LAW ON A LEASH
Patchy implementation of the much-hyped RERA has meant that even a year after it came into force, the homebuyer is still vulnerable
Sunita Sharma, 32, a communications executive in the Pune office of a large IT company, began house-hunting early this year. Before she found a two-bedroom apartment in the city’s Wakad suburbs, Sharma verified the credentials of the developer on the MahaRERA website, maintained by the Maharashtra Real Estate Regulatory Authority. Only once she was satisfied with the project’s details on the website, including the progress of construction, did she book her apartment, paying 10 per cent of the total price as stipulated by the real estate regulator. “It was important to verify the developer’s credentials since stories of buyers losing their money to unscrupulous builders abound,” says Sharma. She also benefitted from the two-year stagnation in real estate prices in Pune. “There is more
supply than demand,” explains Sharma.
India’s real estate sector has traditionally been largely unorganised, coupled with inordinate delays in completion of projects and some unscrupulous developers using investors’ money to cross-subsidise projects or change project plans at will, leaving buyers in the lurch. The real estate market was also notorious for the high quantum of cash in transactions, often referred to as the ‘black’ component of the deal. Many investors would use their surplus wealth to buy property and sell at the opportune moment for a profit, often pushing prices to unaffordable levels for the middle class. Cases piled up in courts as buyers took on developers for not honouring commitments. All of this accorded the real estate sector an element of opacity and uncertainty.
The Real Estate (Regulation and Development) Act, 2016, or RERA, which started being implemented a year ago, was expected to streamline the sector and put paid to fly-by-night players in the market— both developers and brokers. “RERA brought in a paradigm shift and metamorphosed the sector into a more mature, systematic and regulated one,” says Anuj Puri, chairman of Anarock Property Consultants. “It is meant to bring in a homebuyer-friendly regime that will address their grievances and promote transparency, efficiency, financial discipline and accountability in the sector.” All projects on 500 square metres or more of land and having eight or more apartment blocks come under the purview of RERA.
POOR IMPLEMENTATION
RERA has many buyer-friendly objectives, such as ensuring timely delivery of projects, having project details displayed and regularly updated on the RERA portal and protecting investors’ money by mandating developers to put 70 per cent of the cash flow into an escrow account. However, a year down its implementation, the picture is still dismal. Only three states— Maharashtra, Madhya Pradesh and Punjab—have a permanent real estate regulator in place. More than 27,000 projects have been registered under RERA across the country, of which 18,000 are in Maharashtra alone, followed by Uttar Pradesh (2,350), Gujarat and Madhya Pradesh (1,600 each), and Karnataka (around 1,500 projects). In the Northeast, Mizoram, Manipur, Nagaland and Meghalaya are yet to implement RERA due to complexities in laws pertaining to land. In Himachal Pradesh, Uttarakhand, Haryana, Uttar Pradesh, Chhattisgarh, Andhra Pradesh, Karnataka, Tamil Nadu and Bihar, RERA portals have been launched and interim regulations are visible, says Anarock in a report. West Bengal is yet to notify RERA while the portal is not operational in Telangana.
In some cases, state RERA cells have penalised projects for violating the provisions of the law. Maharashtra recently penalised several reputed developers for advertising unregistered projects and not updating project addresses on the RERA website. Last year, Karnataka’s RERA cell sent notices to some 130 projects in Bengaluru for not registering under RERA. A report by property consultant Knight Frank says only 19 states and Union territories have a functional RERA portal, and even these suffer from information asymmetry. In Andhra Pradesh, only two projects are registered under RERA. Haryana still does not have a portal and the status of registered projects remains unknown. In Karnataka, 1,300 of the state’s total 1,500 projects are from Bengaluru alone.
Things are far more disappointing when it comes to establishing a Real Estate Appellate Tribunal, with only 15 states and UTs making progress. “Only Maharashtra has set up the entire office of the regulator with an efficient website, from where consumers can download data about the projects under construction,” says Samantak Das, chief economist at Knight Frank. For the rest of the country, implementation is nowhere close to the goal. ‘Interim’ authorities can’t be a solution. “What was strictly supposed to be a stopgap
arrangement has turned into a standard,” rues Das. Such authorities have made little progress on even basic parameters, such as getting the portals up and running and registering projects and agents. Since RERA stipulates transfer of all applications, complaints or pending cases to the permanent regulators, the ‘interim’ regulators seem to be letting the grass grow under their feet, Das adds.
Various states have made multiple changes to RERA. Puri says the definition of ongoing projects has been diluted, leaving a huge number of projects outside RERA’s purview, and this, understandably, remains a major concern for existing buyers. He says the Centre should keep RERA rules aligned and effective across the states and Union territories while balancing the interests of both buyers and developers.
However, delays and technical glitches in some parts of the country have made buyers wonder if RERA has created yet another level of bureaucracy. For instance, in September last year, developers in Karnataka found it difficult to register projects on the state’s RERA portal due to technical breakdowns, affecting sales for months. The rate of approvals was also just one every two days. There were also complaints of delays in redress of complaints and lack of transparency. In Haryana, homebuyers cried hoarse last year over the appointment of some RERA officials with alleged dubious backgrounds.
So, is RERA bringing the turnaround it is meant to? “RERA can offer consumers a very big advantage and instil confidence,” says Niranjan Hiranandani, MD of the Hiranandani Group. “Over time, the market will become more mature. With RERA, developers have to make full disclosure on the portal. Developers who delay projects will be penalised. This will be good in the long run.”
BIGGER ISSUES REMAIN
RERA, however, may not be helpful in resolving project delays in cases where the developer is already stressed, such as Jaypee Infratech’s projects in Noida. Thousands of Jaypee homebuy-
THE CENTRE, EXPERTS SAY, SHOULD PENALISE STATES THAT ARE DELAYING IMPLEMENTATION OF RERA
ers were in trouble after the National Company Law Tribunal admitted IDBI Bank’s plea in August last year to initiate insolvency proceedings against the debt-ridden company for defaulting on a Rs 526 crore loan. A case was filed in the Supreme Court that some 32,000 buyers, who booked apartments in Jaypee’s projects and were repaying loans, had been affected. On March 21, the apex court directed Jaypee to deposit Rs 200 crore with it and asked for a list of homebuyers who have sought refund. “There is no easy solution (in such cases),” says Hiranandani. “If a developer is under stress, you can penalise him, but the building is not going to get completed.”
While demonetisation and the Goods and Services Tax hit developers hard, RERA has added to the stress. Even bank loans are not easy to come by anymore. “Someone will need to take a haircut. It could be the government, banks, developers or even investors who may have to shell out more, but a solution has to be worked out in such a way that the projects get completed,” feels Hiranandani. The solutions will need to emerge from outside RERA’s ambit.
For developers, funds crunch has been the biggest negative of RERA. With 70 per cent of cash inflows for a project going into an escrow account, many developers who are used to rolling funds are feeling cash-strapped. Moreover, RERA does not have any authority to penalise bureaucrats who contribute to project delays by withholding approvals at various stages. In some markets, such as Pune, RERA has effected a price slash in the residential segment by restricting presales activities by developers. “There have been instances where developers have resorted to selling inventory at a marked discount to raise finances as no sales at the pre-launch stage are allowed now,” says Das.
New supplies in the residential segment have taken a hit as RERA compliance and mounting unsold inventories forced developers to curtail launches. In 2017, new residential supplies across the top eight cities (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, the National Capital Region and Pune) plunged 41 per cent over the previous year. The NCR was worst hit, registering an annual drop of 56 per cent.
Developers say 2017 was a bad year for real estate due to the combined effect of demonetisation, GST and RERA, but certain pockets, such as the commercial segment, are looking up in 2018. Despite the shortfalls, say consultants, the recent judgments by MahaRERA have helped restore buyer sentiment in under-construction projects. Some judgments have come as fast as within 30 days of a complaint being filed. MahaRERA has ruled in over 1,000 cases since the first ruling in September 2017.
To speed up the implementation of RERA in states, experts say, the Centre should impose stringent penalties for non-compliance. They say the scope of the newly created Central Advisory Council should be broadened to include advising state bodies on issues related to RERA compliance.
RERA has been a landmark legislation that promises to safeguard homebuyers’ interests like no law has done before. But its shoddy implementation across the country, barring a few states, for now gives buyers little reason to cheer about.