How RERA is changing the residential real estate landscape -Prabhat Kumar Tiwary
In view of the divergences and problems prevailing in the Indian real estate sector, concrete action was taken by the government in 2016. The parliament passed the RERA (Real Estate) Regulation & Development Act. By law, each state has a Real Estate Regulatory Authority (RERA) to regulate the industry and provide effective solutions. India is sure to have a streamlined real estate industry with a smooth workflow if RERA is implemented with precision.
Follow us and find out how RERA is revolutionizing the residential real estate sector!
Systematic challenges faced by residential real estate
The real estate industry faces challenges that pose problems for both buyers and sellers. Here are some of the most deeply rooted issues in this industry.
Unsold inventory and signals of low demand
According to a 2020 JLL survey, more than 0.46 million properties worth $ 50 billion are ready but unsold. In addition, a whopping 0.95 million properties with a total value of 110 billion are stuck in the creation process, according to RBI’s Liases Foras. This drastically restricts cash flow, reduces the number of sales, and traps funds.
Lack of effective project management
One of the biggest challenges in the real estate industry is ineffective project management. Some of the issues that create a delay in effective project management are multiple approval requirements, lack of funding sources, and budget overruns due to significant delays.
Lack of transparency
Another problem that prevails in this industry is the lack of full transparency. Although real estate agents and projects are registered, not all of them are necessarily verified. This reflects the retreat of the authorities in action.
Focus on sales only, not after-sales
After-sales property management guarantees a long-term relationship and makes it easy for owners to resell the house. Although of immense value, after-sales service for property management is often overlooked.
Economic performance has always been focused on capital appreciation with a marginal focus on rental yields. The rental yield in the residential real estate sector is only 1-2% and there are over 11 million vacant properties in urban India – this is not an attractive opportunity for investors.
Why was RERA introduced?
To protect the interest of property buyers, RERA aims to add structure to the industry, streamline workflow, and eliminate delays. How is it going ?
RERA guarantees that the manufacturers are not defective on the date of delivery. If such delays occur, they should compensate the buyers. Also, it prevents developers from charging for the extra area, using your money for other projects, or promoting bogus engagements.
Overall, the law sets ground rules and regulates the real estate industry to help you and other stakeholders. In addition, committees compensate individuals for injustice.
“One of the main objectives of RERA is to respond to the complaints of real estate consumers. As such, the fact that RERA authorities in various states and UTs have resolved over 65,539 consumer complaints over the past four years is remarkable, ”said Anuj Puri, President of ANAROCK Property Consultants.
As of today, you know how much RERA can benefit the various players in the real estate sector. In addition, you have a brief overview of its regulatory policy. It’s time to dig deeper and demystify the act with its main features.
Reduced risk of builder bankruptcy
The fixed percentage – 70% of the amount of beneficiaries allocated to real estate projects, minimizes the risk of bankruptcy of the builder. Therefore, they cannot use funds from one project for another.
Another excellent feature of RERA is ensuring compensation due to buyers in the event of default. It is 2% plus SBI’s highest marginal cost of lending (MCLR) rate. If the buyers do not pay their due on time, they will pay the same amount of interest, which is lower than the penalty rate mentioned in the sales agreement.
“In my forty-five years working in the housing industry, I have never seen interest rates at such low levels, which, along with the tax incentives, has made housing much more affordable today. ‘hui, “said Deepak Parekh, chairman of the Housing Development Finance Corporation (HDFC).
RERA prohibits a promoter from accepting a deposit in an amount greater than 10% of the total cost from the buyer. Developers can only accept such an amount if they have entered into a legal sales agreement with the buyers.
Standardized carpet area
The cost of ownership is directly proportional to the total area of the carpet and this has always been a bone of contention, it includes the net floor space covered by an apartment. This excludes exterior walls, balconies, sinks, etc., but includes toilets, kitchen and other usable rooms. The Real Estate Act has made it mandatory for developers to disclose the carpet square footage of the units they are selling.
RERA promises a range of rights to protect buyers against embezzlement in the real estate space.
- In the event of false promises: As a buyer, you can withdraw your association with the project and receive a full refund of any amount you may have paid in advance.
- In the event of default after possession: Within the first 5 years of ownership, you can report any defects to the developers and they will have to rectify the defects within thirty days.
- In the event of a title defect: If you find a defect in the title to the property, you can demand a compensatory amount from the builder, even after successful possession of the property.
- RTI: To ensure transparency, the deed entitles the buyer to all the details related to the associated project. These include plan, execution, progress and status report, etc.
By law, each state has a real estate regulator with the power to deal with buyers’ grievances. These include all concerns related to agents, builders, developers, etc. If you are not satisfied with the decision, you can appeal to the appeal court within 60 days. Builders also have the right to lodge a counter appeal with the Tribunal.
Win-win for all stakeholders
Not just buyers, but RERA is a win-win solution for all stakeholders including developers, agents and the industry as a whole.
While buyers enjoy transparency, security of funds and commitments, and overall fairness, developers earn more finance revenue. In addition, the latter part benefits from smoother approval processes, higher investments and increased overall project efficiency.
RERA is advantageous for real estate agents because it provides concrete structure to the real estate industry and ensures efficient management. In addition, the industry benefits from a regulated environment, improved governance, system transparency and increased investment.
What does this mean for buying and selling?
RERA has increased buyer confidence which will lead to increased sales of residential projects. Registration with the RERA is essential for the sale of a project or real estate. According to the RERA law, the promoter must duly execute the sales agreement signed by both parties after receiving the deposit from the buyer. It is mandatory for the promoter to register this agreement with the competent authorities.
What does this mean for rental and property management?
The increased sales of residential real estate will translate into more rental and property management activities. Homebuyers have clearly understood that they simply cannot depend on capital appreciation for better economic returns. Rental yield will play a very critical role. Homebuyers will depend on rental and property management companies to help them find the right tenant, ensure good occupancy and maintain assets. In addition, with the discipline of project execution imposed by RERA and the guarantee, the quality of the apartments will also improve and thus contribute to better capital appreciation and better rental yield.
RERA is a global act regulating the construction, registration, award and certification of real estate projects. The law ensures that homebuyers do not fall prey to delays or fraudulent activity by builders and promotes the smooth operation of funds to eliminate disruptions. With the execution of RERA on the rise, the infusion of financial discipline and the safety of buyers are guaranteed, ensuring a sustainable development of the real estate sector.
Disclaimer: The opinions expressed in the above article are those of the authors and do not necessarily represent or reflect the opinions of this publisher. Unless otherwise indicated, the author writes in a personal capacity. They are not intended and should not be taken to represent any official ideas, attitudes or policies of any agency or institution.