The Indian real estate sector, historically synonymous with opaqueness and regulatory inconsistencies, has significantly shaped the economic landscape of the nation. Before the implementation of the Real Estate (Regulation and Development) Act (RERA) in 2016, the industry faced endemic issues like unfulfilled project deliveries, undisclosed project delays and rampant misappropriation of funds. These issues not only dissuaded potential investors and homebuyers but also tarnished the reputation of the real estate market. Recognizing the urgent need for reform, the Indian government introduced RERA in 2016, aimed at instilling a system of accountability, transparency and fairness. This legislation marked a paradigm shift, transforming the real estate sector into a more reliable and consumer-friendly environment.
Increasing Transparency
Before RERA, the real estate projects lacked adequate project disclosures resulting in major gaps between representations made during sales vis-a-vis the actual product delivered. Under RERA, developers are now required to register their projects with RERA and share all project details on a publicly accessible RERA website. This includes floor plans, approval status, land title details, project amenities, sales details etc. This helps buyers make more informed purchase decisions and creates greater transparency between developer and buyer.
RERA also mandates developers to provide regular updates on project status. This allows buyers to track the project’s progress and ensures adherence to delivery timelines.
Sales and Standardised Agreements
RERA strictly stipulates that developers cannot advertise or promote projects until they receive project RERA approval. Furthermore, developer cannot accept more than 10% of the unit cost as an advance payment without entering into an ‘Agreement for Sale’ with the buyer.
Also under RERA, the Agreement for Sale has now been standardised, which was previously skewed in favor of the developer. RERA has defined guidelines to be included, such as payment milestones, handover date, rates of interest in case of default by either party, etc, to standardise the agreement.
Ensuring Timely Project Delivery
One of the key mandates under RERA is the establishment of escrow accounts. This measure enhances financial management in the real estate sector by requiring developers to keep 70% of the funds collected from buyers in a dedicated escrow account. The utilization of these funds and the project completion status must be certified by a Chartered Accountant (CA), engineer and architect before any release from the escrow account for purposes other than construction. This ensures that the money is used only for the specific project for which it was collected. This helps avoid misappropriation of project sales collections and ensuring timely project completion.
Faster Dispute Resolution
RERA has streamlined the dispute resolution process in the real estate sector. The establishment of specialized tribunals dedicated to handling real estate disputes under RERA enables quicker resolution times, as they are mandated to resolve complaints within 60 days.
Enhancing Project Quality and Ensuring Compliance
Under RERA, developers are held to stringent compliance standards to ensure project quality. This includes adherence to approved plans and the use of quality materials. If any structural defects are discovered within five years of possession, the developer is required to make the necessary corrections at their own cost.
RERA imposes penalties for violations such as non-registration of projects, incorrect application for RERA registration and non-compliance. Penalties can include fines, imprisonment, or both, depending on the severity and nature of the violation. For instance, a developer can face a penalty of as high as 10% of the project’s estimated cost for advertising without RERA registration and 5% of the project’s cost for providing false information.
In addition to bringing transparency, RERA has led to consolidation in the real estate sector by removing fly-by-night operators through greater compliance. Further, it has mitigated project delivery risks through escrow of sale proceeds creating a more stable and trustworthy market.
As a result, these changes have re-rated the risk of Real Estate Investments in residential projects through partnering with credit-worthy developers who are more disciplined and compliant, on projects with clear financial closure.
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