Will delay in RERA hurt its credibility?
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The Real Estate (Regulation and Development) Act came into force on 1 May 2016 but many states have not yet met their deadlines. Ashwini Kumar Sharma asks experts how this will impact the Act’s credibility
Samantak Das, chief economist and national director – research, Knight Frank India
The regulation, along with similar reforms, will bring a paradigm shift and the pre-RERA analysis of the sector will have no relevance. There are several challenges to implementing RERA in letter and spirit. First, the central Act is extremely comprehensive and takes due care of all the stakeholders, including developers, buyers and brokers. However, since real estate is a state subject, the states are now implementing the Act separately. Each state will have its own regulator, and depending upon the local real estate dynamics, the Act is getting modified. In some states, there were efforts to even dilute it.
There are some concerns regarding ‘ongoing projects’. Implementation of RERA is a big exercise; many states have not implemented it despite notification. The delay is in terms of states implementing and putting a regulator in place. Maharashtra and Gujarat have regulators but UP and Haryana do not. This delay is unwarranted.
The major problem today is lack of buyer confidence in project delivery and in developers—whether they are being given what was promised. This is the only factor pulling down sales. Otherwise, prices are on decline, home loan interest rates are low and the macro-economic scenario of India is quite robust. The only factor hampering is lack of confidence, which RERA will resolve. But for that to happen, the states must act quickly to restore buyer confidence.
Samir Jasuja, founder and CEO, PropEquity
RERA as a law, is highly positive from a buyer’s perspective. If implemented, it boosts a buyer’s confidence in the developer and government since it increases the scope of a regulated environment. A delay in its implementation will impact the demand for ongoing projects since buyers would be sceptical to invest before its implemention, that is, some buyers might be awaiting a clearer picture with respect to the Act’s implementation. However, demand for completed units is expected to stay the same, since the project is already ready and does not have any execution related risks.
Delay in implementation of RERA will impact the foreign direct investment (FDI) inflow into states where RERA is not yet implemented, thus slowing the recovery of their real estate markets. Foreign investors prefer to invest in regulated and organized markets therefore, states that have implemented RERA are likely to see an increased FDI inflow.
RERA was passed by the central government in March 2016 with 59 out of 92 of its sections being notified. In May 2017, the remaining sections were notified. Since its inception, the central government has provided a decent time-window (1 year) to the state governments so that they can align themselves with the law. However, some states are yet to show any sort of implementation. This delay can be seen as a sign of slow administration and lack of intent.
Shubham Jain, VP and sector head, corporate ratings, ICRA Ltd
The delay in implementation of RERA will have an adverse impact on customer confidence. Since new projects cannot be launched without being registered, the lack of requisite regulatory infrastructure in many states has effectively curtailed new launches since May 2017.
The Act also requires that all ongoing projects be registered by end of July 2017. There is a lack of clarity on whether developers can continue to market and sell units in ongoing projects beyond this timeline in states where the regulator is not in place. For developers with compliant projects, such delays can result in potential loss of sales. Prolonged delays can also dilute the protection available to existing customers. Till these projects remain unregistered, customers may not have recourse to the provisions that impose significant penalties on developers for deviations from contracted obligations. Since many states have granted exemptions to ongoing projects in advanced stages from coverage under the Act, the delay presents an opportunity to developers to limit its applicability to such projects.
The functioning of the state real estate regulatory authorities will be a determinant of customer confidence in the industry. Prompt action on registration applications, fair adjudication of consumer complaints and appropriate penalties on errant developers will send a positive signal to customers.
Anshuman Magazine, chairman, India and South East Asia, CBRE
RERA is one of the key reforms which will be game changers for India’s real estate sector. Post the central government’s guidelines, we are witnessing a strong trend towards adoption of the guidelines at the state level. However, a delay here could lead to end-users maintaining a wait and watch mode and deferring their purchase decisions. As the consumer now is more aware, investing into RERA-compliant or registered projects is a natural progression for them. Given the current market situation of relatively slow demand, the delay in notifying state-level guidelines will impact the revival. We are hopeful that the remaining states will notify their guidelines at the earliest so that the sector as a whole can move forward. Once implemented across all the states, RERA will help boost the residential real estate segment, which has been subdued in recent times. The resulting transparency and credibility will have a cascading effect on both the end users and investors in the housing segment. Coupled with a simultaneous rationalization in home loan rates, end user-driven demand could increase, especially in the mid-segment and affordable housing. At the same time, the Act would also boost investor confidence, resulting into an inflow of institutional capital in the medium to long term. For the Act to be successful in the long term, it is imperative that all the states should notify their guidelines at the earliest.