RERA: A blessing in disguise for realty sector

It is expected to increase pan-India sales besides counteracting lengthy and cost-intensive dispute resolution mechanisms. By Shrinivas Rao

It’s true that the Real Estate Regulation & Development Act, 2016 (RERA) promises to improve India’s accountability and transparency score. In a country where real estate lacks an industry status, brokerage is one of the easiest businesses that calls for zero qualification/experience/code of practice and operates on government-prescribed guidelines or expectations. While RERA has been unanimously voiced as “buyer friendly”, it’s actually a move for developers in this country to re-establish their credibility.

The lack of defined roles and responsibilities in this sector leaves ample scope for ambiguity and confusion amongst commercial, retail and residential end-users. Developers across the country now need to deposit 70% of buyer collections in a separate escrow account dedicated to fund land and construction costs for the specific project. This move is certain to improve the liquidity for developers and the subsequent financial clarity would encourage renewed interest in the sector from PE funds, apart from end-users.

Project information such as carpet area details, project schedule, layout plan, land status, status of approvals and agreements previously shared verbally will now be documented. While this major real estate reform is sure to re-instate a sense of security amongst commercial and residential end-users, it also helps developers sell more inventories.

More FDI likely

Meanwhile, standardised processes and procedures will help revamp the development of the sector and pump 20% more funds from FDI into the Indian realty space. It is also anticipated to increase pan-India sales in the residential sector besides counteracting lengthy and cost-intensive dispute resolution mechanisms. While a judicious approach needs to be adopted towards project timelines and funds, the developer doesn’t have to deal with piling of unsold inventory and moreover has an opportunity to sell stake in case the project doesn’t perform well.

Rules for implementing the RERA bill still need to be formulated by the State governments in conjunction with the Centre’s RERA Act. While the Act only comes into force by March 2017, setting up a functional regulatory authority with judicial officers and an appellate tribunal is essential for its smooth operation. In case of inconsistency with State laws, the provisions of this Act have an overriding effect on contradicting norms. A delay in the establishment of RERA will only continue the policy paralysis in the system. We hope that this step will go a long way in setting the tone towards a more transparent and accountable real estate sector.