Monday, May 01, 2017

RERA Myths Busted: No Big Relief For Stuck Home Buyers, House Prices Won't Rise

The dust has finally settled on RERA or the Real Estate Regulation & Development Act. From Monday (1 May 2017) it comes into force across India, and the day will be remembered as a special day for home buyers who have been committing the largest chunk of their life savings to an industry which has been free for all.

A press release from the Housing Ministry stated how this day marks the end of a 9-year-long wait; and for the first time 76,000 companies engaged in building and construction activities across the country will become accountable for quality and delivery. Union Minister for Housing Venkaiah Naidu in his tweets called it the beginning of a new era making buyer the king, while the developers benefit from the confidence of a King in the regulated environment.

Buyer the King was the hope with which groups like Fight For Rera have waged this decade long struggle to get the rules in place. But as of now, this dream is a bit stretched, considering there are many gaps in the final rules announced by states like Maharashtra, UP and Gujarat. And key states like Assam, Chhattisgarh, Jharkhand, Punjab,Haryana, Tripura, Karnataka, West Bengal, Telangana and Tamil Nadu have missed the deadline of notifying the final rules, completely.

My attempt is to tone down the celebrations and expectations around the Real Estate Act and bust some myths.

RERA will bring relief to over 1 lakh home buyers stuck in severely delayed projects across India.

It won’t. Several state RERAs have made it pretty kosher for ongoing projects to escape the net. The Gujarat government may altogether excluded all ongoing projects. There’s enough talk that Gujarat is likely to cover only those projects under the ambit of RERA which have been launched on or after 1st November 2016.

According to Maharashtra Rules, Occupation Certificate (OC) and Completion Certificate are interchangeable. This is a worrying dilution and opens a window to exclude incomplete projects on the basis of OC.

In UP if a Completion Certificate has been applied for, and sale/lease deeds of 60 percent of the apartments/ houses/ plots have been executed, the builder is out of RERA’s ambit. These rules were finalised under the erstwhile Akhislesh Yadav-led SP government. In fact various Noida buyer groups put tremendous pressure on Union Home Minister Rajnath Singh, and his son Pankaj Singh who won the Noida assembly seat, right before the state elections, threatening to abstain from voting all together, for these dilutions. UP’s new government, we hear, is taking a relook at the rules.

Haryana, the other State where buyer stress is evident in several delayed projects, only a set of draft rules were issued as late as 28 April 2017 by the Town and Country planning department. These rules are diluted as well and seek to exclude projects which have applied for occupancy certificates or part completion certificates, if that is granted by the competent authority within 3 months of the application.

If at all, final rules are notified with this exemption, it will be an absolute raw deal for the home buyers, sitting on one-sided buyer seller agreement which also grants them a measly compensation for any delays.

Most desperate are the buyers stuck for years in projects like Amrapali, Jaypee & Unitech in NCR, DreamzGK in Bangalore, Aliens Group in Hyderabad, to name a handful. These developers have already diverted the money collected from the buyers. And where bank accounts are empty, a Regulator can at best, get the builder imprisoned. But will that yield any results?

Consumer and Civil Courts in several cases pertaining to these builders, have already prescribed throwing promoters into jail or penalties to be paid. Very few of these measures have yielded results.

What is needed in such dire cases is for each state regulator to step in soon after being formed; undertake a complete financial analysis case by case, of the developers’ books to assess whether there’s any money left to complete the projects. If not, the bankruptcy laws must kick in, and with the help of the regulator and the government, incomplete projects and land should be auctioned to the highest bidder to return the money collected equally to all buyers. If there are no takers for the incomplete projects, one could also bring in a government backed body with construction credentials like NBCC to complete these projects. These moves though need more changes in the law and can’t be done under current form of RERA.

Myth #2
Home buyers are protected in new projects launched post 1st May, 2017.

Puncturing this balloon of home buyers' belief, hurts the most. The Central Act notified in May 2016 was perfect in all respects. And Union Minister of Housing, Venkaiah Naidu also issued several warnings to states to not dilute any rules. Yet states, including BJP-ruled ones like Maharashtra, have come notified the most disappointing set of rules.

Several clauses under rule 3 of the Maharashtra RERA dilute the term “sanctioned plan”. Maharashtra rules mention only a proposed plan. They further allow developers to get away with disclosing at the time of registration, if the sanctioned FSI (Floor Space Index) is different from the proposed FSI. This totally violates the spirit and intent of Central RERA which calls for builders to disclose the final sanctioned plans at the time of taking bookings. And the builder is not permitted to make any changes without approval of 2/3 flat purchasers.

Maharashtra rules also give discretionary power to the authority, to withhold any information or document from uploading on the website for public viewing. RERA was enacted to bring complete transparency in the sector. These kinds of discretionary powers defeat the objective of the Act.

In Gujarat, RERA rules seem incomplete. No rules have been framed prescribing even the basics like forms, documents and procedures required for registration of real estate projects. There are no rules for revocation of registration either.

States like Karnataka, Tamil Nadu, West Bengal and Telangana, which have cities which are among India’s top 8 real estate markets-- Bangalore, Chennai, Kolkatta and Hyderabad--have not come out with final rules, despite being ready with the draft rules.

So let’s not kid ourselves into believing that the buyer in new projects will be fully protected. Not yet.

Myth #3
RERA will bring down new project launches and prices of homes will start rising.

This is what some of the industry lobbies have been saying. But it is doubtful.

Sure. New launches have dropped to 33,000 units in 2016, compared with the peak launch of 87,500 units in 2012 according to data intelligence firm Propequity. But is there enough demand to absorb the already launched apartment units?

The current unsold inventory in India’s top 8 markets, including Gurgaon and Mumbai will take 36 plus months or 3 years plus to be cleared. So new launches or not, there’s enough supply in the market to keep prices moderate.

Even today, buyers are willing pay a premium to trusted brands like K Raheja, ATS, Brigade, Ambuja Neotia, and a Tata. But to say, prices in general will start climbing, post RERA Act comes into force, is a big stretch.

So here’s my humble take.

This is the very beginning of transparency which India’s real estate sector desperately needs. Overnight redemption for stuck buyers is too big a hope from the Regulator. Each State Authority will need to rethink and refine the laws and also find the right kind of civil servants/ professionals to man the tribunals – to ensure buyer protection and industry growth needs are both met.

Why bother at all about the industry? Because it is after all Real Estate Regulation & Development Act. The development part has been submerged in all the noise surrounding the plight of the shortchanged home buyers. The real estate industry too faces some big challenges. Approvals for housing projects from urban local bodies across India are ridden with delays and graft. They have all been excluded from any accountability under RERA. So it helps neither the home buyer nor the economy to make the Regulator a draconian body and slowdown a sector gasping for breath.

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