By Apoorva Mandhani
On May 1, 2017, the Real Estate (Regulation and Development) Act, 2016 (RERA), came into effect. The Act is aimed at bringing transparency and accountability to the sector. Its implementation was welcomed by real estate players with the hope that a better-regulated sector would attract more buyers. However, the legislation is being met with equal skepticism, with the accusation that many states are being half-hearted in their efforts to successfully implement the law.
Need for a realty check
The Indian real estate sector has been plagued with opaque practices and a muddled regulatory framework. The sector has been riddled with issues of inordinate delays in property possession, the absence of promised amenities and developers tweaking norms to add illegal structures to projects.
Until 2014, as much as 30 percent of the transactions in the Rs 6.5 lakh crore sector were carried out using unaccounted-for money. Absence of adequate grievance redressal mechanisms has only made matters worse. In this background, it was time for this sector to have its own regulator, thereby pitching the Act as a prospective game changer.
A blessing for buyers
Much to the satisfaction of investors and customers, the Act provides a governance framework for real-estate contracts, ensuring that transactions are now undertaken digitally. With its implementation, better project planning and management would encourage developers to make realistic commitments on project specification, amenities and delivery timelines.
Further, the requirement to obtain all clearances before a launch would push the developers into accepting more conservative project finance structures, sparing the customers from investing in hurriedly done, half-baked projects. This would, in turn, prevent last-minute product price escalations.
Most analysts believe that it will be 2-3 years before the real estate sector feels the effects of the new Act. Increased credibility of the players would improve the health of the industry, leading to an increased flow of funds from foreign institutional investors. Further, enhanced activity in the sector and a vigilant regulator could stabilise housing prices in the long run.
The ground scenario
While the Act is on paper, so far only 13 States and Union Territories have notified the new rules, of which only three States—Maharashtra, Madhya Pradesh and Rajasthan—have appointed a housing regulator. Besides, some of the States that have met the deadline have watered down the provisions.
The Union Ministry of Housing and Development has also tweaked the Central Rules for Delhi, allegedly to the advantage of the developers. While the validity of such claims is yet to be ascertained, it is imperative that public confidence is maintained for the legislation to achieve the desired impact.
This main reason for the current slowdown in the residential sector is the trust deficit between customers and developers. Both State and Central governments need to work in tandem to usher in an ‘urban renaissance’ and stifle the vested interests that often hinder reform in our country.
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