RERA warranty clause: Will it protect home buyers?

The Real Estate Act provides a defect liability (warranty) clause of five years. The moot question for home buyers now is: Will this mean better quality of construction or merely result in higher prices?

Raman Kapoor, a home buyer in Noida, has been in a legal battle with his developer for the last five years. His grouse is that there has been a defect in the construction of his apartment, which has numerous cracks. However, the builder has refused to accept any fault or take corrective steps, even though an independent survey confirmed that it was a construction defect. Kapoor was, therefore, pleasantly surprised to hear the news that the Real Estate Act would have a defect liability clause, or put simply, a warranty.

“After my long battle with the builder, where I don’t know how long will it take for me to get justice, I am convinced about one thing – that the law itself should serve as a deterrent for anyone who tries to get away with default or defect. Hence, I feel that the defect liability clause will promote natural justice for home buyers,” says Kapoor.

 

Developers welcome the provision

Under the Real Estate Act’s Clause 14 (3), the defect liability period has been set at five years. Consequently, home buyers are asking whether this clause actually translates into a warranty. Developers are also not complaining about the clause. They feel that this provisions will be a market differentiator, in a business where the non-serious players outnumber the branded developers.

See also: What is RERA and how will it impact the real estate industry and home buyers?

Rohit Gera, managing director of Gera Developments, agrees that a five-year defect liability period, is a positive step. “In our experience, customers are extremely happy to have a warranty, as it assures them of the product’s quality. More importantly, in the event of any problem, there is an assurance that the developer will fix the problem,” explains Gera.

 

Safeguarding home buyers’ interests

Vineet Relia, managing director of SARE Homes, points out that earlier, when the real estate sector was largely unorganised, the defect liability period varied between developers as well as states and was usually two years. The Real Estate (Regulation and Development) Act, 2016, now eliminates this anomaly and offers a fixed liability period of five years, with Clause 14(3) acting as a warranty.

“Warranties will make buyers and investors feel secure, as it makes it mandatory for developers to rectify any construction defects that may be noticed, even after possession has been handed over,” he elaborates.

In international markets, such warranties have served to boost developers’ reputation for transparency and adherence to best practices, he adds. “Such warranties are bound to be equally successful in India over the long term, because they will institutionalise accountability and boost transparency in the realty sector,” maintains Relia.

 

Impact on real estate prices

In the international context, the defect liability period varies from country to country. It is as high as 10 years, in countries where the contractor liability and legal dispute redressals are efficient and robust. In India, with warranties in place, developers are likely to improve their construction quality, to avoid higher cost overruns that additional repairs at a later stage would entail.

This also raises a question, as to whether buyers will be willing to pay a premium on properties that come with stronger warranties. Analysts believe that once systems and processes that boost home buyers’ trust are put in place, then, buyers will not mind paying a premium for properties with warranties. In the absence of warranties, buyers have been the victims so far, forced to undertake repairs at their own cost in case of any defect in construction.

(The writer is CEO, Track2Realty)

 

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