State governments spoil RERA party, but organised players clear winners

Shishir Kumar AsthanaMoneycontrol Research

The window for real estate developers to register their projects with the real estate regulatory authority in their respective states has closed. July 31, 2017, was the date set by the central government for registrations for builders and real estate agents. This was also the date for the state governments to frame regulations and rules as per the Real Estate (Regulation and Development) Act, 2016 (RERA).

RERA has been touted as an important Act meant to bring in transparency in a sector that has been blamed as a major source of black money. However, many state governments do not seem to be too happy with the provisions. Some states have not yet set up the regulator where builders could register themselves.

Out of the 35 states in India, only 23 states and union territories have notified RERA rules under the RERA Act. Six states have drafted the rules but not yet notified them. Apart from Assam, the north eastern states are having constitutional issues in setting the guidelines as land in these states belongs to the community or the autonomous councils. To be fair to the states, every state has taken action towards setting up the regulator but have not been efficient enough to meet the deadline.

However, where the blame clearly falls on the state governments is in setting the guidelines for the real estate sector which should have ideally been transparent and fair for the consumer, take in view the issues faced by the builder and keep the government at an arm's length. The central government had, after all, given states the freedom to set their own rules. Here the state governments seem to have skewed the rule books in favour of the builder rather than the consumer.

RERA covers both future projects and on-going projects. While state governments have done their job in making most of the rules as per the central government guidelines for future projects, it is in the ongoing projects that the state government has taken sides.

The rules laid down by the central government clearly say that for ongoing projects the developer cannot sell units in a project unless they are registered with the regulatory authorities. But most states have not followed the guidelines in law and spirit.

The central government’s RERA rules clearly say that projects that have not received completion certificate on the date of the notification of the Act will be considered as ongoing.

States governments have excluded where even partial completion or occupation certificates have been obtained by the developer. More blatant, as pointed out by a Moneycontrol article, is the fact that some states have allowed projects to be exempted even if they have only filed an application with the authorities for issue of completion or occupation certificate. One state has even ruled that laying of slabs in a housing project is enough for the real estate project to be out of the purview of the Act.

Now that the deadline is behind us, where does it leave the home buyers and investors?

Home buyers, especially those stuck with on-going projects are mostly left to their fate unless their state government has followed the central government’s guidelines. However, the potential buyers generally will have nothing to fear if they are buying a house from a RERA-compliant builder.

As for investors, FY18 is expected to be a slow year for real estate companies as they would be clearing their inventory and new launches will be kept on hold till the pressure has receded. But the inventories and issues plaguing the sector are already known and discounted by the market.

RERA brings in the transparency and visibility that the market likes. Little wonder then that real estate stocks have already rallied 36 percent over the last one year as compared to 16 percent for the broad index, despite demonetisation and a slowdown in the sector.