RERA soon to transform the Telangana Real-Estate Sector
The implementation of the Real Estate Regulatory Act (RERA) will go a long way in formalising the sector and inspiring consumer confidence in Telangana. In addition to being one of the strongest real estate markets in India, Telangana also ranks high on India’s EoDB (Ease of Doing Business) index. RERA’s emphasis on consumer protection, transparency and standardisation of business practices will only enhance the state’s business climate.
In the pre-RERA era, the real estate sector was highly fragmented and unregulated. With stricter rules and guidelines, only credible and reputed developers will last in the market. While the policy reforms have helped bolster buyer sentiment, developers have also welcomed the new era of transparency in their businesses.
One year after the Telangana government issued RERA guidelines, RERA will be fully implemented in Telangana from August 2018. RERA will be enforced in all municipal bodies, including the Greater Hyderabad Municipal Corporation, under which developers will have to seek the regulatory authority’s approval to construct commercial and residential projects.
As per RERA, developers who construct projects on plots exceeding 500 square meters and residential buildings exceeding 10 apartments will have to register with Telangana RERA. Developers of ongoing projects in Telangana have three months until the first week of November to comply and register with RERA. Telangana RERA mandates that receivables from the buyer are to be deposited in a separate account that can only be used for the construction of that project. Furthermore, developers would be responsible for fixing structural defects for five years after transferring the property to a buyer. RERA also makes provisions to establish a Real Estate Appellate Tribunal that will address disputes in an expeditious manner. The aim of Telangana RERA is consumer protection and uniformity of processes in the real estate sector.
Telangana has the advantage of learning from other implementations of RERA around India before its official launch. The Telangana state government has tested and formulated its policy after sending teams to study Karnakata, Maharastra, Gujarat and Uttar Pradesh’s RERA models.
While there have been rules and a temporary regulatory authority appointed, RERA cannot officially be implemented without a web portal. A web portal is required for the registration of real estate developers, builders and real estate agents as well as for receiving complaints from the public. The Telangana web portal is developed and supported by Mahaonline Ltd. which also developed the RERA web portal of Maharashtra. Proper preparation should ensure a glitch-free roll-out and consumer-friendly RERA policy. The goal is to have a seamless online process from registration to certification.
The Maharashtra government has reported a successful RERA implementation with about 16000 firms being registered and Rs 120 crore collected towards registration fee. The Maharashtra authority has already settled approximately 350 cases and imposed fines of Rs. 40 crore for developers who have violated RERA guidelines. Telangana RERA can learn from this experience and further improve on its efficiency.
The short term effect of RERA has seen developers in Telangana revise their business models and shift their focus to the timely delivery of ongoing projects to avoid the additional layer of RERA compliance. Telangana RERA exempts real estate projects that obtained sanction plans before 1 January 2017. Subsequently, most ongoing projects are excluded from RERA registration. Previously, although many projects were being launched regularly, there was no guarantee for completion of projects unless you were dealing with a reputed developer. RERA ensures that a deadline for project completion must be enforced.
Without RERA registration, developers and real estate agents in Telangana will not be allowed to promote or sell any project. RERA also mandates that developers must disclose all information for registered projects including details of promoters, layout plan, land status, schedule of execution and status of various approvals. This will effectively weed out any unscrupulous players from the market and allow credible developers to flourish. Telangana RERA will further raise the confidence of buyers and motivate them to invest in property, thus making Telangana one of the most sough-after real estate markets in India.
The resulting transparency due to RERA has forced developers and approval authorities to maintain high levels of compliance. The best example of this can be seen in Maharashtra. The state is the only state in India that has implemented the RERA act in letter and spirit. According to a recent knight frank report, over 51% of all new home sales in India come from Mumbai and Pune post RERA. This was around 39% pre-RERA. So the impact of RERA can be seen quite clearly here. If Telangana follows the same model, then this will definitely give a major fillip to the real estate here.
Moving forward if project approvals are brought under RERA, they will be quicker, resulting in reduced construction costs, thereby substantially reducing property costs. Approval authorities will have to correct inefficiencies that exist in the system since there will be less opportunities for project delays with RERA in place. An efficient, fair and transparent system would result in a revived demand for new projects in the market.
Importantly, as transparency in the sector becomes the norm, information asymmetry is no longer a differentiator for performance. Developers and buyers will have to mutually align their goals. This synergy will bring much needed accountability to the sector.
Telangana has seen many major policy interventions recently with RERA being among the most significant. The proper implementation of RERA will not only be a key driver in the revival of the sector, but will also consolidate Telangana’s position as a fast-growing real estate market.