Home / Opinion / Views /  A major test looms for our real estate reforms

Clouds of dust from Sunday’s demolition of two Supertech buildings have settled, but they cannot cover the reality of India’s real estate sector—in particular, the numerous unfinished apartment blocks that hulk over the Noida-Greater Noida landscape. For many homebuyers, the Supreme Court-ordered razing of those twin towers in Noida was proof that the law can catch up with builders and government officials in cahoots with them. But the question remains: What will deter future violations by rogue real estate players? As of June 2022, according to an estimate by a realty consultancy firm, the construction of about 240,000 homes remains stalled in the National Capital Region (NCR) alone. This problem has long been in the making. Till around 2015, the NCR was the boom zone of a weakly regulated business. Builders, many with political links, embarked on reckless expansion, buying up land of dodgy provenance, selling the dream of vast townships to an aspiring middle-class. Much of this was fuelled by speculator money. Left holding the raw end of bargains were real homebuyers who were promised homes that were either delivered after years of delay—at far higher effective prices than they had signed up for—or which were never built at all. Once the boom ended, many marquee names went bust.

What followed was a clean-up led by judicial action and state intervention in the shape of a rescue package and law that laid out red lines in a market that had seen builders get away with too much. The Centre set up a special fund to complete stalled affordable housing projects across the country. The National Buildings Construction Corp Ltd and developers with proven track records also took over unfinished projects. Passed in 2016, the Real Estate (Regulation and Development) Act had a blueprint for the sector’s regulatory architecture. For one, it meant that all builders had to register their projects with a state’s Real Estate Regulatory Authority (RERA), come clean on other undertakings and park the funds pooled from homebuyers of one project in an escrow account so that none of it could be diverted. For another, they had to abide by clear delivery timelines—failing which they had to refund buyers or pay interest on their money for delays. Customers could also approach consumer courts under RERA, which was given the power to crack down on builders with fines or prison terms. The judiciary went so far as to classify advance paying homebuyers as creditors, letting them band together to drag errant builders to bankruptcy courts. All of this was cheered along for fixing a glaring power asymmetry.

Just how well have buyers been empowered? A big test of this is due soon as the deadlines of five-year-old RERA projects approach and covid disruption arguments sharpen. While we have seen industry consolidation, with weak players squeezed out, malpractices continue. As local-level corruption has seen little let-up, fears have arisen of RERA capture by powerful builders in states where regulator discretion is suspected to have weakened the law’s teeth. Though lockdowns justify timeline extensions of a few months, ‘force majeure’ cannot be invoked to negate reforms. The government should review its progress on assuring this market some discipline. Its 2019 shift to a GST rate choice (with input credit and without) had caused home-pricing confusion that persists. The rules need to be kept simple and clear.

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