The 10 Commandments for RERAs

Article 5 RE(RD)A Series

“State Governments are diluting the Act!” This concern has been heard from several quarters across India. Main worry of Buyer/ Investor community has been that the Act should cover all ongoing projects, bringing long overdue relief to buyers grappling with delays.

Concerns regarding the Act and its usability don’t end there. There is significant scope for providing further clarity and guidance even now. The Act drafted by Central Government leaves a lot of onus on the State Governments. 

State Governments rules and RERAs should be formed keeping in mind these 10 commandments.

1.   Create templates: Key provisions of the Agreement to Sale, Quarterly submissions from Developer, and exact details of specifications to be shared for Registration vary across projects and cities. These are examples of data points which should be better managed by RERA. A simple solution is to stipulate formats/ templates which should be used/ followed by all during submission. Imagine a situation where all developers in Karnataka submitted quarterly details in their own format. It would be a logistical nightmare.

2.   Make data available to all: Create transparency to generate demand and supply figures accurately and regularly. “Indian real estate is opaque”. This has been the biggest critique of both individual/ institutional or domestic/ international buyer/ investor. RERAs should grab this opportunity to ensure sales and supply data is available to all for review. Developers might cringe at this thought initially however the long-term benefits of this to transparency, planning and development are enormous. 

3.   Agents based on Qualification: Registration of Agents should keep in mind an Agents’ educational and professional background. To provide true sanctity to the process, everyone needs to qualify to become an Agent. This is true across ALL mature markets. A licensed broker/ agent has to prepare (in some cases intern with Licensed Agents before qualifying), take a test, secure requisite score and only then receive his License number. Understandably this process will take time but the Act should be taken as a basis to roll out such a mechanism in India and provide credibility to the profession.

4.   Create a Resolution Mechanism: There should be a clear mechanism between the Promoter and Allottee to resolve various, basic, potential issues before taking it to RERA/ Tribunal. A quick review of the Act highlights several cases where there is bound to be confusion and issues. The state-level rules can create mechanism to manage delays, providing clarification, time to cure the default etc.

5.   Pay the consultants: The provision for retaining 70% of funds collected in the project account is a good start. Disbursement of these funds requires detailing and should be clarified by each RERA. Scores of real estate Agents and Consultants/ contractors have suffered due to non/ delayed payment by Developers. Several of them are SMEs/ MSMEs. The state-level rules should highlight by-when, how much such payments should be disbursed by the Developer.

6.   Protect the landowner: Imagine a farmer who has given his land to a Developer to undertake a project. Besides some initial money/ deposit, the farmer agrees to take an area-share of the developed project when it’s ready. In case of delay, the landowner/ farmer is as much at risk as the Allottee. Large numbers of projects across India are developed through this model. The current terminology in the Act doesn’t protect the landowner/ farmer, rather makes him complicit with the Promoter. That is wrong. Some legal experts also have highlighted this issue. State Governments should take action to protect the landowner and assist in Projects to be constructed through this Joint-Development Agreement (JDA) mode.

7.   Completion of projects: Most important and immediate need of the industry is completion of projects which are stalled and where Developers have given up. RERAs should create a detailed procedure for securing completion/ last-mile funding to ensure completion. To elaborate, once there is confirmation from buyers, RERA could turn guarantor and invite bids from other Developers to either take over the project as Development Managers and/ or take monetary support from Financial Institutions to complete construction with Associations taking the lead. 

8.   Make associations responsible: several rights have been highlighted for Associations in the Act. RERAs should detail out their responsibilities as well. Focus should be on maintenance of the project, future expansion (whenever possible), improvement of infrastructure and professional running of operations. To a limited extent, similar responsibilities should be included for the Allottee also.

9.   Cover secondary market: Focus of the Act has been on sales done by Developers i.e. Primary Sales. This was unregulated and a law to organise the industry was long overdue. However, significant action takes places in the secondary market as well. The Act is silent on the same. Responsibilities of Agents should extend to sales in secondary markets also. This is because, Developers shouldn’t exploit underwriters/ large scale buyers to circumvent the provisions of the Act.

10. Create a Robust IT infrastructure: Imagine a RERA that reviews ALL the projects in Maharashtra. Mumbai, Navi Mumbai, Pune, Nagpur etc. It goes without saying that a large team has to be hired immediately to review the documents shared by the Developers and then confirm registration to each project. From a long term perspective, investment in the IT backbone is critical to manage the projects on a regular basis. If this requires privatisation of the execution process, a call should be taken now as infrastructure has to be operational within 12 months. 

I have tried to keep these suggestions broad-based to allow as much improvement/ detailing as possible. Each state can pick up pointer from here.

Incorporation of all or most of the above points, at the State level, would go a long way in building common citizen’s confidence in RERA. Otherwise we run a risk of real estate losing its way in increased paperwork and bureaucracy.