Watch out if you are buying a house; Some rule changes by states are hitting home buyers

Published: January 22, 2019 3:06:52 PM

RERA has been a legislation that has stirred the hornet’s nest and lies at the top of the list of the most debatable Acts in the country since Independence.

RERA, Real Estate Regulation Act, real estate, RERA UP, RERA Act, changes in RERA act, Mumbai, UP, NCRRERA, that aimed at getting the developers to honor their commitments to the customers under threat of penalties or prison or both, has now been made redundant by another wing of the state.

Can the rules of a challenging game be changed midway? Can the states force the developers to shell out significantly extra money or undo/redo part of the construction already done at a huge cost and time? More so, can it be done while keeping the same selling price for the buyer (under-construction flat) and the same delivery time commitment from the developer? Remember, the cost of failure to honor the timelines is not just financial penalties, but imprisonment as well for the developer.

Well, this is precisely what is being done by many states.

Real Estate Regulation Act (RERA) has been a legislation that has stirred the hornet’s nest and lies at the top of the list of the most debatable Acts in the country since Independence. A rare example, wherein both legislative authorities, the Centre and the states have acted in tandem to disrupt the status quo. However, an overkill may possibly kill the goose! RERA was primarily meant to rope in the rogue practices of some developers and be an able ally for the buyers. But, different legislations have proven contrary to each other and most developers stand to benefit at the expense of the hapless customers.

All or most developers are racing against time to get the occupancy certificates (OCs) within the timelines prescribed by them in their RERA submissions. They are facing a gargantuan challenge in completing the projects. The last leg of the project commissioning is always the toughest and it also requires the maximum capex. Most high side equipment and facilities (DGs, transformers, lifts, STPs, plant rooms, panel rooms, etc.) are high capex guzzlers and are scheduled in the last few months of the project construction. But now, the balance sheets are in red. The buyers have dried up and the NBFC crisis has further evaporated even the committed loans. Besides this, a few states have modified infrastructure requirements valid with immediate effect for all under-construction projects, irrespective of the stage of the project. Most of these new requirements involve significant changes (including cost) in the project facilities already constructed, but not commissioned.

Let’s take the state of Uttar Pradesh, for example. A state which has around 8000 complaints in 2500 registered projects versus 2200 complaints from 25,000 registered projects(1) under Maharashtra RERA. The extent of customer harassment in this belt is one of the highest in the country. Now, it stands to further aggravate. Several amendments in the UP Electrical Supply Code have been passed in H2-2018. A few of them being:

1) Single point connections to be converted into multiple point connections by 31st March 2019. It implies that numbers of meters will double for each household – separate meter for transformer supply and DG supply for each flat. This dual metering further translates into doubling up of all energy meters, cabling, etc. for each flat and for the entire society.

2) Now there will be two electrical panel rooms (separate DG and transformer panels) as against a common panel room earlier.

The above translates into an additional cost of about Rs 20,000 to Rs 30,000 per flat. In a society of 1000 flats, the same leads to an additional capex of Rs 2.5-3 crore. The developers are in no position (or mood) to shell out additional crores, and the end customers are already suffering due to delayed possessions and paying of rentals as well as bank loans.

The cost impact is in addition to the project management challenges w.r.t junking the installed panels and procuring/ commissioning revised panels, dismantling roads, relaying of dual cables under the roads or electrical trenches, cable trays in shafts and the additional fees of the contractors and consultants who have submitted change orders.

The outcome will be that many developers would have an excuse for not commissioning the project i.e. conflicting guidelines. RERA, that aimed at getting the developers to honor their commitments to the customers under threat of penalties or prison or both, has now been made redundant by another wing of the state. It will be interesting to see how the judiciary decides on several cases filed by the customers and developers alike w.r.t the delays and conflicting Acts. Till then, the home buyers will continue to suffer, while some developers would be laughing all the way to their lawyers’ chambers.

(1) Figures are approximate and an outcome of the RERA Workshop dated 25th Oct. 2018, organized by CREDAI

(By Ashok Bansal, Senior Director, Project Management, Colliers International India)

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