Historic Monday

Monday is going to be a historic day for the Indian real estate sector as the Real Estate (Regulation and Development) Act 2016 or Rera, takes effect across the country.

Experts believe that while Rera would revive homebuyers’ confidence in the sector, builders indulging in malpractices could feel its heavy hand.

Says Rajesh Goyal, vice president Credai-NCR and managing director RG Group, “This act is aimed at protecting the interests of consumers and also seeks to promote fair play in real estate transactions, ensuring timely execution of projects. There are bound to be certain dissimilarities when it comes to ground implementation of Rera because certain rules will vary from state to state, depending on local laws and revenue policies.”

Clearly, states will have to get their act together, as only a few of them have notified rules thus far.

Ahead of implementation of Rera on May 1, the Centre has notified remaining sections of the Act, displaying its commitment to clean up the sector and protect homebuyers’ interests.

The newly notified sections include measures such as registration of real estate projects and real estate agents, functions and duties of project promoter, including compensation, insurance and title of the project and rights and duties of allottees.

Developers will be penalised for non-registration of projects and would be liable to pay interest or penalty or compensation in case they fail to deliver projects on time.

Sections 79-80 that deal with jurisdiction of the Act have also been notified. That means no court inferior to that of metropolitan magistrate or judicial magistrate of the first class, can try any offence punishable under the Act.

Points out Vikas Bhasin, MD, Saya Group: “Developers who had been working fair and square need not worry much about the circumstances post the implementation of the Act because adhering to norms and guidelines is a general business practice and that is what Rera is all about.”

There is the looming fear, however, that some states might not implement Rera in the original form and might dilute some provisions. However, analysts have ruled out any drastic dilution given the Centre’s commitment to enforce original provisions. The Centre had notified the Act on May 1, 2016.

While homebuyers are looking forward to implementation of Rera, builders have been concerned about its impact on project costs. The fear stems from the Rera provision, which makes it mandatory for builders to keep 70 per cent of the collection from sales proceeds in an escrow account, effectively restraining them from diverting proceeds to other projects.

However, serious players have welcomed the Act, saying this would eliminate fly-by-night operators who have given the sector a bad name.

Ongoing projects have been given three months (up to July 2017) to comply with Rera regulations. This period (May-July 2017) is likely to witness subdued activity in terms of launches, as developers prepare to comply with the new norms, says credit rating agency Crisil. But effective implementation of Rera will improve transparency and timely delivery, it added.

The Act does not permit developers to launch projects before registering it with the Rera authority. This will be a major shift in practices followed currently by developers wherein they manage to sell part of the project through a soft-launch or pre-launch activities

During the transition, small developers may need help from project management consultancies on Rera procedures, documentation and quarterly disclosures.

This, along with the registration and approval costs, is expected to increase the compliance cost for realtors. However, the impact on overall project cost will be marginal, the rating agency predicted.

Says Surabhi Arora, senior associate director, research, Colliers International India, “The Act entails a near-term drop in new project launches, as fewer projects will be ready for registration; it will also deter entry by smaller players due to higher holding costs. Developers may face liquidity issues, as banks, financial institutions and funds would prefer to enter a project once it is registered with the authority. While many developers are skeptical about the implications of Rera, there are a few others who have already started preparing to ensure timely project completion. This will sharpen their competitive edge and boost buyers’ trust.”

Adds Arora: “Rera has already enhanced buyer’s hopes and the perception among buyers is that it will increase transparency in the market. As we are already witnessing, there is a reduction in project launches across India and developers are focusing to complete existing projects that are in advance stage of constructions. Thus, buyers of existing projects should benefit in the short term. While the number of new launches will go down, new buyers will also be benefited by the transparency in the system. Currently, all major cities in India have high-unsold inventory, so lower new project launches should ensure equilibrium in demand in the residential sector.”

“Real estate being a subject matter of state, there have to be certain restrictions, which the government might have overseen and hence mended provisions in the act accordingly,” says Ashok Gupta, CMD, Ajnara India, referring to dilution of some Rera provisions by states.

It could also give a leg up to foreign investment in realty. “RERA will not only build buyer’s confidence and safeguard their interests, but will also facilitate increase of foreign investments in the real estate sector,” predicts Srinivasan Gopalan, CEO, Ozone Group.

Ashok Mohanani, chairman and managing Director, Ekta World, is also one who believes that “Rera will bring about liquidity, transparency, confidence in the property market, benefiting buyers.”

According to Rushabh Vora, co-founder and director, SILA, “Dilution of certain norms by a few states will help balance out the act, which is consumer centric in general. Provisions will be diluted in favour of developers in order to make projects more feasible for them.”

“Rera has its own advantages and disadvantages, as with any other act, but still this is by far a very welcome move,” says Vijay Pawar, founder and director, Mirador Dwellers Pvt Ltd.

noor.mohammad@mydigitalfc.com