The Real Estate (Regulation and Development) Act, 2017 (RERA) which comes into effect from Monday gives teeth to buyers of residential properties and is likely to bring in the much-needed transparency in the real estate sector.
The one big change that will come with the Act’s enforcement from May 1 is that real estate developers will not be allowed to take advances and booking amounts from customers in yet to be launched projects till they are registered with RERA. The Act says that the developers cannot do pre-sales or pre-launches of a project till the requisite permissions for the launch are in place.
According to the current guidelines, developers have to register their under-construction projects along with all the relevant details with RERA by July 31. This means that the practice of easy monetisation of land by showing just the plans to a customer is out of question now. Some of the other conditions under RERA are that 70% of the money received from buyers, for a particular project, is to be kept in an escrow account, buyers will pay only on the basis of carpet area, project details will have to be updated quarterly on the RERA website and project accounts will have to be audited annually by a chartered accountant. In case of delays, the developer will have to pay interest to home buyers, among other conditions.
However, the Act allows the developer to have some say as well. In case a customer makes three consecutive defaults in payments, the developer will have to give three weeks’ notice to the customer, and if no response is received, the developer can cancel the agreement.
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As the developers settle with the new regulations and system of conducting their businesses, the sales and supply of new units are likely to remain subdued over the next 3-6 months. CREDAI (Maharashtra) president Shantilal Kataria told FE: “There will be postponement of new launches and the developers will be cautious in booking sales in the ongoing projects as well. Supply will be limited for the coming few months.”
So far around 13 states and Union Territories (UTs) have reportedly notified their rules, according to a JLL India report. These include Uttar Pradesh, Gujarat, Madhya Pradesh, Odisha and Delhi. However, due to objections raised by activists over dilution of certain sections of the Act, some may not be able to meet the May 1 deadline. Maharashtra, Karnataka, Tamil Nadu, Telangana and Delhi will be able to comply with the deadline, experts said. JLL India CEO and country head Ramesh Nair said Maharashtra’s draft RERA rules, for instance, had covered all under-construction projects irrespective of whether some of the individual towers/phases received occupation certificate or not, while it had diluted some other sections. But now Maharashtra’s RERA rules are in line with the central RERA Act.
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However, experts say that all states which have a well-established real estate market will be covered by May 1. Ghulam Zia, executive director (advisory), Knight Frank India, said: “About two-thirds of the real estate market will be able to implement RERA by May 1. Only, the National Capital Region, which has Gurgaon and Faridabad as part of Haryana, and Noida, Greater Noida and Ghaziabad as part of Uttar Pradesh, may have some problems as the two states are not prepared with the Act implementation as yet.”
Zia said while UP had notified RERA rules, a lot of sections were diluted and therefore, with the change of government in the state, it may take it some time to be 100% compliant, hence missing the May 1 deadline. Haryana has still not put up the draft for public hearing, so RERA will take more time in getting implemented in the state. According to a Crisil note, a positive impact on the real estate sector at all-India level will be visible only towards the end of 2017, as many states are yet to notify the RERA rules.