loan interest to at least Rs 5 lakhs, will generate healthier housing demand. Faster recovery of the economy is possible with these initiatives, if it is implemented in time.

(Lt Gen is executive director, CRM and facility management, Sobha Limited)

 

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