In March, 2016, Parliament voted into law the Real Estate (Regulation and Development) Act—RERA—a legislation that held out the promise of placing consumers at the centre of a new rules-based framework for India’s property market. It came into effect on May 1, 2017.
The Act was necessitated by the growing misery of tens of thousands of harried homebuyers.
Unsuspecting individual customers often complained about getting the short end of the stick, as many builders, some dodgy and some reputed, exploited regulatory gaps by not delivering promised apartments on time or reneging on size and quality, or sometimes, simply vanishing after collecting funds.
RERA’s primary purpose, apart from defining rules, was to build trust among buyers and builders in a market where opaque deals thriving in grey payment systems operating outside the legitimate financial system had become commonplace.
“It was on this day in 2017 that RERA came into effect to bring transparency and accountability in the functioning of real estate sector and safeguarding the interests of homebuyers,” housing and urban affairs minister Hardeep Puri tweeted on May 1 on the occasion of RERA Day.
As many as 51,850 real estate projects and 40,481 real estate agents have registered under RERA across the country. Almost 46,152 complaints have been disposed of by the real estate regulatory authorities across the country, he tweeted.
With COVID-19 leading to a lockdown, which has now been extended for another two weeks, and barely any construction activity on ground, the Centre announced earlier this week that it would soon be issuing an advisory to all state governments and regulators to invoke the force majeure provision due to the pandemic.
This is expected to bring relief to builders and buyers who would get an extension of timelines for project completion and be exempt from paying penalties. Buyers may not have to pay penalty for delayed payments to builders as the period may be treated as a zero period.
Why was RERA set up?
Customers would often find that the actual size of an apartment would be about 30 percent smaller than what was originally promised. The reason: “super built up area”, an arbitrary concept that builders used to charge customers for shared spaces such as common passage area, stairs and other areas.
Fund diversion had become a rampant practice in the realty sector. Many builders, large and small, would collect money from consumers for apartments, a part of which would then be channeled to buy land for another project. The net effect: never-ending project delays. This was going on without any checks and balances, and builders had developed the `consumers- be-damned’ attitude. For the banking sector too lending to realty projects became a risky proposition, as project delays resulted in mounting loan defaults.
RERA was brought in to address these. Three years later, experts reckon, the results, at best, are mixed.
Under RERA, builders are required to disclose details of “carpet area”, which is the actual apartment’s size, design, structure, layout, time of completion and other project specifications well in advance.
The rules make it mandatory for any project exceeding 500 square metres with eight or more apartments to register with a state’s real estate regulatory authority (RERA) before launching or even advertising a housing scheme.
Registration of real estate agents or brokers have also been made mandatory with clear responsibilities and functions. The punitive provisions include de-registration of the project. If the builder defaults on promises made at the time of the launch, the buyer can approach consumer fora in case of disputes with real estate developers. The penal measures were aimed at serving as a deterrent for builders to short change customers and ensure timely project delivery.
It is also now mandatory for builders to park 70 percent of funds collected from buyers in an escrow account, implying that these funds can only be withdrawn for the specific project for which these were collected.
Under the central law, each state was required to set up its own RERA that can draw upon central rules applicable in union territories.
Maharashtra was the first off the block with MahaRera in May 2017, with other states soon following suit with their own institutions.
RERA more than a registering body
RERA’s role is not limited to just as a registering agency for realty projects, but was designed to evolve into a body empowered to even complete stuck projects or even allow buyers’ groups to take over unfinished projects.
Three years later, experts say, RERA’s record on this front remains below par. The RERA Act’s Section 8 empowers the authority, buyers’ association or an appropriate government organisation to execute unfinished projects, but arranging funds and buyers’ cooperation remain a critical challenge.
“While it (UP RERA) certainly cannot complete projects by itself, it can find appropriate solutions by approaching competent authorities or even appoint a project management consultant to finish these,” said Kumar Mihir, lawyer, representing Amrapali homebuyers.
Crisis of confidence continues
RERA’s institutionalisation was predicated upon customer centricity. The state bodies were expected to play the role of a strict referee that would instill the fear of law among deceitful builders.
A mere RERA registration does not guarantee that a project will be delivered on time. An under-construction project, therefore, continues to remain a risky bet despite RERA.
“This is because RERA authorities are not taking proactive steps to ensure that all provisions are being complied with by the builder, nor are they monitoring the progress of the projects. They should ensure that projects are granted extension only under exceptional circumstances”, said the Forum for People’s Collective Efforts (FPCE), an umbrella body of homebuyers.
Three years later, customers say, the job remains half done. The two main issues that homebuyers face today are to do with lack of confidence about execution of RERA orders by realty companies, and multiple forums for grievance redressal.
Indiscriminate extension of project timelines for builders by authorities is an issue of concern for homebuyers.
“Authorities are giving permission for extending project timelines even when it is a not a force majeure event. Timeline extensions impact homebuyers who have to continue paying EMI and rent. How are authorities deciding on the extension when Section 6 clearly states that this can be done if there is a force majeure event and there is no default on the part of the builders. The interests of buyers too need to be protected. They should be consulted,” say M S Shankar, general secretary, FPCE.
There are also instances where realty companies have given different timelines to homebuyers and the authority. “A builder cannot change timelines. At best, he can only ask for a one year extension from the regulatory authority. If the builder changes timelines he is liable to pay penalty. Authorities should be on their toes to address the issue,” said lawyer quoted earlier.
Most contracts with homebuyers were changed after RERA came into effect from May 1, 2017. This has complicated timeline commitments.
“For most projects those timelines are almost ending. It is for RERA authorities to now start mapping those projects to see if there are delays and to start sending out show cause notices to developers. RERA’s job is not merely to register a project but also to map the projects and ensure that their timelines are being met,” said the lawyer who did not wish to be identified.
In its letter to the PMO, FPCE had recommended that all orders passed under RERA should be subjected to audit by the Comptroller Auditor General of India (CAG) to check for compliance with RERA provisions.
It had said that around five lakh homebuyers are stuck with incomplete housing projects, mostly due to diversion of funds by builders, homebuyers have also urged the prime minister to order a forensic audit for all projects pending for over three years.
There have also been issues with regard to the quality of construction which is very poor. “There has to be uniform policy with regard to quality control and strict punishment to promoters for substandard construction. Again, Mo/HUA needs to take lead and initiate process to formulate guidelines for such quality control,” the letter had said.
The FPCE had suggested that all proceedings of RERA, appellate authorities and the Conciliation Forum should be held in-camera with provisions for a live-feed. In other suggestions to ensure transparency, the forum has said a web link should be made available to the public and an audit of the website should be ordered by state governments to check whether RERA provisions are being implemented.
The letter had said that penalties levied while granting extension to builders, along with their reasons should be properly stated along with the other disclosures.
RERA evolving gradually
That said, the process is evolving in the right direction, albeit slowly, expert said.
“Things are changing for the better. Generally, players are far more accountable and cannot easily get away with breaking the RERA rules. While the redressal of complaints is not satisfactory for many, consumers are coming forward in large numbers to register complaints across states. The Wild West days of Indian real estate are definitely over”, says Anuj Puri, chairman, ANAROCK Property Consultants.
“One significant change in three years since RERA implementation is that credibility has been restored; fly-by-night agents and operators can no longer dupe customers with false promises and fraudulent measures. It has resulted in increase in fair transactions in the real estate sector, better accountability and transparency, and a fundamental upward shift in consumers’ sentiment. And that is beneficial for the real estate sector at large,” said Ram Raheja, director, S Raheja Realty.