Across the country, aspiring property buyers are waiting for the Real Estate Regulation Act (RERA) to be implemented by the state governments.
Once the RERA becomes an enforceable law, it will change the way in which residential housing projects are planned, offered, sold and possessed across India. The aim of the RERA, is to make real estate purchase simpler, by bringing in better accountability and transparency. In doing so, it will also infuse a lot more confidence among buyers – who, at the end of the day, should feel as comfortable about investing in a home, as they do about buying gold.
Rules under the Real Estate Regulation Act
The RERA lays several ground rules, for real estate buying and selling, including:
- Registration of every real estate project with the appointed tribunal (with some exceptions). Non-registered projects cannot be offered for sale or booking, by promoters.
- Mandatory uploading of project details by the developer on the regulator’s website, including layout plan and completion schedule.
- 70% of the advance collected from buyers, needs to be maintained in a separate bank account and be used only for the stipulated project’s construction. These funds cannot be hived off for other purposes – a practice that has contributed majorly to delayed projects in the past. While individual state governments have the power to alter the amount, the principle is very much in place.
- Establishment of Real Estate Appellate Tribunals that will handle property disputes, with the intention of delivering quick and unambiguous resolutions.
- Setting up of an advisory body, to deal with matters related to government-sponsored real estate developments.
- In one of the most important addendums to the RERA, real estate brokers also fall under its ambit. Consequently, the days of unscrupulous property agents acting in their own interest or in collusion with developers, are now numbered.
Real Estate Act to protect buyers, as well as builders
The RERA is intended to protect the buyer and the seller. While the promoter is required to obtain necessary documentation, such as the completion certificate, the buyer is liable to be fined for delays in payment. Failure to register the property or comply with other regulations of the act, will lead to hefty fines and even imprisonment in certain cases.
However, the RERA is likely to come into full force, only from May 2017, as the individual state governments need to get their ‘acts’ together, to comply with its requirements and adopt it. The good news is that the central government has demonstrated that it is determined to push the regulation through.
With RERA in place, several not-so-credible developers will go out of business and buyers will be protected from fly-by-night operators. This will infuse a much-needed positive sentiment among buyers and consequently, help to increase demand.
Increased sales will improve the cash flows of the credible developers that remain after the weeding out and projects will be automatically delivered on time.
Will the property market fall further or revive?
Presently, owing to the subdued demand over the last 2-3 years, property prices across India’s major cities have sunk to incredibly low levels. Buyers have a wide range of options, vis-à-vis location, budget, amenities and developers.
Previously, buyers with budget constraints could only consider projects by builders with doubtful reputations and questionable business practices. This is no longer the case.
Moreover, there has been a modest but tangible recovery in the residential market, owing to low pricing, attractive deals in most cities and the fact that fence-sitters are increasingly opting to buy. In Pune, there has been a 25% increase in buying activity, in high-demand areas like Undri-Pisoli, Ambegaon, Bhugaon and Wagholi, in the last 4-5 months. In Mumbai, buying activity in Navi Mumbai, Thane and some other relatively affordable areas, has also picked up significantly. Any revival in buying activity, eventually leads to increased prices. Consequently, given that demand is increasing steadily, property prices will begin rising, even before the RERA becomes a market reality next year.
Should you wait for RERA or buy now?
Industry watchdogs agree that there is no scope for property prices to decrease further. Developers cannot reduce prices further, even if they wanted to. Doing so, would seriously impact their ability to stay afloat.
In fact, the RERA will mean that promoters will be bound by more procedures and this may increase the cost of their projects. This cost is likely to be passed on to the consumer. In other words, the RERA could be instrumental in inducing cost escalations in many cities. Moreover, once the Act is in place, it will become mandatory for builders to invest extra time with the regulatory bodies, on construction plans, clearances, approvals, etc.
Paradoxically, this may result in delayed deliveries, where the opposite effect was actually intended.
While the RERA will ensure that unscrupulous developers and their business practices will be driven off the market, it will simultaneously ensure that builders with impeccable track records become stronger. Hence, for buyers who have no intention of dealing with any but the most reputed developers, there is no real advantage in waiting for the RERA to kick in. If one is working with a reputed developer, the privileges, benefits and safeguards that it will bring, already apply today.
(The writer is CMD, Amit Enterprises Housing Ltd)