By Vinod Behl
The proposed Real Estate Regulator cleared by the Indian Parliament and aided by reforms, will empower and protect property buyers and investors, paving the way for more organised, fair, credible and transparent property transactions, thereby making real estate- investor- friendly.
A recent survey by the Ministry of Consumer Affairs, dubbed real estate sector as the second worst industry after telecom in terms of quality of service.The prevailing liquidity crisis, unaffordable property prices, high delivery defaults, tepid sales and low investor confidence has plunged the sector into crisis.In this backdrop, Real Estate Regulatory Authority (RERA) cleared by the upper house of parliament assumes significance as it seeks to check fraudulent practices and provide a fair deal to property buyers.
The consumer- friendly landmark legislation is aimed at setting up regulatory and redressal mechanism, the absence of which is responsible for the present mess in the real estate.The key provisions of the legislation that brings brokers along with developers under its ambit, include mandatory registration of projects with complete information on project plan, lay out, approvals, land title, schedule for completion, ban on pre- launching and advertising any project without all necessary sanctions ensuring mandatory disclosures in project advertisements and prospectus to check any gap between promise and delivery, sale of property only on the basis of clearly defined carpet area in order to ensure that the buyer gets exactly the space for which he has made payment, mandatory escrow account for the project to check any diversion of funds that result in delays along with fair compensation for delays in delivery, addressing issues related to quality of construction, speedy dispute resolutions with penalty and imprisonment for non- complying developers.
Though this model legislation covers both residential and commercial real estate including ongoing projects, yet it’s the residential real estate which is going to get big boost , especially by boosting the confidence of home buyers.Unlike in the past, now the home buyers can take informed decision to invest with all the project information at their disposal which developers and brokers are now liable to disclose.In this context, it is worthwhile to mention that one single most factor responsible for keeping home buyers away thereby resulting in lukewarm sales, was the sheer lack of safety of their investment, especially in view of extraordinarily long delays in project completion with buyers money stuck for years without redressal. But now RERA will ensure timely completion with time frame for completion and delivery of registered projects to be clearly mentioned and adhered to.The mandatory project- specific escrow account will ensure that as much as 70 percent of the money collected by developer for certain project from buyers is not diverted elsewhere, thereby ensuring that project is not delayed due to fund crunch. The escrow mechanism will also guarantee security of the money invested by home buyers. The provision of a model and fair buyer- seller agreement under RERA, will put an end to shortchanging of home buyers on account of hidden charges like External Development Charge (EDC), Internal Development Charge (IDC), parking charges, maintenance fee, club charges and preferential location charges etc. So, there will be no escalation of charges and the home buyer will not be liable to pay any charges other than the ones mentioned in the agreement. The provision of speedy and time bound dispute redressal within two months , is also a big confidence booster for home buyers who are till now deprived of this and are forced to run from consumer courts to lower courts to higher courts for justice.
RERA is fully supported by the ongoing reforms in the real estate/housing sector. which will prove a big boon for the affordable/low cost housing in line with government’s flagship mission of ,’Housing for All’.This year’s budget has addressed the affordability issue through a number of policy initiatives like 100 percent service tax exemption for affordable homes, additional yearly rebate of Rs 50000 on housing loan interest for first time home buyers in affordable segment with loans not exceeding Rs 35 lakhs.. hike in limit of deduction for rent paid to boost rental demand for affordable housing Earlier, similar policy initiatives were taken like National Housing Board and HUDCO creating a pool fund to promote affordable housing by incentivizing cash- strapped developers engaged in affordable housing.
Lack of sustained fund flow has been the biggest bane, restricting the supply, leading to housing shortage, particularly in mass housing.But now with RERA becoming a reality, it will pave way for industry status to housing , particularly affordable housing to facilitate cheap bank funding It may be mentioned that banks exposure to real estate in India is merely 3 percent while it is 10 times in the U.S.The major policy decision in this year’s budget to boost REITs by abolishing Dividend distribution Tax, will help developers raise funds for affordable housing, besides commercial real estate.
Faster approvals are a key to affordable housing as delayed sanctions result in cost over runs.Project sanction is a long and tedious process where developers need to seek over three dozen clearances for construction and completion. As such there is an urgent need for simplifying and streamlining the process to fast track approvals.Some states like Maharashtra, under its new housing policy, is working to speed up the approval process by reducing number of approvals and making it online.The Centre, as part of its reform policy of ‘Ease of doing business’, needs to bring out a ‘model mechanism’ to ensure faster approvals for other states to follow. RERA calls for this and an expert committee constituted by the Housing Ministry has come up with a reform blueprint in this regard to check large scale delivery defaults that not only add to the cost but also shake the confidence of property buyers and investors.
A recent study by CB Richard Ellis says that the real estate sector can double its share in GDP to 13 percent with the aid of reforms.With urbanisation expected to grow at a CAGR of 2 percent over the next two years,,RERA can be used as a tool to achieve double- digit growth with reforms like online speedier projects sanctioning, simplified and rationalised taxation through GST, liberalised FSI & density norms to boost supply.
Once the central bill takes the shape of Act, states will have to come up with their own framework of RERA.With its implementation, RERA will wipe out the negative image associated with the fragmented, unregulated and opaque realty sector, in turn making real estate an attractive asset class for domestic and foreign investors. But then the key to its success lies in implementing it in letter and spirit so that it does not end up as another piece of legislation.