MC Explains: All about grading real estate projects by RERAs

To enable buyers to make an informed decision before buying a housing unit, the MahaRERA has decided to grade housing projects across the state

To enable buyers to make an informed decision before buying a housing unit, the Maharashtra Real Estate Regulatory Authority (MahaRERA) has decided to grade housing projects across the state.

However, real estate and legal experts said that regulators are under Section 32 (F) of the Real Estate (Regulation and Development) Act expected to take 'measures to encourage grading of projects on various parameters of development including grading of promoters' and not grade them on their own.

MahaRERA has sought opinion from the public and stakeholders on the framework until July 15.

All projects that have been registered after January 2023 shall be eligible for grading under this framework. The first set of grading will be undertaken between October 1, 2023, and March 2024. The exercise will be conducted  twice in a year but initially all projects registered from January 2023 onwards will be graded.

“As the system stabilises, the authority would seriously consider a matrix to grade promoters as well,” the MahaRERA consultation paper that has been put up for review and discussion said.

The first grading will be out on April 20, 2024.

“Aligning with its mission to empower homebuyers, MahaRERA proposes to introduce a grading system for real estate projects in the state. This initiative aims to enable homebuyers, even those who may not comprehend technical details such as approvals, to assess the quality of a project and make well-informed decisions. By implementing the grading system, MahaRERA seeks to enhance transparency and facilitate easier understanding of project details for homebuyers,” the consultation paper said.

“Grading shall be automatically generated through MahaRERA’s IT solution MahaCRITI on the basis of the information submitted by the promoter,” it said.

Broad factors like project overview, technical snapshot, financial details and legal snapshot would be taken into account. Under these categories, promoters’ track record on compliance, legal litigations, quality of project finance, project amenities, status of various statutory approvals, booking percentage, financial and legal encumbrances, and audit certification, among others would be considered.

Some risks that real estate grading needs to highlight are financial risks, legal risks, technical risks and timely completion risks. It is important to note that a real estate project grading is not a guarantee that there will be no problems with the project. However, a high grading can make buyers more confident in their investment, it said.

Abhay Upadhyay, president, Forum for People's Collective, said that the ranking may be utilised by developers to improve sales and goodwill but drew attention to an interesting facet. “Why is it that only Section 32F seems to stand out amidst other sections of the RERA Act? Also, which regulator—SEBI (Securities and Exchange Board of India), IRDA (Insurance Regulatory and Development Authority), RBI (Reserve Bank of India) —grades itself? It’s usually the third party that is engaged to do this exercise,” he said.

Also, the act clearly lays down that the role of the regulatory body under Section 32F is to ‘encourage’ and not to grade projects itself, he pointed out.

Besides, the MahaRERA consultation paper alludes to the Dubai Land Department that grades projects in the emirate, which also has a real estate authority. “It’s not the RERA authority grading the projects,” he explained.

“For six years, information sought from builders has not been updated on the MahaRERA website on account of which the regulator had to issue hundreds of notices. This grading exercise seems to be dependent on the information shared by the developers. How is the authority expected to grade projects if the information is not up to date?” he asked.

Also, if there is a complaint received by the authority against a project whose builder has been given an excellent rating, how is the authority expected to act in an unbiased fashion against the builder, he asked, adding again that the rating should be conducted by an independent agency.

Trupti Daphtary, an advocate and solicitor based in Mumbai, said that while this is a “good initiative” by MahaRERA, its success will depend on how effectively it is implemented. “MahaRERA needs to evaluate certain parameters for grading of projects. Suggestions by stakeholders would be critical going forward,” she said, adding that this is a fallout of the Mumbai High Court asking the state government whether it has a grading mechanism in place.

Asked why projects registered after January 2023 may be considered under this grading system, she said that it may be because several projects launched earlier have either lapsed, or may have execution warrants pending. Therefore, effective grading of those projects by itself will be negative. “Why would RERA want to grade a project when their own data shows that so many projects have lapsed, in which warrants have not been executed,” she explained.

UPRERA initiated the process two years ago

UPRERA, after receiving inputs from development authorities, industrial development authorities, homebuyers associations, promoters associations and other stakeholders, in consultation with the consultant CRISIL, had also designed a grading framework for projects registered under RERA.

“We have submitted the grading framework to the state government. Their approval is awaited,” Rajive Kumar, chairman, UPRERA, told Moneycontrol.

In the meantime, UPRERA plans to plug in the real estate projects data at its disposal into the grading framework designed by CRISIL. “This should be ready by July,” said Kumar.

This data (which contains details including how many cases have been filed against the builder, the compliance rate of RERA orders, etc.) will be utilised for internal purposes while issuing new registrations and providing extensions, among others, he explained.

“Once the state government’s approval comes in, this will be made available to the public also,” he said.