Mohit Malhotra, MD & CEO, Godrej Properties edited interview with the Indian Express
While Real Estate (Regulation and Development) Act, 2016 (RERA), became operational on May 1 and states are in the process of implementing it, what is the big change it has brought?
The industry is likely to see a lot of disruption. Over the last 6-9 months, many developers have decided that they don?t want to pursue projects any more. Many of them are approaching us and other large players, asking us to take their land or project and complete them. That is a big change already happening and is something that all large and well established players are experiencing as small developers are looking for an exit. From the consumer perspective, RERA will bring a big corrective change and over the next two years, the industry will become much better.
What is the kind of exit do you see happening from the industry?
While there are an estimated 10,000 developers listed with CREDAI, I have a feeling that only around 10 per cent of them would survive. The issue is how many of these developers can customers trust with their money as of now as they have not been able to execute the project and are finding it tough to raise funds. Bigger players have no baggage and have done what was supposed to be done. People have stopped trusting old-time small developers.
All About RERA
What is the status of RERA vis-à-vis the central and state and UT governments?
The Real Estate (Regulation and Development) Act, 2016, was passed by Parliament in March 2016, and a part of it came into effect on May 1, 2016.
However, significant sections of the legislation from registration of ongoing projects to penalties for non-compliance were not notified.
Why were they not notified?
This was because these required an institutional framework to be in place first. States were given a year to set up this framework namely, the Regulatory Authority and the Appellate Tribunal. From May 1, 2017, the Act has come into force in its entirety.
However, even now, of the 29 states and 7 Union Territories, only Madhya Pradesh has appointed a Regulatory Authority.
Why was there a need for such a law?
1. Data for 8 major cities from the real estate research agency Liases Foras show that over 80% of the 25 lakh-odd residential projects launched over the last 10 years have been delayed.
2. A quarter of these were delayed by more than 4 years over the promised date of delivery.
3. Homebuyers, at the receiving end of such delays, overcharging, and other fraudulent practices of real estate developers, have had no option but to watch their cases languish for years in the over-burdened consumer courts.
4. Moreover, states have had obscure and varying definitions for terms such as carpet area, common areas, or car parking, leaving ample room for manipulation by developers.
About the new law
1. At the level of the state, the Regulatory Authority and Appellate Tribunal must dispose of cases within 60 days. Appeals to the High court can be made within 60 days.
2. Builders of both new and ongoing projects (ones that have not received completion certificate) must mandatorily register their project with the Authority in the next 3 months. Real estate agents too have to register themselves with the Authority within 3 months.
3. Developers cannot even market the project without registering it with the Regulatory Authority; the registration can be revoked in case of violations.
4. In such cases, the bank account of the project can be frozen, and the money used to complete the work.
5. Builders have to mandatorily disclose every detail of the project on the website of the Authority, and update them quarterly. Failure to do so can attract a penalty up to 10% of the estimated cost of the project. Repeat offenders can be fined an additional 10% of the project cost, or sent to jail for up to 3 years.
6. Real estate agents and brokers too have to be registered. Non-compliance with the orders of the Appellate Tribunal, by both brokers and property buyers, could attract a penalty up to 10% of the apartment cost and/or a jail term of 1 year. In the case of builders, the jail term may extend up to 3 years.
7. In case of deliberate delays, builders will have to pay the same rate of interest as they levy on defaulting buyers. The consent of two-thirds of buyers will be required for a builder to make changes to the original plan, even if the planning body sanctions the modifications.
What’s in it for the homebuyer?
RERA will be applicable to all proposed and ongoing residential and commercial realty projects over a minimum area of 500 sq m, or having 8 flats, including projects outside urban areas.
What hurdles did the legislation face?
Many attempted dilutions were forestalled or reversed, thanks largely to constant vigil by consumer groups and nationwide homebuyers? collectives such as Fight for RERA.
But the law was, indeed, diluted in some ways. For instance, to prevent the widely prevalent practice of developers diverting the bulk of sales proceeds to buy more land, the Bill had originally wanted builders to deposit 70% of the collections in a separate account, to be used solely for the purpose of construction. But before the Bill was placed in Parliament, the clause was tweaked to cover both land and construction costs.
Intense lobbying by the realty sector has resulted in several states issuing RERA Rules that in some cases effectively favour developers over homebuyers.
(Adapted from The Indian Express)