Will RERA push up housing prices?
The two most important stakeholders on whom the success of the real estate sector hinges are the homebuyers who drive consumption and the developers who handle the supply side. Even in the best of times, these stakeholders have been at loggerheads. For the last few years, especially when the sector (residential) has been going through a slowdown, the relationship between the two stakeholders has soured. The primary reason for this frigid relationship is the absence of a regulator for the sector. However, things have now begun to change for the better, especially after the passage of the Real Estate (Regulation and Development) Act, 2016, (RERA).
For homebuyers, the Act is a welcome move as it empowers them to take informed decisions. Developers, on the other hand, have been apprehensive about certain sections of the Act but are now trying to come to terms with the new rules.
The status of the Act
In May 2016, select sections of the Act were notified. The Real Estate (Regulation and Development) Bill received the assent of the president on March 25, 2016 and has now become the Real Estate (Regulation and Development) Act, 2016. The Act was published in the Gazette of India on March 26, 2016. Only some sections 2, 20 to 39, 41 to 58, 71 to 78 and 81 to 92 of the Act have come into force with effect from May 1, 2016. There are a total of 92 sections in the Act. The Act will be implemented through offices like the Real Estate Regulatory Authority and the Appellate Tribunal that will enable the smooth functioning of the Act from May 2017 onwards.
The new watchdog
At present, disputes between homebuyers and developers typically end up in consumer courts. Among other things, the regulator appointed through this Act will deal with all such disputes. The regulator will also ensure that the relevant provisions of the Act are adhered to by the stakeholders, especially from the supply side. This, to a great extent, will reduce the instances of discord between homebuyers and developers. Ideally, there will be a regulator for each state, but there could also be two regulators for a state or one regulator for two states.
But how will such a watchdog help the overall sector? The regulator will help streamline the sector at different levels. First, it will ensure that players from the supply side adhere to guidelines as laid down by the Act. Once that is done, it will lead to higher transparency in the sector which will in turn help in bringing back buyers into the market.
Even after having all things in place, if there are still instances of discord between homebuyers and developers, the same will be settled by RERA. If any of the parties continue to be aggrieved even after orders passed by RERA, they have the option to approach the Appellate Tribunal for justice. As mentioned earlier, RERA and the Appellate Tribunal will be established through the Act.
Transparency in the sector has not been satisfactory, though it has improved over the years. If a homebuyer today plans to buy a house, he does not have access to all the information required to take a well-informed decision. The Act seeks to change the rules of the game. All commercial and residential plots with an area of more than 500 sq m or eight apartments will have to be registered with the Real Estate Regulatory Authority. The states will have the power to lower this ceiling. But projects that are meant solely for self-consumption will be outside the purview of this Act.
Developers will need to disclose all the information pertaining to a project while registering it with the RERA. This includes details such as the project implementation schedule, layout plan, land status, government approvals, real estate agents, sub-contractors, etc.
This information will be made available to the consumers, which will empower them to take informed decisions. With all details of the project getting documented, consumers can approach the RERA in the event the developer decides to make any changes in the project.Similarly, developers having issues with consumers can also approach the RERA for solutions.
States will need to implement their own sets of laws that will enable the development of the sector. Delhi’s recently revised unified byelaws are a step in this direction, providing measures such as single window clearance, simpler documentation and faster approvals to help developers execute projects on time.
Apart from ensuring discipline within the sector, RERA will look into disputes between buyers and sellers. Beyond this RERA does not have any other role to play in the sector. To ensure that stakeholders on the supply side are able to conform to guidelines as per RERA, respective states will need to have proper laws in place.
These will include systems that will ensure approvals are faster and time bound, single window clearance is in place and documentation is easier. Such systems will be the enabling factors.
As regards encumbrances, after the Act comes into force and a developer has handed over a project to homebuyers, his liability as regards the title of land will be unlimited. This means that even after 20 years, of handing over the project, if a claim is made by any third party, on the title of the land where the project has been developed, and if the claim is proved to be true then the developer will be liable to pay damages.
Any claim towards the title of land, by an outside party is known as encumbrance. The Act speaks of having insurance on land title to protect the developer from such a scenario, if it happens. Such a facility will also mean that due diligence on land will be done at two levels. First, by the developer and then by the insurance company before they issue the insurance on the land title.
The way forward
Going forward, one can expect certain clauses to be added to the Act, making it more robust. A clause to stop discrimination on the basis of religion, caste, sexual orientation, marital status and dietary preferences is expected to be added soon.
The author is chief economist and national director research, Knight Frank India. With inputs from Pankaj Toppo, vice president – research, Knight Frank India