Regulation regime cuts teeth... slowly

One of the biggest, and arguably the most awaited, reforms in the real estate sector in India was the implementation of RERA and establishment of regulatory authority two years ago. While the debate had been on for nearly a decade on regulating the highly opaque industry, the challenges of bringing it within the ambit of regulation were multi-fold. Besides the reluctance on part of the key players, the overall machinery to manage the process was fraught with numerous challenges. 

While the provisions of the law were heavily in favour of the buyers, there were doubts about compliance on the end of the developers and many states were “accused” of diluting the different provisions to keep the developer lobby in “good humour”. So, in a way, two years down the line the Real Estate (Regulation & Development) Act 2016 is still a work-in-process, with the states currently placed across the spectrum of RERA implementation. On the one hand, Maharashtra has taken the lead and is markedly ahead, while West Bengal on the other, is yet to catch up. As of now 22 states and 6 Union Territories have already notified their RERA rules, out of which 19 states have active online portals.

An assessment of the first two years of the journey towards a transparent, regulated and organised real estate sector reveals several ups and downs. A closer look at each of the states with active portals, reveals that project and agent registrations have been on the rise since November 2018. 

Buyer confidence bolstered

The buyers’ confidence has also seen a steady surge as they are bringing their issues to the regulating authority. “Even while buyer’s have been continuously fretting about the dilution of the rules notified, they are bestowing their faith in the law and coming forward in bulk to raise their complaints against erring developers for myriad reasons, including project delays”, says Anuj Puri, Chairman, ANAROCK Property Consultants. “Now, buyers also know that they have a platform to complain about the errant developers and hence they are less skeptic about investing”, says Pradeep Aggarwal, Chairman, ASSOCHAM National Council on Real Estate, Housing and Urban Development.

A quick look at the rulings given by MahaRERA, arguably the most advanced state in implementing RERA, at the end of 2018,shows that nearly 5,000 complaints were received and over 3,100 orders passed. Just till the end-2017, 79 per cent rulings were in the favour of buyers. “That should give an estimate of the speed and the extent of buyer-protection that RERA has offered so far. It is evident that as various states establish the authorities; and as these state authroties come to function at optimal efficiencies, real estate will be a radically transformed industry”, says Arvind Nandan, Executive Director, Research, Knight Frank India. 

However, there are also cases wherein despite RERA notifications to defaulting builders who have been summoned to pay penalty to buyers, they are delaying payments or not attending hearings. Nevertheless, things are changing for the better. “Generally, players are far more accountable and cannot easily get away with breaking the RERA rules. In several instances, developers have been reprimanded by the authorities concerned and have had to pay penalty amounts to their buyers. 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”, adds Puri.

According to Arvind Nandan, the greatest protection for demand side comes in the form of much higher transparency and an assurance on proper deployment of funds by builders. Earlier customer advances  — the standard funding sources for construction — were easily diverted to other projects. However, by enforcing escrows, RERA inserts a safety-valve into the process. Money raised from the buyers cannot be kept hidden — rather, it needs to go into an escrow. Similarly, alterations to promised layouts or designs are not possible anymore, at least under normal circumstances. “RERA has established information symmetry, and as it is implemented across the country, we should soon have a market which is open to scrutiny and is transparent”, asserts Nandan.

Registration numbers up

Project and real estate agent registrations have been on the rise across most states from November 2018 to April 2019. As per data provided by Anarock property consultants,  in Andhra Pradesh as many as 307 projects were registered under RERA as on date — up from mere 61 in November 2018. Maharashtra is currently the most active state having the highest project registrations with more than 20,718 projects under MahaRERA so far, and nearly 19,699 RERA-registered real estate agents. Project registration in Karnataka currently stands at 2530 projects and  1342 RERA-registered real estate agents so far.

The latest RERA deployment on the ground shows, Maharashtra still leads the ‘race,’ if it can be called that, followed by neighbouring Gujarat with 5,317 RERA-registered projects and 899 registered agents and agencies.

Rough edges

The lengthy approval process, however, still remains a major peev for developers. But  It has been a good beginning and the realty sector in the country is slowly coming to terms with the strict provisions and developers too are in compliance mode. As  Rajesh Goyal, Vice-President, CREDAI (NCR) puts it, “ RERA is still at a nascent stage, but the impact it is having on real estate is tremendous. In UP, the work is going on at the war front and many complaints of buyers are being addressed. There is also a talk of setting up a separate for Delhi NCR looking at the size of the state and humongous work being done in Delhi NCR alone”.

Prateek Mittal, Executive Director, Sushma Group adds,“As per the expectation RERA has helped in regularising the sector. We hope the Act will keep evolving with time based on the feedback of ground realities, making it better for the future.”

It has been vigorously argued on numerous platforms whether these changes, of which RERA happened to be the first link in the chain, have been worth the pain. However, it is evident that RERA is the need and is there to stay. The past two years have been turbulent, but there is little doubt that RERA has altered an industry that was opaque at best, or, notoriously oblivious to customers’ interests at worst.

Price fluctuations

As prices remain the best indication of the state of markets , a look at price index can be used to assess the impact of RERA in the past two years.  Data figures show that while the prices had been in a steady decline between 2013 and 2016, the cycle turned negative in the period immediately following the implementation of RERA. Evidently, the sales dipped, and projects began to struggle to cope with the rigorous requirements of the now regulated industry. “It should be remembered that this period of negative growth in prices coincides with, and is closely linked to, some other remarkable events, namely, demonetisation, temporary ban on construction in Mumbai, implementation of GST, and a little later, the liquidity crisis of 2018. All of these, along with RERA, contributed to the slowdown in the industry, leading to falling sales every successive half-year as well as negative price growth. GST implementation, the other structural change apart from RERA, can be said to have contributed significantly to the ways of doing business in residential real estate”, claims Nandan. The downward movement in prices has, however, been increasingly arrested in 2018 and is now on a recovery path. — TNS