RERA Act 2017 Continued...

Continuing from my previous blog, where I introduced the RERA Act 2017 and its key clauses, I delve deeper into the act in this blog. As a professional who witnesses the dark and murky side of this industry every day, I share the additional clauses I would have liked included in the Act to safeguard buyer interest even further. I also share my views on Implications of this Act in its current form for the Real Estate industry and its stakeholders.

A society that protects the rights of its minorities is the one that truly prospers. The smallest minority in any society is the Individual. 

Formulation of contracts and enforcement of contracts is what keeps the economic life going and this in turns ensures that the society progresses towards better things. Now these are broad statements and the execution is extremely difficult and expensive. Therefore, enactment of RERA Act has been the first step in enfranchising and thereby empowering an individual buyer.

WHAT MORE COULD HAVE BEEN INCLUDED IN THE ACT?

I share my wish-list of a few additional clauses in the RERA Act that I would like to see included going forward. I hope some ‘consumer right’ activist(s) will take up the cause.

1. Developers should be required to form a ‘Buyers Association’ from the very first buyer in a project.
2. A monitoring committee with representation of all stakeholders (developer, land owner, associated brokers, buyers, bankers etc.) should be formed to monitor progress of the project. Quarterly reviews by this committee will ensure the project stays on track.
3. Annual open house meetings, akin to ‘Annual Share Holder Meetings’ should be help, where developer(s)/builder(s) share a project progress report with all stakeholders. 
4. There should be minimum stipulated conditions/standards in the agreements to make them fairer to all concerned parties.
5. Banks should be regulated before extending loans to ‘defective’ or ‘questionable’ projects. In the event of project delays/defaults, banks must be mandated share in the losses without impacting credit scores of individual buyers.
6. Institutional parties such as Developers, Builders and Banks must be exposed to ‘criminal liabilities’ in addition to monetary liabilities for violating agreements. 
7. Developers should be restricted to selling not more than 70% of inventory in a project before obtaining occupation certificates and before project completion. This will align Developer interests with those of buyers and ensure they stay motivated to complete the project within committed timeframe and meeting stipulated quality standards. 
8. Withhold a certain percentage of project cost as “Earnest Money Deposit” for a period of 5 years from project completion, to cover Developer liability in case of structural defects.
9. Stop insider trading/front running by Developer/Broker employees, especially when the markets are in a Bull phase. There are clear examples of such practices taking place with marquee developers in the market.

IMPLICATIONS OF RERA ON REAL ESTATE SECTOR

There are reservations in some quarters that buyers will now try to exploit developers, taking refuge in certain clauses in RERA. Although one admits to a possibility of few unscrupulous buyers trying to take unfair advantage of the new RERA Act, one sees it as an exception than a norm. 

However, the positive implications of levelling of the playfield owing to this act far outweigh any suggested negatives. A few of them are:

- Cleaner & Transparent markets. The sector will attract institutional credit/capital thus reducing the cost of money. A direct impact will be less expensive Real Estate.

- Equitable contracts. Developers will be forced to frame more thought-out contracts and employ better project management capabilities. Result will be expansion of buyer pool, resulting in increased demand.

- Increased Efficiency. Developers will be constrained to be more efficient, and improve their production standards significantly.

- More Accountability. Licensing authorities will come under scrutiny, making licensing conditions contemporary and improved. This will result in the basic designs/templates getting reworked and bettered.

- Improved Regulation. The ‘Focused Regulator’ will result in improved capacity to regulate which is sorely missing at present. Under present circumstances neither the Police nor the Judiciary fully understands the finer aspects of real estate markets/contracts etc. The ‘Focused Regulator’ will therefore bring specialized professionals, with a better understanding of the market and who will continue to evolve along with the market. 

- Controlled Land Prices. Hitherto Developers had access to easy money and were too keen on forming up land banks. Once this money flow gets regulated ‘Land Owners’ will not see unsustainable demand. Hence Land prices will not be artificially escalated.

- Less Speculation. Although complete eradication of speculation is a Utopian dream, it will definitely get curtailed somewhat.

- Online Trading of Real Estate. There is a strong likelihood that over the ensuing decade – once adequate controls and systems have been put in place - Real Estate may well be transacted online, akin to Stock Trading. This will solve plenty of logistic issues and make markets more vibrant and deep.

- Boost to Institutional Credit. Finally, institutional credit in the form of REITs will get a boost. With a market as huge as India, it will trigger the next phase of ‘Real Estate Bull Run’.

IN CONCLUSION

Naysayers say that RERA will kill the industry. This is a highly impractical suggestion to say the least. India has a HUGE appetite for Real Estate in all spheres – Residential, Commercial, Hospitality, Institutional etc. Therefore, the suppliers will always be around. RERA will give the buyers (and the sector) much needed confidence and Confidence is Everything.