The real estate industry of India has been plagued with multiple ailments. Lack of transparency, financial mismanagement, apathy towards consumer’s rights and a blatantly flourishing parallel economy were some of the key problems in real estate. The government suffered due to revenue leakages and developers faced the heat as the high-risk rating attributed to the industry shot up their cost of funds.
Traditionally laced with layers of trust deficits on account of the aforesaid problems, the Indian real estate sector badly needed a glass door. The wait seems partially over.
At least 13 states and most union territories have notified their versions of the Real Estate (Regulations and Amendment) Act, 2016 – the game-changing central regulation touted to change the face of Indian realty – also known as RERA.
While the benefits for home buyers are still debatable, on paper it is a path-breaking regulation. Most dream home purchases are often surrounded by a web of questions that play at the back of buyers’ minds. RERA promises to end that anxiety. All the relevant information would be parked with the regulator and hopefully made available to potential buyers on the click of a mouse. It will set timelines for projects which mean that a home buyer can plan his or her life accordingly.
Residential properties sold under RERA would be strictly on the basis of carpet area alone. Therefore a homebuyer would pay only for designated space as compared to different pricing yardsticks such as built-up and super built-up that was in use earlier. Secondly, the regulator would keep a close watch on all projects from the drawing board phase till the time house keys are handed over to the buyer making the transaction cycle foolproof. Severe penalties attached in the Act coupled with the overall transparency in the process is expected to drum up confidence in homebuyers and give a much needed fillip to India’s residential market.
But a large section of developers feels and rightly so, that projects are not slowed at their end alone. Red tape sitting on government offices also eats into delivery time. Until now the rule has spared such potential offenders. The move would also do a world of good to buyers’ confidence and bring buoyancy back in the sector. In fact, the FICCI-Knight Frank Real Estate Sentiment Index released in the December ending quarter of 2016 showed that developers and financial institutions were upbeat for the near future despite the demonetisation-induced slump in the last quarter of 2016. Nearly six out of ten stakeholders participating in the survey were optimistic about the surge in the sales volumes. Similarly, more than two-third of the respondents expected a better funding scenario over the first half of 2017.
The move is also likely to flush out a large section of unorganised brokers from realty market. RERA rules notified by some states have drawn up a stringent checklist for brokers as well. From being merely a facilitator between buyers and sellers, brokers will now have to adopt a bigger advisory role attached with responsibility for projects and disclosures. The survival of broking firms will depend on how they inculcate a corporate culture in dealing with both the stakeholders. With majority of big real estate markets such as Mumbai still dominated by unorganised brokers, the move would also safeguard home buyers from shady projects and deals. Although there would be teething problems, the move will see the emergence of a new consolidated broking fraternity.
It may take some time for RERA to be fully in force but once operational it shall have enough provisions to protect the interest of home buyers. RERA will help steer the real estate industry towards an era of total transparency and accountability. The financial prudence that RERA looks to inculcate in the industry will also generate renewed interest from global investors in the Indian realty sector.
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In this way, RERA eliminates unscrupulous builders and promotes healthy competition of genuine developers in the real estate industry. More importantly, RERA has and continues to have a direct impact on the prices of homes and the home loan interest rates.