Real Estate Regulation & Development Act (RERA) is a defining moment in the Indian real estate sector. It will bring in a systematic approach and enhance transparency which will aid the growth of the sector. To the buyers, it safeguards their interests: brings transparency, ensures accountability and timely completion projects. Unfortunately, RERA does not address the concerns of developers, thereby not providing a level playing field for all stakeholders. From an industry perspective, it will increase credibility in the long term, leading to higher domestic and foreign investments. The law will also ensure fiscal discipline, but increase the demand for credit.
Though the objectives are noble and correct, we believe 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?
Also, with RERA coming into effect, we hope there will be more clarity regarding the legal title. In India there is no Title Insurance till date because of which anyone can stall a project by raising a legal objection on land titles well after the purchase of the land has been announced, advertised and project work has reached an advanced stage after taking possession of the property.
Unscrupulous elements have made a thriving and growing business to raise contorted frivolous issues and obtain stay orders from the Courts so that they can extort monies.
We hope that such stay orders will not be granted in future with the implementation of RERA thereby allowing Title Insurance to be established in India.
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 dissuades joint ventures between developers and landlords by terming them as promoters. Many landlords would be skeptical of taking 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 the government authorities into the ambit who are responsible for the continuous changes in regulations, 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.
Owing to lack of holistic approach, the end price to consumers will continue to rise, putting a severe strain on affordability.
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 delay in approvals. This will further dissuade any new entrants from venturing into Indian real estate sector.
The author is chairman and managing director, House of Hiranandani. The views expressed here are personal and not of Financial Express.