The much-discussed Real Estate Regulation and Development Act, 2016 (RERA) came into effect in May 2017. And while it has had some teething problems, there is no doubt that this new regulation will bringing transparency and accountability into the real estate sector – something that consumers as well as responsible real estate developers will welcome. For far too long, consumers have viewed the real estate sector through a cloud of mistrust. To be fair, their apprehension isn’t wholly without reason. Delayed projects, overpricing, and ambiguous project specifications in the past have left homebuyers feeling frustrated and helpless. Ethical real estate developers are therefore as excited about RERA as homebuyers, because it will help reinstate consumer faith in the industry.
Why is RERA necessary?
Homebuyers invest a huge part of their life earnings in buying property. They are therefore entitled to be aware of all relevant details such as carpet area, car parking facilities, floor plan, and fixtures, and to be informed of changes to any of these elements during the project’s construction. RERA puts an end to the possibility of ambiguity in this matter – among many others – and tilts the balance of power in favour of the consumer.
For instance, by mandating that developers disclose and update project details on the State RERA website (failure of which will attract a penalty of up to 10 percent of the project cost), RERA ensures that there are no unnecessary delays in delivery.
Similarly, by prohibiting developers to advertise, sell, or invest in projects without a RERA registration, RERA weeds out unscrupulous builders who could otherwise use loopholes to sell projects to investors without approval of plans – a situation that might lead to litigations later.
The institution of RERA thus holds the promise of organised growth for the sector and unprecedented levels of reassurance and clarity for homebuyers.
Inconsistent and inadequate implementation could undermine all the good intentions
Despite all this, there remains a certain amount of scepticism about how RERA will be implemented. The main problem arises from the fact that there will be different regulatory bodies in different areas as land is governed individually by the State or Union Territories. And even though all States and Union Territories were supposed to have notified their RERA rules by 31st July 2017, some of the twenty-nine States failed to meet this deadline. Moreover, many States have diluted certain aspects of the Act, while some others have not placed due emphasis on its provisions in their rules. These include important areas such as definitions of ongoing projects, penalties for non-compliance with RERA, payment schedule, and liability in case of structural defects.
Self-regulation: A lesson worth learning from the mutual fund industry
The key to the success of RERA lies in its implementation. It may be worthwhile to learn some valuable lessons from the mutual fund industry in India, which, to protect the interest of retail investors, established a self-regulatory trade body called the Association of Mutual Funds in India (AMFI) in 1995 after the capital market regulator – the Securities and Exchange Board of India (SEBI) – allowed the entry of private sector mutual funds in 1993.
AMFI operates as a representative of the industry and conducts regular investor education initiatives. Not only that, it has been instrumental in mandating registration for financial intermediaries, and establishing a code of conduct and an appropriate fee structure for distributors. And in recent times, AMFI has played an active part in the introduction of SEBI Investment Advisors Regulations.
The real estate industry regulator would do well to take a leaf out of the mutual fund industry’s book, and establish an organisation for developers that would be self-regulatory in nature. Like AMFI, this organisation could play the important role of establishing a code of conduct for real estate intermediaries. Furthermore, it could mandate a minimum standard of certification registration under RERA, and introduce a standard of professional ethics in the real estate business.
The real estate sector will benefit from recently introduced regulations and policy interventions
India’s real estate has, in recent times, experienced what can be described as a ‘reboot’. First, the demonetisation exercise undertaken in 2016 clamped down on cash transactions. Now, the implementation of RERA has lent further accountability to the sector. One now has the right to expect that the real estate will operate professionally under the aegis of an able regulator hereupon. These developments will brighten the outlook for the sector, and encourage many fence-sitters to become homeowners soon.