RERA, ‘most valuable card’ for realty sector

In finally passing the game changing Real Estate (Regulation and Development) Act, the Indian government has succeeded against various odds in giving real estate its “most valuable card”, say industry professionals.

Urban Development Minister Venkaiah Naidu says the Real Estate (Regulation and Development) Act (RERA)  aims to protect the interests of buyers and bring more transparency in the sector.

Among major short-term implications are:

  • a 20% reduction in the number of new launches of residential projects
  • a 10% increase in sales pan-India in residential sector
  • 20% more funding from FDI into Indian realty
  • retail speculator participation to go down.

However, there are still questions that need to be answered, the Deciphering The Legal And Commercial Aspects of RERA report, from top agency, JLL India, and law firm, Khaitan & Co, concludes.

RERA was recently passed in the Parliament and it received the assent of the President of India on 25 March 2016. It has paved the way to setting up of a real estate regulator, which is proposed to be set up within one year from the date of coming into force of the Act, to deal with commercial and residential realty.

Anuj Puri, Chairman & Country Head, JLL India says, “This bill, which was waiting in the wings for far too long, will significantly reduce the various irregularities and contrasts currently plaguing the Indian real estate sector once it is implemented.

“Among many other things, RERA will provide a positive impetus towards achieving the Government’s ‘Housing For All’ vision, while ensuring a level-playing field for developers and buyers. This report examines the various nuances and implications that this very important bill holds for all real estate industry stakeholders.”

RERA will help make the Indian real estate sector more mature, and more attractive for foreign investments as well as for Indian consumers. “It will, for instance, disallow the common practice among many developers of pre-launching projects without getting requisite approvals from the local authorities, and it will make mandatory project registration with the regulator. Developers will also have to disclose approval status, project layout and timeframe for completion to the regulator as well as customers.”

Haigreve Khaitan, Partner – Khaitan & Co says, “RERA is poised to revolutionize the way in which real estate is built, sold and consumed in India. It is an important milestone in the country’s quest towards increasing transparency and ease of doing business. It is important to understand the legal implications that it holds for all related industries and stakeholders. This report is therefore very pertinent and timely.”

All in all, the incumbent government has succeeded against various odds and given Indian real estate its most valuable card. RERA is a verdict to end the age of information asymmetry, lack of accountability and unwarranted project delays, and marks the beginning of rising transparency, liquidation of assets – and, importantly, positive sentiment.

“In essence, the Bill intends to increase transparency and accountability in the real estate sector, by providing mechanisms to facilitate and regulate the sale and purchase of commercial and residential units/projects and timely completion of projects by the promoters,” the report concludes.

“Now, the challenge before the Government would be to establish the Regulatory Authority (or any other authority, in the interim) within the timeline prescribed under the Act in order to start implementing the provisions of the act effectively.

“Also, a single-window clearance is needed now, without which there may be cases where bona-fide delays by developers may still result in an unfair penalty. The time taken to get many environmental, state-level and municipal-level clearances have afflicted developers for long. The central government, on its part, has been working to streamline approvals and has set up a 30-day approval period recently. The Model Building Byelaws have also been released.”

There are, however, questions that need answers, says the report:

  • While the accountability of buyers, developers and brokers has been set, where is the accountability for government agencies?
  • More clarity needed on if, and what, changes will have to be implemented by under-construction projects. there may be many projects having all the clearances and approvals currently but no separate project account maintained or less than 70% of the project accruals used for the same project, what will be the likely treatment for those projects
  • More clarity needed on plotted development as it affects a majority of home buyers, especially outside the metros
  • What is the minimum amount in a separate account that the states can implement? The centre has prescribed 70% with an allowance to State Government to reduce it, is there a lower ceiling defined?
  • How soon do we anticipate the implementation of this bill? As it requires cooperation from all states, the implementation could be delayed.

“All in all, the incumbent government has succeeded against various odds and given Indian real estate its most valuable card. The bill is a verdict to end the age of information asymmetry, lack of accountability and unwarranted project delays, and marks the beginning of rising transparency, liquidation of assets – and, importantly, positive sentiment.”

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