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How India's real estate law let down home buyers

For many Indians, an apartment is probably their biggest investment. And the false promise of timely delivery has now led to a trust deficit between developers and homebuyers. (Photo: Mint)Premium
For many Indians, an apartment is probably their biggest investment. And the false promise of timely delivery has now led to a trust deficit between developers and homebuyers. (Photo: Mint)

  • Execution delays despite favourable orders by the regulator have left people in the lurch
  • The Act has many gaps. District magistrates, for instance, don’t have an easy mechanism to recover the money from defaulting developers. They also lack manpower.

Shama Kochhar, a director in a manufacturing firm, booked an apartment in Panvel, Mumbai, in 2013. Her developer agreed for a handover by December 2018. However, things rarely go as planned in the world of residential real estate, especially in India where big builders, often, exert a disproportionate amount of influence over the middle-class homebuyer. In early 2019, Kochhar’s developer revised the possession date to December 2022, only to extend it further to June 2023, citing the pandemic as a cause. Kochhar, who has already paid over 90% of the total cost, wants to be compensated for the delay. She registered a complaint under the Real Estate (Regulation and Development) Act, popularly known as RERA, in July 2020. Despite multiple follow-ups, she is yet to hear back on the complaint. “I am perplexed as to what I should do. I haven’t got a response from Maharasthra RERA. Should I go to the consumer court or wait further? And for how long?" she asked.

Then, there is Rajesh Gupta, a 36-year-old broadcasting engineer, who booked an apartment in Noida in 2015 and like Kochhar, paid 90% of the overall price. His developer had also promised delivery in 2018, but defaulted. As he waits for the apartment to be ready, he is bearing the dual burden of paying equated monthly instalments (EMIs) on the housing loan as well as rent. To make things worse, Gupta recently lost his job. He filed a case with the Uttar Pradesh RERA and has received a favourable order—the promoter has to pay a certain interest amount to Gupta until the handover has been completed. However, the good news ends here. He is yet to receive any compensation; he is waiting for the order to be implemented.

Mind the gap
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Mind the gap

Kochhar and Gupta are not alone in their endless wait for houses they’ve booked years ago. Thousands of homebuyers across India who have been duped by developers are still waiting for their houses to be delivered. Some of the delays are because of the pandemic-induced economic shocks. For instance, the second wave of covid-19 is expected to delay the delivery of around 422,000 residential units in India’s top seven cities, data from Anarock Property Consultants showed. Localized lockdowns disrupted raw material supplies. Nevertheless, a majority of the delays stem from developers diverting money to other projects, or because they haven’t been able to sell enough apartments in a project. Around 2.3 million units were launched between 2013 and September 2020 across Bengaluru, Chennai, Pune, Kolkata, the national capital region (NCR), Mumbai Metropolitan Region (MMR), and Pune. Of these, just 34% have been completed so far, Anarock Research’s October 2020 data found. NCR and MMR saw the lowest number of project completion.

For many homebuyers, an apartment is probably their biggest investment. And the false promises of timely delivery have now led to a trust deficit between developers and homebuyers. RERA did come as a ray of hope when it was enacted in May 2016. The regulator provided a much-needed platform for people to seek grievance redressal. As of 10 July, 2021, about 70,001 cases have been disposed by the RERA authorities of different states, according to data from the Union ministry of housing and urban affairs. However, the disposal of a case means little when orders are not executed. In short, RERA has many gaps, and it hasn’t lived up to the expectations just as yet. Why are the orders not implemented?

Manpower blues

Raju Verma, a civil engineer, has been waiting for his apartment since July 2016. He paid up 95% of the dues in 2013, when he booked the flat in Bhopal, Madhya Pradesh. After seeing little progress in construction, he approached the Madhya Pradesh RERA in October 2017. The RERA authority, in February 2018, asked the developer to refund the total amount paid with 10% interest. Not satisfied with the compensation, Verma approached the Madhya Pradesh RERA Tribunal, which then ordered a compensation with 14% interest in January 2019. The developer, however, failed to comply with the order. Verma wasn’t willing to give up—he approached the RERA Tribunal again seeking the enforcement of its previous order. The tribunal then sent the order to the district magistrate, who couldn’t do much either. Verma has now approached the high court.

Verma’s ordeal tells the tale of the execution delays faced by homebuyers even after they have received favourable orders. District magistrates don’t have an easy mechanism to recover the money from developers. One of the hurdles is the lack of manpower at the state level. “We send the recovery orders to district magistrates who often lack manpower and find it difficult to execute the orders without the provision to do an e-auction of property. Unless there is an effective mechanism to do an e-auction, we will continue to face difficulty in implementing the order," Balvinder Kumar, member of Uttar Pradesh RERA, said. The Uttar Pradesh RERA has disposed as many as 27,825 cases, accounting for nearly 40% of the total cases in India.

District magistrates have the authority to seize a property and auction in cases where the occupancy certificate is available. However, since the auction has to be conducted physically, it is a time-consuming process. Meanwhile, many homebuyers like Verma have been pressing for complete refunds.

Homebuyers, today, are given two choices by RERA. They can either agree to take possession at a future date or opt for a refund along with the applicable interest rate. “Most of the homebuyers opt for the latter option," Kumar said. Homebuyers prefer a refund because the value of residential real estate may have dropped in many markets in the aftermath of the pandemic. “A homebuyer may have paid 40 lakh. With the applicable interest, the compensation amount may be 50 lakh. They are likely to opt for the compensation because the value of the apartment may be below 50 lakh today," Kumar said. The problem: developers who have already siphoned off a bulk of the project money can neither complete the project nor pay back the homebuyers. And in some states, buyers are left in the lurch by the state itself.

State tweaks

Data from the Union ministry of housing and urban affairs says a lot about the progress RERA has made in different states. As of 10 July, a total of 34 states and Union territories have notified rules under RERA. Nagaland and West Bengal are yet to notify them. While 30 states and Union territories have set up regulatory authorities, 28 of them have set up a real estate appellate tribunal. At least 27 regions have operationalized their websites and 14 are yet to appoint an adjudicating officer authorized to decide upon issues related to the compensation or refund under RERA.

Meanwhile, West Bengal has enacted its own law—the West Bengal Housing Industry Regulatory Authority (WBHIRA), but the Supreme Court’s May 2021 verdict has held the “parallel regime" unconstitutional. Some homebuyers in West Bengal have been clearly caught off-guard. Saptaparna Ray is one of them. An IT professional, she booked an apartment in Kolkata in 2013. The promised possession date was December 2016. She approached WBHIRA in 2019 when the developer couldn’t complete the construction. An order was passed in favour of Ray and the developer was asked to provide a refund along with the interest as per the sale agreement. However, the builder refused to comply. Ray’s case is now with the district magistrate in West Bengal’s North 24 Parganas district and the court verdict on WBHIRA has left her more worried.

While West Bengal tried a parallel track, some states have tweaked the central Act. Telangana, for instance, has implemented RERA but has excluded projects that were launched before 2017. This has left several homebuyers like Hari S. Jain in the lurch. Jain, 79, is a doctor by profession and had booked an apartment in Hyderabad, in 2009. He used up his retirement savings but never got the house. Since he can’t approach the Telangana RERA, he has been fighting his case in a consumer court since 2017, waiting for an order.

Abhay Upadhyay, president of the homebuyer’s association Forum for People’s Collective Efforts, said that the lack of data collection and its publication on the RERA websites of different states has led to concerns over transparency. “As per section 34 (C) of RERA, a database has to be maintained on the RERA website for public viewing. The names and photographs of promoters who have defaulted have to be uploaded. Project details for which registration has been revoked or has been penalized under the Act have to be entered, too," he said. Only the Uttar Pradesh RERA has photographs along with names of promoters of deregistered projects today, he informed. Upadhyay said that RERA websites should also include information on projects that have requested for deadline extensions along with the number of years they have sought to complete them. Projects that have received the maximum number of complaints should also be displayed prominently—such information will help prospective homebuyers make more informed decisions.

Work in progress

Even with its shortcomings, RERA has improved accountability in the sector, some believe. Anuj Puri, chairman of Anarock Property Consultants, said that there is little doubt much needs to be done. “However, developers have certainly become more accountable to the concerned homebuyers. Prior to RERA, there was no forum to address consumer grievances or regulate the functioning of developers and the real estate sector as a whole," he said. New projects launched after RERA came into force have less delays. In India’s top six cities, excluding Kolkata, nearly 2,427 projects have been launched between July 2017 and December 2018. Of these, approximately 23% have been completed. The remaining projects have a completion timeline between the second half of 2021 and 2027, Puri said.

Meanwhile, RERA authorities in some states are trying to stop developers from indulging in unscrupulous practices. “We have appointed a person specifically to scout social media and other media publications so that developers are not able to advertise unregistered projects as prohibited under law," said Kumar of the Uttar Pradesh RERA. “We provide the RERA registration within one month and the entire process is transparent and online. As far as homebuyers’ complaints are concerned, we try to resolve them over a period of six months," he added.

Developers, on their part, have suggested that the law needs to be equitable for the homebuyers as well as builders. “In cases where an order is passed in favour of the homebuyer, the authority should have the power to ensure that the compensation is received without any pain. Similarly, the authority should be able to drive enforcement of the order in favour of the developer," Rohit Gera, managing director of Gera Developments said. For example, in case the homebuyer defaults on a payment, the cancellation of the agreement needs to be seamless. RERA should also look into complaints regarding delays in the issuance of permissions and no objection certificates (NOCs) by different government authorities, he added.

Often, projects take a long time to take off because of the numerous permissions required. “The entire ecosystem should be governed by one authority. This will help reduce delays in the completion of the project," Gera said.

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