• HDFC
• 07 Jun 2018
• Knowledge Centre

HDFC, Tester

In a bid to introduce some much-needed clarity in the real estate sector, the Central Government introduced the Real Estate (Regulation and Development), Act 2016 (RERA). Although certain sections of the Act were introduced on 1st May 2016, the RERA Act came into force only on 1st May 2017.

 

The motive was to offer buyers in the real estate market increased transparency prior to investing in the sector. According to a Knight Frank report, “The Central government introduced the Real Estate (Regulation and Development), Act 2016 (RERA) as a model act to govern real estate laws in India. Since real estate is a state subject, all states had the flexibility to re-draw and adopt the same since 1st May 2016, when it was introduced with 60 out of 92 sections. RERA fully came into effect nearly one year ago, and was expected to herald a new era of an organized real estate sector in India.”

 

Outline

 

RERA warrants that builders have to disclose all project-related information, including plans, layouts and other parameters like Government approval to buyers. Prior to the introduction of this real estate regulator, many builders took homebuyers for a ride for years on end. Delays were very common, and on the whole, homebuyers usually did not have a reliable source to address their grievances.

 

But RERA’s stringent rules allowed buyers to hope for an improvement in the situation.

 

The conditions of RERA asked for 70% of the money collected from home-buyers to be kept in a separate account, allowing only 30% of the sales proceeds to be used, as against 100% earlier. Some banks are even demanding extra collateral on loans given to real estate developers, which in some cases includes personal properties of the borrowers as a guarantee. Also, any major change in the project will be done only after receiving the consent of two-thirds of the home-buyers.

 

Reality Bites

 

However, there has been a wide gap between expectations and results in this realm. On 1st May 2018, RERA completed a year, and the picture is still desolate. As the report states, "The progress on RERA compliance across the country still presents a gloomy picture. As the first anniversary of RERA draws closer, so does the knowledge that the implementation across states is nowhere close to its goal.”

 

For one, even after two years, only three states - Maharashtra, Madhya Pradesh, and Punjab - have established Permanent Real Estate Regulators. Most states have been postponing any action on this front, and have handed over charge to ‘Interim’ authorities.

 

With the exception of Maharashtra, most other states have not followed the implementation route laid down for the adoption of the RERA act. Of the total 25,000 projects registered under RERA across the country, 62% are in Maharashtra, reflecting the hands-on approach of the state.

 

Though RERA compliance has been fruitful in a few markets and brought in transparency, there is still a need for work to be done at the ground level, and it seems that there are miles to go before RERA gathers steam.