Tag Archives: Real estate regulator

RERA realities & homebuyers’ concerns

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Legal Hammer, Judicial Review, Real estate regulator, Regulation in property market, Builders cheating, real estate fraud in India, Track2Media Research, Track2Realty“I read it in the newspapers that after the real estate regulator RERA we buyers will not be charged hefty delay penalty by the builders. It says from now onwards there will be equal penalty for both the builder and the buyer in case of delay. Over and above that there will be defect liability on part of the developers,” says Priya Sanghvi in Pune.

However, beyond the optimism of Priya she is still not clear about many of the RERA compliances, including whether the delayed penalty is applicable to the existing under construction projects or not. And she is not alone to not have full information about the various clauses of RERA. But they are all happy that a welcome beginning has been made.

Similarly, Rakesh Apte, another homebuyer, is confused to find many ongoing projects without the Occupation Certificate (OC) and the Completion Certificate (CC) still being advertised. He believes the market is still not clear as to what precisely to expect with the new set of rules.

“I was clarified by my property agent that my under construction project need not wait for registration to advertise. They can continue all their activities as usual. However, those projects for which application for registration is not made even by July 31 to the regulatory authority cannot market their projects,” says Apte.

Vivek Tomar, a trader in Pimpri, has another query. He wants to know whether the regulator can send the homebuyers to jail if he defaults on payment. He feels such reports would deter a homebuyer like him to ever approach the regulator.

“I have read the newspaper reports that the regulator has the powers to penalize the homebuyers also in case of delay in payment. My worry is that such provisions can be grossly interpreted in favour of the developer, even if the consumer defies the regulator’s order due to financial duress,” worries Singh.

Concerned buyers 

Whether there would be equal penalty on delays in current under construction projects

Till when the under construction advertisements without OC & CC will continue

Whether the homebuyers can be sent to jail for delay in payment

Whether regulator can force the government agencies to grant approval on time

Industry is nevertheless clear that such apprehensions are just teething problems. Jaxay Shah, President, CREDAI maintains that even though most states have not been able to implement it immediately and are in the process of doing so, yet both consumers and developers need to look at it optimistically. There will be teething problems initially, but as the regulatory mechanism sets in place, we will see a smoother transition into the new administration.

For the moment, avoid any hasty conclusions and false assumptions for they will only serve as a hindrance. Engaging and diligently moving towards the common goal of building a professional, accountable, transparent and innovative sector should be the objective of all stakeholders.

“There has been a long standing call for a regulation like RERA, both from the industry as well as the consumers. The purpose of such a regulation would be to build equity amongst the stakeholders, create accountability, promote delivery driven project execution and facilitate financial and administrative transparency. The present RERA requirements fulfill all these needs. Though the compliance burden is heavy, the Act has provided the right impetus on ensuring that all due diligence which any and all consumers may require are fulfilled. This will go a long way in restoring consumer faith in the real estate sector,” says Shah.

Confident builders

Defect Liability Clause: 5 years defect liability clause is something that does not affect the organized segment of the market as defect clause is limited to defect in architecture, design & construction; but not defects due to wear & tear

Date of delivery sacrosanct: The date of delivery is the prerogative of the developer and one can always factor in external factors, including the delay in approvals before committing the timelines

Clear title of the land: It also protects the organized developers as one would know the clear title of the land before acquisition

Escrow account: It may be a problem area for cash strapped developers but one can always factor in the additional cost of borrowing from the market in the project cost itself

Selling on carpet: It doesn’t mean that the project will not have amenities and super built up area. It only means that the developer has to tell the buyer how much is the carpet area and one can accordingly charge the psf rate 

That said, the discerning homebuyers in the city are convinced that the RERA will definitely restore the confidence in the property market. As a matter of fact, many of the fence sitters are now ready to take a plunge in the housing market and that promises the market to bounce back. 

Moving forward, the moot point is whether the builders would decide to postpone their new launches keeping RERA in mind to avoid mid way issues. Within the built environment of real estate it is increasingly being questioned as to whether penalising builders for delays in the projects is justified given they rely on so many external factors.

There is a general feeling that at one point government is coming up with consumer friendly RERA and on the other hand government does not have any system or mechanism to give time bound permission to real estate sector developer. Developers question how will the government be successful in implementing the real estate regulation.

In a nutshell, RERA protects the interests of homebuyers and would drive out unscrupulous builders from the realty market. RERA is a landmark legislation that is about to change real estate into a more customer centric industry. It focuses on increasing accountability of the builders and their agents and on boosting buyer confidence. But till the time there is more clarity every stakeholder has own set of apprehensions.  

By: Ravi Sinha

Immediate whiff of change with RERA

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Bottom Line: In the absence of clarity over powers & functioning of regulatory authority, the developers are trying to play it safe now.

Legal Hammer, Judicial Review, Real estate regulator, Regulation in property market, Builders cheating, real estate fraud in India, Track2Media Research, Track2RealtyA week or two is too short a period in the lifecycle of a real estate project. More often than not this time is insufficient for even a drawing board sketch or the blueprint. How come then the market is expecting the eco system of the business to change so soon post the implementation of RERA (Real Estate Regulatory Act)?

The expectation of an overnight change is because the Act is a result of years of expectations on part of the buyers. The developers, on their part, are also changing their business strategy overnight to play it safe with the new regulatory regime.

Of course, there are a number of areas where even the developers are awaiting for clarity as to how RERA will affect their business. They are nevertheless tweaking their business strategy. For instance, some of the developers are asking their homebuyers to shift to completed apartments in adjacent towers in the same project or other projects, so that the undelivered towers with few buyers remain unsold and thus, outside the purview of the regulator.

There are other developers who are reworking their marketing strategies, to offer properties to buyers on carpet area and not the super built-up or saleable area. The ‘build and sell’ model is suddenly being evaluated by developers to avoid falling within the ambit of the regulator.

Projects that are nearing completion are being expedited to apply for OC (Occupancy Certificate). Large projects are being re-submitted for approvals, with phase-wise construction and delivery schedules.

RERA quick effects 

Developers immediately adjusting to be RERA compliant

Some of the developers asking homebuyers to shift to completed apartments in adjacent towers in the same project or other projects

Marketing strategies are reworked to offer properties to buyers on carpet area

The ‘build and sell’ model is being evaluated by developers to avoid falling within the ambit of the regulator

Large projects are being re-submitted for approvals, with phase-wise construction and delivery schedules 

Rahul Shah, CEO, Sumer Group agrees that RERA aims to bring in the much-needed discipline in real estate sector. According to him, the sector will see a serious change in terms of a more transparent, competitive, value offering, hassle-free and definitely consumer-focused industry. It is directed to aid a regulated market in the real estate sector and it will act like a boon making a positive impact both on developers and on buyers.

“Many developers have started to re-design their business practices and processes to suit the regulations perfectly. Developers are now being more cautious about the norms announced by the Government so that they are well adept to the terms of RERA. We are looking forward to this new change in real estate,” says Shah.

Since the developers can not advertise without Occupation Certificate and Completion Certificate (CC), the marketing campaigns are being reworked to focus more on the corporate advertising than the sales advertising of the projects.

These are some of the significant changes that have brought smiles back on the faces of homebuyers. They have for long waited for a market where the dialogue and delivery could be fair to all. Analysts point out that developers will try their best to avoid litigation, till there is greater clarity on the functioning of the regulator and the possible grey areas.

There is a widespread feeling that with alternate strategies, like build and sell, smaller projects and escrow accounts, speculative elements from the market will be wiped out from the market. Real estate may no longer be a trading commodity to make money during the construction cycle. This may make houses relatively cheaper, as ready-to-move-in apartments, will not change many hands before an end-user actually buys it.

RERA has been awaited for long by the homebuyers. The anticipation of such a regulation has been to build equity amongst the stakeholders, create accountability, promote delivery driven project execution and facilitate financial and administrative transparency. The present RERA is expected to fulfill all these needs, even though it is not clear as to how the Authority will deal with the delays in approvals.

Though the developers are apprehensive that the compliance burden is heavy, the Act has provided the right impetus on ensuring that all due diligence which the consumers may require are fulfilled. This will go a long way in restoring consumer faith in the real estate sector.

By: Ravi Sinha

 

Homebuyers victims or villains?

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News Point: The clause of jail term to erring homebuyers in regulator bill is prone to be misused by the builder lobby.

Jail, Imprisonment, Jail to homebuyers, Regulator in Real Estate, Defaulting homebuyers, India real estate news, Indian property market, Track2Realty, Builders exploiting homebuyersTabassum Khan bought an apartment in 2007 with the promise of the builder that she will get the house in the next 18 months. As a matter of fact, she even paid the 90 per cent amount upfront on developer’s verbal promise that down payment is the best payment plan and linked to the possession of the given tower in first phase.

It is nine long years now and she is yet to get the possession of her near completed apartment. Every time she approached the builder she was given an assurance that she will get the apartment in next six months if she pays the remaining 10 per cent due; an amount that was supposed to be paid on offer of possession.

Finally she filed a case with district consumer court in 2012. It has been four long years since she filed the case and yet there is no clarity as to when will she get the judgment in her favour. The media reports after the recent Real Estate (Development and Regulation) Bill was passed make her quite apprehensive. What if the builder makes her culprit for not paying the rest 10 per cent amount? Will she have to go to jail for not paying the due amount to the builder?

“The builder obviously has got more financial clout and legal resources to pursue the case than me. This provision to jail to homebuyers is really harsh and prone to be misused by the developers even in case of a genuine reason for buyer not paying money when demanded. No homebuyer will ever challenge the builder with such clauses,” says Tabassum.

It is not just one homebuyer who has this apprehension today. As a matter of fact, the provision to defaulting the homebuyers sent to jail with the real estate regulator in office has not gone down well with the collective consciousness of majority of the homebuyers. There is an atmosphere of apprehension and fear of the law being misused by the developers.

Quick bytes

  • Jail term to homebuyers was not there in 2013 Bill and hence apprehension with the newly introduced provision
  • Homebuyers believe there may be genuine reasons of non-payment, including the developer missing the construction timelines
  • No clarity over the exit option of homebuyers in case of inability to pay due to financial constraints
  • Appellate Tribunal will find it tough to differentiate between the distressed homebuyers and organized blackmailers in housing market

Jail term new addition

As per the new regulatory regime, homebuyers who fail to ‘comply with’ or ‘contravene’ any of the orders of the Real Estate Appellate Tribunal will not only imposed a penalty of up to 10 per cent of the apartment cost but also get a jail term of one year.

The Union Urban Development Minister Venkaiah Naidu informed the Lok Sabha that, “The bill will not only make the consumer king but also bring in much-needed regulation and transparency for people involved in the sector. It seeks to create a set of rights and obligations for consumers as well as developers.” 

The original version of the Bill that was introduced in Parliament by the previous UPA government in 2013 did not prescribe imprisonment for buyers who fail to comply with the Appellate Tribunal’s order. Under the 2013 Bill, such buyers were ‘liable to a penalty for the period during which such default continues, which may cumulatively extend up to 10 per cent of the plot, apartment or building cost, as the case may be, as determined by the Appellate Tribunal”.

Different voices

Rakesh Kadam, another homebuyer in Dadar also questions the intent of the regulation. According to him, if the very purpose of the regulator was to streamline the defaulting builders then what is the logic of mooting out a provision to homebuyers? Any financial burden on defaulting homebuyers is itself a harsh remedial measure. Now the new provision clearly gives a window of opportunity to the developers to arm twist.

“If the buyer has the genuine reasons to stop the payment, like the developer defaulting on promises, delayed construction timelines, or his own inability in case of job loss or any emergency, then he should be given a window for exiting the project and definitely not the jail term. I do not see any reason why a homebuyer will willingly default. The jail term provision for homebuyers will only be deterrent for the victim buyers to file cases against the builders,” says Kadam.

The developers have their own reasons to feel the regulatory mechanism should provide equal opportunity to both the developers as well as the homebuyers. They maintain that failing this the regulator will be a tool in the hands of the unscrupulous elements posing as buyers to arm-twist the developer.

Requesting anonymity, a Thane-based developer says, “I have been privy to a group of buyers booking together in many projects and then arm twisting the developers. Since they come across as independent buyers, no one understands their modality of grouping together and then stopping payment of due amount under one pretext or the other. Over and above their demands are unreasonable in the name of consumer activism,” says the developer.

Clarity needed

Supreme Court lawyer, Madhurendra Sharma says that in the absence of clarity over the circumstances under which the homebuyers will be sent to jail, there is a whole lot of confusion with the regulatory bill. According to him, once the dust settles down may be the homebuyers will also understand that the jail term is only a deterrent for the organized blackmailers and not the bonafide homebuyers.

“A thorough clarity is needed to make all the parties concerned understand that Appellate Tribunal sending a homebuyer to jail is not the first remedial measure. As a matter of fact, it is the final and extreme measure when all the other possible options are closed and the buyer is still rigid with his stand of non-payment. The non-payment of a few buyers affects the construction timelines and possession for majority of the buyers. But then someone needs to spell it out to the larger audience,” says Sharma.

Till the time a regulatory mechanism is rolled out in letter and spirit, certain apprehensions will continue to bother the homebuyers. Since the subject has not been deliberated upon in public discourse and jail term to the homebuyers is a new, and unexpected addition, hence there are more questions than answer as of now.

Moving forward, the homebuyers may or may not like this provision, subject to what kind of buyers are taken to task by the Appellate Tribunal. Since then the perception has gained ground that the builders would be powerful enough to arm-twist the buyers, even when the homebuyers will have valid reasons to not pay the due amount.  The regulatory regime has many questions as of now, with only limited answers available.

By: Ravi Sinha

Developers changing strategy ahead of RERA deadline

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Bottom Line: Ahead of the deadline of 1st May 2017, the developers are forced to manage, if not correct, the business model to escape from the real estate watchdog.

Legal Hammer, Judicial Review, Real estate regulator, Regulation in property market, Builders cheating, real estate fraud in India, Track2Media Research, Track2RealtyWith most of the projects running behind the scheduled deadline of delivery, the developers across the major property markets of India are adopting various strategies to escape with the Real Estate Regulation as the deadline for RERA is approaching fast.

Some of the striking changes in the business model on the eve of 2017 are:

  • Developers in Noida are asking the home buyers to shift them to completed apartments in the next tower of the same project or other projects, so that the undelivered towers with few buyers remain unsold and thus outside the purview of regulator
  • In many cities the developers are redesigning the marketing package to offer the buyers only on carpet area and not the super built-up or saleable area
  • Build & sell model is suddenly being evaluated with its cost being passed on to the buyers, and hence not within the ambit of regulator
  • Near completed projects are put on fast forward mode to apply for OC (Occupation Certificate) before 1st May, 2017   
  • Large format projects are being re-submitted for approvals with phase-wise construction and delivery 

The developers, on the face value, are welcoming RERA but are definitely concerned with its possible fall out. Though they avoid being critical to RERA, there is a clear realization that they have no other option but re-strategise their execution and delivery to not get trapped into non-compliances by the regulator.

Parth Mehta, Managing Director, Paradigm Realty says 2016 had not been easy for residential real estate market. With stalled growth and low consumer demand at current prices, it has under-scored lesser amount of property deals.  Thanks to RERA, now with many unfinished developments can help in more transparent deals and approvals which will eventually increase in sales.

“Developers can use tracking tools to channelize key performance indicators, IT setup, risk mitigation that makes up with construction update ensuring that the process runs smooth within the RERA deadline and is under the norms of RERA. Market leaders should now focus more on building a benchmark for more sustainable growth,” says Mehta.

Kaizad Hateria, Brand Custodian and Chief Customer Delight Officer, Rustomjee Group maintains that RERA policy announcement will bring in additional transparency and accountability in the real estate sector. This will only help us better our customer service and help increase the value proposition quotient.

“All branded developers have always had a positive intent for completing projects on time. Our strategy at Rustomjee has always been to serve our customers better and complete projects on time, and we will continue to offer higher quality homes to our buyers,” says Hateria.

Beyond this usual stance of welcome but concerned with RERA, the larger issue today is whether this strategic shift will help the sector or the buyer. A section of analysts feel the developers do not have a choice and till the time they clearly understand the functioning of the regulator and the possible grey areas, the strategy would be to how to avoid any arbitration.

Nikhil Hawelia, Managing Director of Hawelia Group believes there is nothing wrong in shifting the buyers to the next tower if the developer has only sold a few apartments in the newly launched tower. According to him, the strategy is basically to avoid any penalty and at the same time not hurt the buyer.

“Any strategy will work so long it does not rub the existing buyers the wrong way; failing which there will be more trouble with the regulator. So, I think it is a good move to shift the buyers in completed projects and look forward to the feasibility of build & sell model. My only concern here is that it may escalate the funding cost of the developers and hence make the houses more costly,” says Hawelia.

Not many within the built environment are ready to believe alternate strategies would make the houses more costly. It is generally felt that the alternate strategies like build & sell, smaller project execution or escrow account would rather wipe out speculative middlemen from the market who make the money during the construction cycle. It will rather make houses relatively cheaper as the ready to move apartment, even with developers’ higher borrowing cost, will not change very many hands before an end user actually buys it out.

Beyond the cost & benefit analysis of pricing index, it is very obvious that the business model and sales methodology of the developers will definitely be witness to tectonic shift in the year ahead. After all, no developer would like to be hammered by a new law that has many grey areas to be addressed. For the home buyers, only 2017 can define whether the developers’ escapist strategies will help or hurt their cause.

By: Ravi Sinha

Regulator only first step; grey zones only partially addressed

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A closer look suggests it is just the first step in the right direction and the Regulator as of now only partially covers the grey zones. 

Legal Hammer, Judicial Review, Real estate regulator, Regulation in property market, Builders cheating, real estate fraud in India, Track2Media Research, Track2RealtyAfter years of delay and confusion around what could be the ideal mechanism to have a Regulator with the Indian real estate, suddenly the political compulsions paved the way for a new built environment with Real Estate Regulator. It has no doubt given a facelift to the business reeling under the crisis of confidence.

The collective consciousness of the homebuyers at large as well as the key players of the realty business have their own reasons to cheer up the move, yet a closer look suggests it is just the first step in the right direction and the Regulator as of now only partially covers the grey zones.

There can be no denying that the Regulator ensures transparency in the sector, separates serious developers from fly-by-night operators and safeguard the buyers’ concerns with regard to project delays and construction defaults. But a closer look at the fine prints of the Regulator Bill suggests it has to go a long way through trial and error before a free & fair mechanism could be evolved.

Concerns galore

There are legitimate concerns of both the homebuyers and the developers that seem to have not been addressed. For example, what if the sanctioning authorities delay the project clearances, since the Regulator does not regulate the government officials. Will it lead to a breeding ground of corruption in that case?

Will it add to the litigation, further delaying the project timelines? What if the States delay the implementation of State Regulatory Authority? Does the government have the support infrastructure to register and make online the number of launches that are happening every year?

Where should the buyer approach in case of any grievance – Regulator, Appellate Tribunals or various consumer courts? From the buyers’ standpoint though punitive action against the defaulting developer sounds justice, but the Bill does not seem to answer as to how will the Regulator ensure that the project is finished and the homebuyers get their apartment. Certainly, the Regulator sounds more like an administrator who does not have any mandate or authority to make the supply side seamless.

Due appreciation

In the meantime, the leading voices of the business are appreciating the move in a bid to be seen as being in favour of reforms. Anshuman Magazine, CMD, CBRE South Asia calls it a significant announcement. He believes the Real Estate (Regulation and Development) or RERA Bill will have a far-reaching implication for the real estate and construction sector. It will help regulate the sector and promote transparency.

“If implemented in the right spirit, it could facilitate greater volumes of domestic as well as overseas investment flows into the sector. Homebuyer confidence in the property market is also likely to revive,” says Magazine.

Expressing pleasure, Vikas Oberoi, CMD of Oberoi Realty says when the Bill will become an Act, it will ensure more transparency in realty deals and help protect the rights of the buyers. This will boost buyer confidence and in turn will also help increase sales. This Bill also looks at the developer’s interest by taking into consideration external factors in case of project delays.

“This Real Estate Regulator will look at all stake holders – the buyers, developers and the authorities. We hope all the States will start adopting this act without any further delay so that the housing industry witnesses uniformity across the country to ensure that our Prime Minister’s goal of Housing For All by 2022 is achieved,” says Oberoi.

David Walker, Managing Director, SARE Homes says the passing of the Regulator Bill will give homebuyers the confidence to return to the market. The Bill will make real estate more transparent and organised and responsible builders will prosper.

“We encourage the government to also bring EDC charges paid to local authorities under the scope of the regulator to ensure timely delivery of infrastructure that has been paid for by homebuyers. A more formal and regulated industry should in time also benefit from improved access to capital markets,” says Walker.

Rohan Agarwal, Managing Director of Mumbai-based Geopreneur Group believes this is a much needed Bill for revival of the consumer’s faith in the real estate sector which was lost over the past half a decade. “It will also revive the faith of financial institutions in the developers as it will put a timeline on the project. The fact that only a RERA approved project can be promoted and sold by a developer in a given timeline only will make the buyer’s life easier.”

Aakanksha Joshi, Associate Partner, Economic Laws Practice sums it up well when she says that given that the Regulatory Authority will now need to be constituted, property buyers may still have to wait for the law to come into force. Further, the manner of implementation of this legislation is yet to be seen and builders may be anxious given the new regime.

“This Act nevertheless is a step in the right direction for property buyers given the detailed disclosure requirements, stringent penalty provisions and restrictions on deployment of funds and change in plans by promoters,” says Joshi. 

Voices of dissent

JC Sharma, VC & MD, Sobha Limited calls it a big step in the right direction but adds certain riders. It will help distinguish good real estate companies that conduct business by the book from those who have not. The Bill will definitely enhance the credibility of the construction industry as a whole by promoting transparency, accountability and efficiency in execution of the projects. The provisions like fast track dispute resolution mechanism and disclosure of all approvals by developers will help transform the housing sector.

“The Bill made no mention of time-bound approvals by various Central, State and local agencies, which is critical to the growth of the sector. We believe that the decision to have up to 70 per cent of the funds collected from consumers into an escrow account may not be the best way to make use of the collected funds, especially at a time when liquidity in the sector is not too good and the poor availability of bank finance impacts the consumers as well. The inclusion of the existing projects in the ambit of this Act may cause lots of confusion as developers might already have taken advances from the customers and might have sold it on the super built up area basis,” says Sharma.

A candid Neha Hiranandani, Director, House of Hiranandani points out that the bill has failed to bring the government authorities into the ambit who are responsible for the continuous changes in regulations, lack of transparency and predictability in functioning. The Bill is therefore incomplete in its approach, and the outcome of this is going to be more expensive products for consumers.

“Placing 70 per cent of receivables in an escrow account in an economy with such high interest rates is going to lead to a complete shift in the business model of many companies. Owing to lack of holistic approach, the end price to consumers will continue to rise, putting a severe strain on affordability. In June 2015, The Doing Business Report by the World Bank ranked India 183 out of 189 countries in ‘Dealing with Construction Permits’. The passage of the Bill adds to the layers of bureaucracy and timeline and puts pressure on an already strained sector,” says Neha.

In conclusion

Nikhil Hawelia, Managing Director of Hawelia Group has a caveat when he questions the timelines of implementation as well as the final time by which the trial & error with Regulator will be over. He believes if it took several years in the power corridors, then in all likelihood it will take many more years at the policy level where the Centre and the States might be at loggerheads in many cases.

“The Urban Land Ceiling Act was passed in 1976 and still I am not sure whether it still has been in practice across the country. The problem is not with the need of the Regulator but the intent with which it has been introduced. It has some provisions that indicate strangulation than actually easing the supply of the housing stocks in a timely manner,” says Hawelia.

It is true that the Regulator Bill does justice to its prime cause of protecting the interest of the consumers through setting up of Regulatory Authorities in each State, mandatory registration of all real estate projects and providing additional avenues for grievances. This will bring in a systematic approach and enhance transparency thereby giving a boost to domestic and foreign investments which will aid growth of the sector.

However, there are many crucial aspects which have either not been addressed or the Bill is silent on it. Moreover, the roll out of the Regulator regime and the response at the State level is very important to make this much-needed mechanism a success. Many rules might be changed or altered at the State level.

More importantly, unless both the demand and supply side falls into the ambit of the Regulator with powers to take quick actions, a regulatory regime will after initial euphoria only add to the confusion than lend image makeover to the business which needs credibility & trust in the first place.

Short-term impact

  • Rise in cost of capital as surplus cash from project sales will be locked in, 
which is typically used as growth capital
  • Adverse impact on margins as increase in cost of projects would have 
limited leeway to pass on given weak market dynamics.
  • Industry consolidation with non-serious players moving out and credible 
developers gaining market share
  • Reduction in project launch in near-term till developers assimilate the 
framework

Long-term gains

  • Lesser execution and fraud risk
  • Better cash flow discipline & cost of capital
  • Safeguard against delay & default
  • Stronger stakeholders’ confidence with homebuyers, investors and financiers knowing what they are paying for

 By: Ravi Sinha

Will the realty regulator finally become reality?

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Legal Hammer, Judicial Review, Real estate regulator, Regulation in property market, Builders cheating, real estate fraud in India, Track2Media Research, Track2RealtyFor the last four years everyone within the built environment of Indian real estate, homebuyers included, wanted a real estate regulator but the consensus eluded.

There have been many changes since 2011 in the bill and yet it could neither make the developers nor the homebuyers happy with each side maintaining that it is not addressing their concerns. Walking a tight rope it seems the bill has this time around come closer to see a consensus and the analysts are hence keeping their fingers crossed so that finally a real estate regulator comes into the existence.

It seems the Government in its determination to reach a consensus has tried to address many grey areas this time around to restore consumer confidence and make it acceptable to all the concerned stakeholders. The question that still stands is what is the way forward now. Is the bill on its way to get the final hurdle cleared?

On part of the lawmakers, the union cabinet has approved 20 major amendments to the bill, accepting the recommendations of the select committee of Rajya Sabha that had examined the bill pending in the Upper House of the Parliament. These changes include mandatory registration of projects on 500 sq metres of area or with eight flats with the regulator, instead of earlier provision of 1000 sq meter, thus covering the larger number of projects.

The share of sale revenue to be put in the escrow account has also been increased from 50 per cent to 70 per cent. Another safeguard for the homebuyers is that builders will now have to pay equal rate of interest in case of delays as homebuyers. The liability of builders for structural defects has been increased from the earlier two to five years now.

Another contentious issue between the builder and the buyer – carpet area – has now been clearly defined to include usable spaces like kitchen and toilets, while car parking space has been separately defined. Formation of RWAs is now mandatory within three months of allotment of majority of units.

The new bill makes it clear that the aggrieved buyers can also approach consumer courts available at the district level instead of only the real estate regulatory authorities proposed to be set up under the bill.

Feeling that the changes are pro-consumers now, Sachin Sandhir, Global MD – Emerging Business, RICS says it will benefit end users greatly especially putting aside 70 per cent of the sale proceeds in an escrow account to meet construction cost. If effectively monitored, this will lead to faster execution and delivery of the projects which is a critical challenge in the real estate sector in India. While inclusion of real estate agents in the purview of regulation is a positive amendment, what remains critical is defining the eligibility criteria and standard code of conduct expected by agents.

“Clear rules will need to be laid down by state governments, in the absence of which dispute resolution would be difficult. Also, adding or amending the definition of carpet area to clarify useable area may not help much as it would differ from the definition given in national building code and other development laws. We believe only adoption of a uniform global standard for measurement for residential and office space will help bring transparency and standardisation.

Anshuman Magazine, CMD of CBRE South Asia believes this would be a game changer for the Indian real estate market. Not only will it protect the consumer, but also encourage the individual buyer, besides financial institutions, both domestic and international, to invest in the real estate market.

“The ease of doing business needs to be implemented in the real estate sector by making it easier for doing development by time bound approval mechanism by the government/local/ urban bodies. Therefore, the government bodies also need to be held accountable for ensuring reforms in archaic laws and timely project approvals,” says Magazine.

R.K Arora, Chairman, Supertech nevertheless has a clear suggestion here when he says the Regulatory Bill by the cabinet should also engage approving authorities so that the real estate project do not get delayed on getting approvals and timely deliveries can be given to the customers. This move will enable a boost in the realty sector as well as help increase investment figure in the industry.

“The approving authorities will help in sharing the desired time frame to sanction and completion of the projects in a timely manner. Also the regulatory authorities will encourage the single window clearance for real estate projects and assist in fostering the construction work which is an utmost important step in the amendment system,” says Arora.

In a nutshell, the built environment of Indian real estate has welcomed the amendment with certain riders. It is believed that the regulator bill would have addressed the concerns of both homebuyers as well as the developers had the approval mechanism and concerned authorities been made equally accountable.

The bill is nevertheless seen as the beginning of a transparent real estate market. It is to be seen whether the bill becomes a law this time around. That, after all, will define the way forward for the real estate regulator beyond the ambit of mere academic discussions.