Insights into Editorial: What is the lowdown on the Real Estate Regulation Act
Real estate, widely considered to be a major asset class, has been traditionally plagued with opaque practices, information asymmetry, and a muddled regulatory framework in India. One of the frequently cited reasons for the current slowdown in residential sector is the trust deficit between customers and developers. For the past many years, developers have not been able to deliver on their commitments, seriously denting the confidence of potential buyers.
The Real Estate (Regulation and Development) Act 2016, aimed at bringing in transparency and redefining the engagement between various stakeholders, can be a potential game-changing event. The Act’s preamble details the legislative intention which is to primarily protect the interests of consumers and bring in efficiency and transparency in the sale/purchase of real estate.
- A requirement for developers to now register projects with RERA prior to any advertisement and sale. Developers are also expected to have all sanction plans approved and regulatory clearances in place prior to commencement of sale. Subsequent changes have to be approved by a majority of buyers and the regulator.
- The Act ambitiously stipulates an electronic system, maintained on the website of RERA, where developers are expected to update on a quarterly basis the status of their projects, and submit regular audits and architectural reports. Notably, non-registration of projects is a serious matter. If there is non-compliance, RERA has the power to order up to three years imprisonment of the promoters of a project.
- It requires developers to maintain separate escrow accounts in relation to each project and deposit 70% of the collections in such an account to ensure that funds collected are utilised only for the specific project. The Act also requires real estate brokers and agents to register themselves with the regulator.
- The Act also attempts to establish an adjudicatory mechanism for the speedy redress of disputes. RERA and the Appellate Tribunal are expected to decide on complaints within an ambitious period of 60 days. But no legislation can protect the interest of only one class. As one of the largest job creators, the real estate sector contributes almost 6% towards the GDP. Mindful of this, the Act seeks to assist developers by giving the regulator powers to make recommendations to State governments to create a single window clearance for approvals in a time-bound manner.
Why does it matter
The Act has been described by the Centre as an attempt at cleaning up the real estate sector, ushering in transparency, accountability and fair-play among stakeholders.
- Until recently investment in a house, often with one’s life’s savings, came around post retirement. It was almost always a leap of faith, more so if the developer happened to be a non-governmental player. That scenario has changed substantially over the last few decades with a younger age profile of a house-buyer. Not only that, the young is more discerning, more demanding and has money at his disposal.
- This law will empower the consumer while boosting the credibility of developers. It is widely felt that the Act will shift housing demand at least in the immediate term towards the organised players, better-equipped as they are to fulfil various stipulations. Most such players have welcomed the Act, saying that it will bridge the trust deficit.
While consumer interests have been protected, developers find provisions of the Act to be exceptionally burdensome on a sector already ailing from a paucity of funds and multiple regulatory challenges. The builder lobby has been demanding “industry” status for the real estate sector as it would help in the availability of bank loans. Real estate companies say that most delays are because of the failure of authorities to grant approvals/sanctions on time. While the Act addresses some of this, it does not deal with the concerns of developers regarding force majeure (acts of god outside their control) which result in a shortage of labour or issues on account of there not being a central repository of land titles/deeds.
The Ministry of Housing and Urban Poverty Alleviation recently notified 69 out of the 92 sections in total, which set the ball rolling for States to formulate, within six months, rules and regulations as statutorily mandated. Since land is a State subject under the Constitution, even after the Centre enacts the legislation, State governments will have to ratify them. States will have to set up the Real Estate Regulatory Authority’s (RERA) and the Real Estate Appellate Tribunals and have only a maximum of a year from the coming into effect of the Act to do so.
Eventually the benefit of any statute is contingent on its effective implementation. Despite a model set of rules, only a few States have notified their rules. The onus is now on States to formulate rules and establish the regulatory authorities on time. There shouldn’t be just paper compliance, by designating an existing authority to take additional charge as the real estate regulator, as that would affect the timeliness prescribed under the Act.
The new legislation is a welcome enactment. It will go a long way in assisting upstanding developers. More importantly, it will ease the burden on innocent home buyers who put their life’s savings into a real estate investment in the hope of having a roof over their head but often find their dreams come tumbling down.