Far reaching implications anticipated for the real estate and construction sector in India.
The long awaited passage of the Real Estate (Regulation and Development) or RERA Bill in the upper house of the Parliament is a significant announcement that will have far reaching implications for the real estate and construction sector in India.
It is expected to help regulate the realty 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 country. Homebuyer confidence in the property market is also likely to revive, invigorating India’s property market.
Since the preparation of the draft Bill in June 2013, the Union Cabinet had approved amendments proposed to it in December 2014, following which it had been sent forward to a Joint Parliamentary Committee for reviews. In December 2015, the Cabinet had approved further amendments to the Bill on the recommendations of a Rajya Sabha committee; and finally the Bill was passed through the Upper House on 10th March, 2016.
The RERA Bill is among the key measures that the Government has been trying to implement for the development and regulation of the realty sector in India. The amendments spell encouraging news for the sector, and is the first step in the right direction. It seeks to provide a regulatory authority to review construction of residential and commercial projects.
On the other hand, however, the Bill does not effectively address the concerns of the developer community. The problems faced in getting sanctions and approvals before the launch of any project, and the absence of a single-window clearance mechanism, among others, are some of the concerns that still remain unaddressed.
Once ready to be implemented on ground, the RERA Bill could go a long way in regulating the sector and offering protection to consumers in the real estate market. In its current form it is applicable to residential and commercial projects above 500 sq. m. or eight apartments. This proposal had been accepted in December last year, since the earlier provisions had stood for projects with a minimum 1,000 sq. m. area for primarily housing projects.
Another change carried through from the December amendments has been reverting to the original June 2013 provision of the need for developers to deposit 70% of the amount realized for a real estate project, including land cost, in an escrow account to meet construction costs. Provisions such as submission of project details—approved layout plan, timelines, costs, sale agreements to the regulator before launching any projects—are all expected to reduce information asymmetries between developers and property buyers.
The Bill also proposes the establishment of regulatory authority and appellate tribunals in states and Union Territories, while announcing the registration of projects as well as real estate agents. A major step has been taken in allowing aggrieved home buyers to approach consumer courts at the district level, instead of the regulatory bodies alone. This will provide end-users with proper grievance redressal systems to take recourse to. Meanwhile, punitive action is to be expected, including cancelling registration of projects, in case of contravention of the authority.
Homebuyer interests have also been protected with the Government laying down that development firms will have to pay interest for any default or delays at the same rate that home buyers are charged. Instead of the earlier two years, under the present Bill, builders will be liable for structural defects for five years.
Interests of the developer community too need to be addressed, however, with the need for regulatory authorities promoting a single-window system of clearances for real estate projects, and the digitization of land records. Overall, the RERA Bill is a policy measure aimed at ushering transparency and regulation into the real estate and construction sector, a much-awaited development for the sector in the country.
