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How RERA Will Foster Positivity And Revive The Realty Sector

Implementation of RERA across India will boost the transparency and trust quotient between buyers and builders, thereby improving market sentiment

Photo Credit : Ritesh Sharma,

For the past few years, the sentiment has been tepid in the real estate market. From 01 May this year, the situation is slated to improve. Given the sheer scale of its provisions, the Real Estate Regulatory Act (RERA) is bound to boost market sentiment. For a major part of the past decade, tough market conditions had badly affected buyer sentiment.

Despite a great demand-supply mismatch across the country, buyers had remained in a wait-and-watch mode. Their major hope: real estate prices would somehow correct and drop to lower levels. But this false hope overlooked a simple fact: market rates had not risen much — or, in some cases, not at all — for years. Effectively, in actual terms, prices had corrected partially by not rising in spite of input costs going up. But in the bad market conditions, this ground reality did not register properly with most prospective homebuyers.

Stringent Norms
Consequently, fence-sitters continued this strategy every year in the hope of buying the moment prices corrected. As events indicate, this did not really happen and buyers continued to hold on to their funds. But the policy reforms and numerous initiatives undertaken by the central government, especially RERA, may finally signal a turnaround in market sentiment.

To begin with, a state authority will be established under RERA, with power and responsibility to govern both residential as well as commercial realty transactions. This singular step will help boost governance in the sector, thereby reducing disputes in a major manner. From May onwards, the State Real Estate Regulatory Authority will be the nodal government body where any problem or grievance can be taken for a solution. Each state will now establish regulatory bodies as appellate tribunals to resolve disputes between builders and buyers within 120 days. Buyers will be free from the trauma of years-long cases that only prolonged the final delivery of their long-awaited homes.

Hereafter, it is mandatory for all residential and commercial projects developed over land exceeding 500 square metres (or eight apartments) to be registered with the Regulator before the project launch. Furthermore, developers can only sell projects after receiving all the requisite approvals. To promote timely completion of projects, strict conditions have been imposed on developers. Carpet area is clearly defined and will include usable areas such as the kitchen and toilets. Developer have to clearly mention carpet area also along with super area in builder-byre agreements(BBA). Builders are also liable to undertake repairs of structural defects for five years, which is an increase from the earlier two years.

Another major change comes from RERA stipulating that 70 per cent of funds for a project received from customers will be held in a dedicated escrow account. This will be used exclusively for that specific project, speeding up work and ensuring timely completion. Again, the push towards timely delivery is possibly the biggest benefit for homebuyers because non-delivery of projects has been a major concern. Although this clause affects the liquidity of developers, it is a blessing in disguise in the long term since it will push them towards more financial and professional prudence.

Driving Transparency and Trust
With the norms being clarified in black and white, RERA will ensure clarity in the deals that homebuyers sign with developers. In the past, buyers complained that ambiguous clauses made it difficult to fully comprehend their rights as well as responsibilities. Such situations created further discord and confusion between both sides.

In turn, clarity will drive transparency in the transactions between buyers and builders. Homebuyers stand to gain from such transparency since there will be no unpleasant surprise of unexpected payments. Once the above conditions come about, it will drive higher professionalism on the part of all stakeholders in the sector.

Although the above clauses are meant to protect buyers, builders also stand to benefit from RERA because a penalty will be imposed on an allottee if the dues are not paid on time. Besides, the builder can also approach the Regulator if there is any issue or problem with the buyer.

Taken together, all these conditions and measures will promote natural adherence to global best practices. The corporatisation of the realty sector would begin in all seriousness through these new norms. Seeing the success of organized developers, the unorganized ones will also be motivated to follow these best practices.

While there are many opportunities across various price points for investors, particularly institutional ones, there has been limited investment activity in realty due to the tight market conditions. But once clarity, transparency and professionalism become the norm, institutional investments, including foreign direct investments, are likely to see a gradual upswing.

As and when this comes to pass, the biggest beneficiaries would be homebuyers and investors. While the former will see the value of their assets increase, the latter will benefit from higher price appreciation. Therefore, RERA is a welcome development for all stakeholders and needs to be accepted and applauded wholeheartedly.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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RERA housing real estate builders

R K Arora

The writer is Chairman and Managing Director at Supertech Limited

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