Real estate sector in India is currently experiencing one of its worst phases due to the rising levels of unsold inventory and prolonged lack of confidence and transparency. End-users’ loss of affordability as well as reduced participation of the investor on account of falling returns on the asset class and stagnant real estate prices significantly disturb the demand-supply dynamics in the housing market. Moreover, frequent contractual disputes, opaqueness, improper planning and monitoring, inordinate delays in project completion, speculative investments, supply demand mismatch in both ownership and rental housing markets, poor communication and collaboration among stakeholders, real/perceived fraud and corruption risks have made the housing market unresponsive to housing needs in India. COVID-19 has served a bloody blow to the real estate sector with diminishing demand, non-availability of labour and essential construction materials resulting in complete stoppage of project works.
The Real Estate (Regulation and Development) Act, 2016 (RERA) came into effect on 1 May , 2017. Its core objective was to ensure and encourage greater transparency, citizen centricity, accountability and financial discipline in the real estate sector. Provisions like the mandatory disclosure of all project related information, model contract documents, specification of carpet area, limiting the advance payment or an application fee to 10% of the apartment cost, deposit of 70% of the collected amount from buyers in an escrow bank account only for project construction, timely completion of project and stringent penal provisions against the promoter for any violation of or non-compliance with any provisions of the Act were expected to boost the buyers’ confidence. RERA covers both residential and commercial properties and it is mandatory to register all the projects which are greater than 500 sq. m. It was also thought that RERA would infuse financial discipline in the real estate sector.
However, even at the time of third anniversary of RERA on 1 May 2020, its implementation can at best be described as partial across India having limited impact and lacking effectiveness. The following figures evidence this: as on July 2020, 31 states/UTs have notified rules under the Act and 2 north-eastern states are still under process to notify the rules under the Act; 30 states/UTs have set up Real Estate Regulatory Authority out of which 25 are regular and 5 are interim and 24 states/UTs have set up Real Estate Appellate Tribunal out of which 16 are regular and 8 are interim. West Bengal is the only exception with the enactment of its own Act namely 'West Bengal Housing Industry Regulation Act, 2017'. As per the provisions of the RERA, websites of Regulatory Authorities in 26 States/UTs are operational, and 53,364 real estate projects and 41,143 real estate agents have registered under the act across the country.
Even in states where the Act has been implemented, non-compliance of the provisions of the legislation requires immediate policy interventions. Many states have diluted the definition of ‘ongoing projects’ to be covered under the Act in their notified rules. For example, as per the notification of Uttar Pradesh, projects in which 60% units have been sold or applied for completion certificate, are not to be considered as ‘ongoing project’. But, 90% of the projects in Delhi-NCR falls in this category. There are some definitional ambiguities between local laws and provisions of the Real Estate Act – e.g., parking spaces in Tamil Nadu are allocated and sold with dwelling units, though Real Estate Act considers the parking spaces as common area. So, effective monitoring and moreover their implementation using the dynamic database is required to curb such violations of the Act, harnessing the potential of effective and efficient planning, and instilling ease of living, ease of doing business and cooperative federalism. Innovative measures used in Swacchh Bharat Mission such as ranking, awards, IEC campaigns should be initiated so that best practices are promoted and highlighted.
Although, there is a provision to fast track dispute resolution mechanism through Real Estate Regulatory Authority and Appellate Tribunals across the country, many states have not appointed Adjudicating Officers. In other states, home buyers can approach either the RERA Authorities or the Consumer Forum for grievance redressal, thereby engendering the possibility of different orders to the disputes of similar nature. In order to avoid any confusion, necessary modifications may be introduced either through encouraging the complaints to approach RERA Authority for real estate project related disputes or through barring the jurisdiction of consumer forum on the real estate disputes as has been done for the civil courts. More importantly, following Maharashtra’s successful experimentation, RERA Authorities may take steps to set up a conciliation forum for amicably resolving disputes between the developer and home buyers in a time bound manner before formally approaching the legal forum.
Following RERA provisions, developers’ non-compliance with the Act are to be dealt with imprisonment for a term which may extend up to three years, or fine which may extend up to 10% of the estimated cost of the real estate project or both. Notifications of the majority of the states have diluted the stringent penal provisions against the developer by adding a clause of compounding of offence for avoiding imprisonment. In reality, instead of refund of money or compensation, majority of the home buyers are interested to own their homes and developers are interested to complete their projects. Therefore, it is imperative to rationalize the penal provisions of cancellation and refund of money as that could adversely affect progress of the projects, especially the small real estate projects and their delivery.
It has generally been observed that delay in plan sanctions and approvals from government bodies cause significant delay in project construction and completion. But, the Act does not have any liability clause or redressal mechanism to address such inept handling of those government bodies. So, the Regulatory Authorities should be empowered to regulate all stakeholders including plan sanctioning agencies/ authorities, for expediting the approval and sanctioning process through single window clearance for multiple approvals of real estate projects in a time bound manner. Equally important is to penalize the defaulted developers who have diverted funds or resorted to illegal practices like constructions and selling of unregistered projects.
The greatest benefit of successful implementation of RERA would be the availability of detailed project related information – both physical and financial. However, only in a few states RERA websites are operational with online availability of detail project information. Institutional mechanisms must be put in place on an urgent basis to showcase the summary of registered projects in a simple format and must be open to scrutiny, which would subsequently ensure the veracity of such information. Home buyers and developers would then be able to analyse the dynamics of housing demand and supply and plan housing choices or market strategies accordingly.
In addition, compliances of the projects to the RERA provisions especially related to requisite approvals and non-diversion of funds would assure the financial institutions about the projects’ financial viability. It would then be easier for the developers and home buyers to avail loan from those institutions. In fact, the availability of financial support as the last mile fund for the delayed but positive cash flow projects is extremely crucial for their completion. RBI’s circular (dated 12 February, 2018) on resolution of stressed assets revised framework could jeopardise the infusion of fund in the stalled real estate projects. The circular may be reviewed to explore the possibilities for inspiring liquidity to these projects. Subsequently, a stringent institutional mechanism needs to be in place for monitoring the utilization of fund for the delayed projects.
Overall, the RERA attempts to promote financial discipline and increase transparency, safety, and confidence in the market for all the stakeholders - developers, customers, real estate agents and financial institutions. Strengthening the institutional framework for proper implementation of the Act backed up by strict monitoring mechanisms to eliminate possibilities of misuse and misinterpretation of the Act would provide the much-needed fillip to the real estate sector that is currently under stress.
The renewed focus of the Government as highlighted in Budget 2020-21 by launching National Infrastructure Pipeline (NIP) with stipulated investment of more than 103 Lakh Crores in next 5 years, and other measures such as approval of Affordable Rental Housing Complexes (ARHC), Real Estate Investment Trusts (REITs, InvITs), Affordable Housing Fund, digitalisation of processes as well as land among others, along with RERA, offers many positive outlook for the real estate industry, despite numerous challenges. With the instilling of the much-needed confidence in the industry by strengthening the envisaged RERA ecosystem, along with requisite regulations and management of our built environment for inclusive, sustainable and balanced development, real estate sector can act as a catalyst towards our vision of ‘New India’ and ‘AtmaNirbhar Bharat’.
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Arjun Kumar is the director of Impact and Policy Research Institute (IMPRI) New Delhi.
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Soumyadip Chattopadhyay is associate professor of economics at the Visva Bharati University Shantiniketan. Soumyadip is also a senior visiting fellow at Impact and Policy Research ...
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