08/05/2017 8:35 AM IST | Updated 08/05/2017 3:25 PM IST

RERA Is Not Quite The Blessing For Homebuyers It's Being Made Out To Be

Affordability is likely to remain a distant dream, owing to the lack of a holistic approach.

Rupak De Chowdhuri / Reuters

The Real Estate Regulation & Development Act (RERA), which came into effect from 1 May, is a defining moment in the Indian real estate sector. It is intended to usher in a systematic approach and enhance transparency, which will aid growth of the sector. It seems to be good news for buyers—it safeguards their interests by ensuring accountability and promoting timely completion of projects. Unfortunately, RERA does not address the concerns of developers, and doesn't provide a level playing field for all the stakeholders. From an industry perspective, it will increase credibility in the long term, leading to higher domestic and foreign investments. The law will ensure fiscal discipline, but increase the demand for credit.

So, how might RERA actually translate on the ground?

While the Bill certainly appears to be consumer-friendly, in reality it could be counter-productive...

Though the objectives of RERA are noble and correct, we believe the lack of clarity on the various mechanisms proposed will only add to costs through delay, making projects not only more expensive, but ensuring that affordability continues to be a distant dream. For instance, it is not clear whether RERA applies to under-construction units as well. The central rules state that these would apply to under-construction units while state rules say otherwise. But, can existing projects comply with retrospective legislation?

While the Bill certainly appears to be consumer-friendly, in reality it could be counter-productive as a minority handful can obstruct a pro-development proposal. Similarly, it discourages joint ventures between developers and landlords by terming the latter as promoters. Many landlords would be wary of taking on all the responsibilities of the project and hence will be discouraged to tie up with developers. This will further restrict supply of land or make it more expensive through higher upfront payments.

Most importantly, the Bill does not bring into the equation government authorities, who are responsible for the continuous changes in regulations, as well as lack of transparency and predictability in functioning. If approvals are not streamlined in time, cost revisions and delays will become unavoidable. The outcome of this is going to be more expensive products for consumers. The World Bank in its report on Ease of Obtaining Construction Permit Index ranked India 185 out of 187 countries. This means India is in the same category as war-torn countries where institutions have collapsed.

Ultimately, owing to the lack of a holistic approach, the end price to consumers will continue to rise and thus affordability will suffer.

Also, in an attempt to protect consumers, it has come down heavily on developers by including criminal penalties. This is unfair to genuine developers, as most delays usually happen owing to lags in approvals. This will further dissuade any new entrants from venturing into the Indian real estate sector.

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