RERA Act-The Lesser Known Details

RERA Act-The Lesser Known Details
Nov 2016 , by , in Realty+ Connect

RERA Act – The Lesser Known Details

Come 2017 and Real Estate Regulations and Development Act, RERA Act (2016) will hopefully be formalised across the different states of India. Real Estate being a local subject, the minimum guidelines, roles &responsibilities and penalties amongst others have been defined by the centre. The states will deliberate on the topic to implement it in their jurisdictions now.

The most popular of the rules of RERA is that a builder from here on will have to maintain an Escrow Account in which all the payments collected from the buyers will be deposited and only a certain percentage of it will be allowed to be taken out. This provision makes an adequate check on governance of a project and a company.

One of the gravest dangers that a property buyer has encountered in transacting in real estate in India is that his hard earned money ends up funding a developer’s expansion, but not the brick and cement for property he purchased. Undoubtedly the Escrow Account mechanism if it is adopted in its spirit will go a long way in safeguarding end users interests.

But let’s step back a little and look at the buying process of real estate.

A builder first acquires land then applies for permissions as per the plans and later launches a project. At the launch or just before it and throughout the lifecycle of project’s construction the campaigns start to feature on life-size hoardings, full page newspaper advertisements, online and offline classifieds, pamphlets, emails, Google and Facebook campaigns. What do most of these campaigns look like as of today –

  • Firstly a project is glamorised as if it is parading in a beauty contest – magnificent elevations, lighting, amenities and landscaping that make you feel as if this place is not India
  • Carries a price tag – in per square feet cost of saleable area or in unit price but of one without any further preferential charges or costs of parking etc.
  • Location – Just the name of the popular neighbourhood going to the extent of redefining the cities itself such as calling Lower Parel as Upper Worli and Wadalaas New Cuffe Parade, amongst others

However, the RERA Act is making it clear that any deviation from plans that a developer portrays in its campaigns would find the company on the wrong side of the law.

The Pedigree of the project

Yet another thing that a consumer would want to know about a project is the performance of the company, its financials and track record, especially more focused on the particular project itself.

However, with most real estate builders being privately held this information is hard to come by. Compare it to an automobile industry or say FMCG business, where the data is relatively easily available and many companies report not only their quarterly numbers but also month on month volumes. Real estate is one sector devoid of such industry wide data that is reliable.

Another important point to note here is that in real estate transactions a booking doesn’t mean the cash flows can be estimated with certainty. A case in point in the widely known behaviour of investors in the NCR market who would pay a token amount to “trade” the unit bought in a few months (those days are gone for now) and not pay anything beyond this. It thus means that while consumers need to pay up as per stage of construction of a property, there might be several buyers who would have paid a disproportionate amount.

While, securing cash flows is a very important step in giving equity to buyers in this sector, I believe the builders have a big task at hand through disclosure and “de-glamorised” media campaigns in coming years.

Acting in Buyer’s interest

Once we dive deeper into the RERA Act we find that the Act is now trying to salvage buyer interest in many counts –

  • The developers need to report all approvals on a website set up by the regulator
  • Companies have to report construction progress onto the website thus set up
  • Builders need to report the “sales” done for a project on this public platform

The last one is going to hurt many developers. As typically a firm not doing so well would still try and create an environment of insecurity by campaigns that would say “only for last remaining 20 units”, “only for first few units”, etc.

The Act would also regulate the media campaign of the developers. The advertisement or prospectus issued or published by the developer shall mention prominently the website address of the Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority.

Ashish Mahajan, Co-Founder,

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