KEY Points OF New RERA

What is the Real Estate Regulation Act (RERA)? Here is how it will help buyers

The Real Estate (Regulation and Development) Act, 2016 (RERA) will finally give India’s real estate sector its first regulator from Monday, May 1, 2016. The act was passed by parliament last year and the Union Ministry of Housing and Urban Poverty Alleviation had given time till May 1, 2017, to formulate and notify rules for the functioning of the regulator. RERA seeks to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on errant builders.

So what is RERA? Here is a look at the real estate regulator and how it will impact the real estate market.

According to RERA, each state and Union territory will have its own regulator and set of rules to govern the functioning of the regulator. Centre has drafted the rules for Union territories including the national Capital. While many states are still behind on schedule for notification of RERA rules, many have notified rules and a regulator will start functioning. Some of these states are Haryana, Uttar Pradesh and Maharashtra.

Despite seeing a slump in the past three years, the ticket prices are relatively high and inventories are piling up. Low demand is also contributing to the reduced recovery of investment by developers. These reasons have deterred developers from reducing the ticket prices.

RERA seeks to address issues like delays, price, quality of construction, title and other changes.

Delays in projects are the biggest issue faced by buyers. The reasons are many and the impact is huge. Since the last 10 years, many projects have seen delays of up to 7 years. Projects launched after the turn of this decade have faced delays as well. Some have run into obstacles even before a brick was laid. The reasons include diversion of funds to other projects, changes in regulations by authorities, the environment ministry, national green tribunal etc and other bodies like those involved in infrastructure development and governing transport. In many places, land acquisition becomes an issue. Errant builders often sell projects to investors without the approval of plans, an unauthorized increase in FAR, bad quality of construction, projects stuck in litigation etc.

REAL ESTATE NEW LAW

•  It makes it mandatory for all builders - developing a project where the land exceeds 500 square meter - to register with RERA before launching or even advertising their project. Developers have been given time until July 31 to register

• Not doing so will invite up to a maximum imprisonment of 3 years or fine of up to 10% of the total project cost.

• Developers will have to submit as well as upload project details, including approved layout plan, timeline, cost, and the sale agreement, that prospective buyer will have to sign to the proposed regulator.

• Only developers who fulfill this disclosure clause would be permitted to advertise their project to prospective buyers.

• Real Estate Appellate Tribunals to be set up in every state.

•   As of now, the real estate sector was largely unregulated in India. If a consumer had a complaint against a developer they had to make rounds of consumer or civil courts. Now, in a case of any grievance, the consumer can go to the real estate regulator for redressal.

•  Developers will have to put 50% of the money collected from a buyer in a separate account to meet the construction cost of the project. This will put a check to the general practice by developers to divert buyer’s money to start a new project instead of finishing the one for which money was collected. This will ensure that construction is completed on time.

• The law is likely to stabilize housing prices. It will lead to enhanced activity in the sector, leading to more housing units supplied to the market

•  It will weed out fly-by-night operators from the sector and channelise investment into it.

• Builders will also benefit as the law has penal provisions for allottees who do not pay dues on time. The builder can also approach the regulator in case there is any issue with the buyer.

How its work other countries.

United Kingdom

There is no regulator to monitor development. The financial services authority (FSA), which is now part of the Bank of England, regulates almost all investments in real estate. The Property Descriptions Act, 1991, prohibits making false or misleading statements on property matters in the course of estate agency business and the property development business.(Source: Realty decoded: Investing across Borders by Ernst & Young and Ficci)

How will RERA impact real estate agents?

While the Real Estate Act aims to protect home buyers by laying down rules for agents and brokers, we examine the challenges in its implementation and whether it will ultimately lead to more trust among property buyers

Under the Real Estate (Regulation and Development) Act (RERA), which came into force on May 1, 2017, real estate agents will need to register themselves, to be able to facilitate a transaction. The broker segment in India, is estimated to be a USD 4 billion industry, with an estimated 5,00,000 to 9,00,000 brokers. However, it has traditionally been unorganised and unregulated.

According to Shubhika Bilkha, business head, the Real Estate Management Institute, “In more advanced markets, real estate brokers or agents need to register, be verified and certified, in order to facilitate a real estate transaction. As India’s real estate industry prepares for increased regulatory vigilance, organising this essential and yet, largely overlooked segment, in line with global best practices, is required. This will improve the overall transparency and accountability in the sector.”

 How will the inclusion of brokers under RERA, impact the industry and the buyers?

Once brokers are managed under the RERA regulations, investors’ and home buyers’ trust is likely to increase and this could lead to an increase in sales and revenue for both, brokers and builders.

Anil Pharande, chairman, Pharande Spaces says, “It will go a long way in cleaning up the sector and making it more attractive for all stakeholders. Customers will now be protected on all fronts and can make their purchase decisions with a lot more confidence.”

Sam Chopra, founder and chairman of RE/MAX India, maintains that agents are important stakeholders and it is an excellent move to bring them under the ambit of RERA.

“It will bring a lot of accountability in the industry and the ones who believe in professional and transparent business, will reap all the benefits. Now, the agents will have a much larger and responsible role to perform, as they will have to disclose all the appropriate information to the customer and even help them chose a RERA-compliant developer,” says Chopra.

Gaurev Kapur, managing director of Golden Bricks, points out that “Home buyers and investors put their hard earned money in properties, trusting the brokers and the builders. Unfortunately, some brokers sell properties where the title is unclear or the property is disputed, merely for their own financial gain. With RERA, all this cheating will come to an end.”

With RERA in force, brokers cannot promise any amenities or services that are not mentioned in the documents. Moreover, they will have to provide all information and documents to the home buyers, at the time of booking. Consequently, RERA is likely to filter out the inexperienced, unprofessional, fly-by-night operators, as brokers not following the guidelines will face hefty penalty or jail or both.

Are brokers ready for compliance under RERA?

So far, only around 70 brokers have registered themselves. Even the states are not ready with the infrastructure and resources, to implement RERA. “Brokers, especially the smaller ones, are worried about the increased cost of compliance, which will eat into their profits.

“Now, this sector will become an untenable marketplace for freelancers and part-time operatives because brokers will no longer be able to afford to operate without an institutional framework,” explains Pakshal Sanghvi, director, Sanghvi Realty.

Another issue, is that there is no time-frame for brokers to register themselves, or a body that could train and certify the brokers on guidelines. Shammi Sethi, director of Rare Earth, a real estate consultancy, feels that while it is a great idea to have a proper system, brokers’ interests should also be kept in mind.

“A lot of brokers do not have a clarity on the Act and are confused. It would take the brokers some time, to understand and abide by the norms, but in a few months, when things get clearer, I think it should be good for all,” he says.

 Success will depend on implementation

Experts point out that the success of the RERA, will depend on its implementation. The central government, hence, should monitor its implementation in all states and ensure that there is no dilution of the draft rules proposed by the government. Moreover, many states are yet to form their respective regulatory authorities, where an agent can register himself. Several industry stakeholders are also demanding a drastic reduction in the penalty imposed on agents in case of default, since the brokers’ commission is only 1-2 per cent of the entire sales value.