RERA Rules: Will It Cut Red Tape & Bring Relief to Builders Too?

With a new law to regulate the real estate sector, will the woes of the builders be addressed along with buyers?

Roti, Kapda aur Makan was a very effective slogan that captured the aspirations of the common man way back in the 60’s and 70’s. It was used by both Zulfikar Ali Bhutto and Indira Gandhi during election time, as well as Amitabh Bachchan in his blockbuster film by the same name – it connected with people as the rhetoric was relevant back
then, and not surprisingly, at least the Makan bit is very relevant even today.

Reforms in Real Estate Sector

Real estate is one of the primary pillars of the Indian economy. The numbers are impressive – it contributes about 6 percent to the GDP, and is one of the largest employment generators, second only to agriculture.

It impacts trade and associated industry (cement, steel, fixtures, fittings, etc) on multiple levels, and is one of the primary drivers for investment and economic growth.

Buying a home is usually the largest investment or purchase made by an individual. It is a huge emotional and financial decision and there are over a million people who make a move on this each year. There is no doubt that at both levels, macro as well as the individual, this is a sector that needs careful handling.

However, despite its size and significance, it has traditionally been riddled with ambiguity and fraud, but things are set to change.

There have been a flurry of announcements and policy initiatives in the recent past that aim to bring in transparency and accountability in this space. The Goods and Services Tax (GST), The Benami Property Act, demonetisation, REIT (Real Estate Investment Trusts), affordable housing policy, opening of FDI and RERA (Real Estate Regulation & Development Act) will hopefully nudge the sector towards reforms.

Also Read: RERA Act: Here Are the Benefits That Will Empower Homebuyers

Giving More Powers to the Buyer

Given that the nebulous world of the real estate was largely unregulated so far, these are welcome steps. Delayed possession, multiple sales of the same flat, ambiguous contracts were all quite common, and now RERA attempts to change that.

There are rules laid out that define the rights of the buyer, and make clear the obligations that must be fulfilled by the developer. For the first time, the buyer will have teeth.

There is absolutely no doubt this legislation is critical in instilling confidence in the market and giving consumer recourse in case of a builder’s fault. However, there are always two sides to a coin.

Red Tapism in Construction

From the point of view of the developer – are there too many rules to grapple with? It begins early. For a developer, the never ending chase for approvals starts even before launch – land titles, land clearance as per agricultural or non agricultural use, zonal clearance... a long list of permits and approvals are needed at each stage of development.

It is a convoluted process that involves various agencies of the government at
various stages of the life cycle of the project.

There are over fifty NOCs (no objection certificates) needed for housing projects – the layout has to comply with the DCR norms, the building plan and the floor plans must fit into the city plan, municipal authorities sanction water and electricity, environment clearance, license for land, commencement certificate, connecting roads, etc.

There are at least eight departments – local town planning authority, utility companies, revenue department, fire safety, labour, and pollution control which have to give the go-ahead.

It could take years to have the basic paperwork in place before construction even begins. And once it does start, there is no guarantee that it will not be held up due to red tape in some dusty municipal office. And when timelines are pushed, the cost escalates.

Delay in Clearance Behind Snail-Like Pace

An Assocham study pegs the average delay in Maharashtra at 39 months and Punjab at 48. Karnataka fares best at 31 months – the best at nearly three years!

Delay in clearances is one of the primary reasons given by developers for delays in the completion of projects, and the problem is compounded with financing issues, red tape and changing norms.

Will RERA Clear the Mess?

For an individual to pay for a dream house and not get it on time must be a harrowing experience, and what makes it worse is not being able to do anything about it. Hopefully RERA will change that. Amidst much cheering, it promises to usher in an era of clarity and fair practices.

Real estate projects will be registered, developers will be liable for delays and construction quality, and at least 70 percent of the money paid by the consumer will be in an escrow account, unlike the current situation where more often than not it is diverted into other projects. All this is good news for the home buyer, so yes, there is a lot to cheer about. Consumer rights are being addressed. And it is about time.

But in all this, we must not forget the basic principles of justice. If the developers are going to be penalised for delays, it should be for the right reasons, not red tape and a stingy bureaucratic system.

The concerns on part of the builders are also legitimate. The sector is already dealing with multiple regulatory challenges, funding issues, access to bank finance and so on. It is only fair that the government simplifies the process by bringing in a time-bound, single window for clearances. Bold steps have been taken in the right direction, but the government must act as a facilitator, not just a regulator.

Also Read: Real Estate in Fix? Withdrawn Notes Bring in Homebuyers’ Miseries

(The author is a Chartered Accountant, an alumnus of IIM Calcutta and an artist. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)