The Real Estate Regulation and Development Act (Rera), 2016, came into effect in May 2017. While it has had some teething problems, there is no doubt that this regulation will bringing transparency and accountability into the real estate sector, something that consumers as well as responsible real estate developers will welcome.
For far too long, consumers have viewed the real estate sector through a cloud of mistrust. Their apprehension isn’t without reason. Delayed projects, overpricing and ambiguous project specifications in the past have left homebuyers feeling helpless. So, ethical real estate developers are as excited about Rera as homebuyers as it will help reinstate consumer faith in the industry.
Homebuyers invest a huge part of their life earnings in buying property. They are entitled to be aware of all relevant details, such as carpet area, super-built-up area, car parking facilities, floor plan and fixtures, and to be informed of changes to any of these elements during the project’s construction. Rera puts an end to the possibility of ambiguity in this matter and tilts the balance of power in favour of the consumer.
For instance, by mandating that developers disclose and update project details on the state Rera website, failure of which will attract a penalty of up to 10 per cent of the project cost, the regulation ensures that there are no unnecessary delays in delivery. Similarly, by prohibiting developers to advertise, sell or invest in projects without a Rera registration, the Act weeds out unscrupulous builders who could otherwise use loopholes to sell projects to investors without approval of plans.
So, the institution of Rera holds the promise of organised growth for the sector and unprecedented levels of reassurance and clarity for homebuyers. Despite all this, however, there remains a certain amount of scepticism about how Rera will be implemented.
The main problem arises from the fact that there will be different regulatory bodies in different areas as land is governed individually by the state/Union territory (UT).
And even though all states and UTs were supposed to have notified their Rera rules by July 31, 14 of the 29 states failed to meet this deadline. Moreover, many states have diluted certain aspects of the Act, while some others have not placed due emphasis on its provisions in their rules. These include important areas such as definitions of ongoing projects, penalties for non-compliance with Rera, payment schedule and liability in case of structural defects.
The key to Rera’s success lies in its implementation. It may be worthwhile to learn some valuable lessons from the mutual fund industry, which, to protect the interest of retail investors, established the self-regulatory trade body, the Association of Mutual Funds in India (Amfi), in 1995 after the Securities and Exchange Board of India (Sebi) allowed the entry of private sector mutual funds in 1993.
Amfi operates as a representative of the industry and conducts regular investor education initiatives. Not only that, it has been instrumental in mandating registration for financial intermediaries, and establishing a code of conduct and an appropriate fee structure for distributors. Recently, Amfi has played an active part in the introduction of Sebi Investment Advisers Regulations.
The real estate industry regulator would do well to take a leaf out of the mutual fund industry’s book and establish an organisation for developers that would be self-regulatory in nature. Like Amfi, this organisation could play the important role of establishing a code of conduct for real estate intermediaries. Furthermore, it could mandate a minimum standard of certification registration under Rera, and introduce a standard of professional ethics in the real estate business.
India’s real estate has, of late, experienced a ‘reboot’. First, the demonetisation exercise clamped down on cash transactions. Now, the implementation of Rera and the introduction of the goods and services tax (GST) has lent further accountability to the sector.
One now has the right to expect that the real estate will operate professionally under the aegis of an able regulator hereupon. These developments will brighten the outlook for the sector, and encourage many fence sitters to become homeowners soon.
By Brotin Banerjee