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Delayed Notification, Non-uniformity Of Rules Could Dilute Effective Implementation Of RERaD Act

The basic objective of the RERaD Act is to protect the interest of consumers through a regulatory regime that improves the transparency level and accountability of real estate developers

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The implementation of the Real Estate (Regulation and Development) Act, 2016 (RERaD Act), is set to bring about a paradigm shift in the way the real estate industry operates in India. The basic objective of the RERaD Act is to protect the interest of consumers through a regulatory regime that improves the transparency level and accountability of real estate developers. The Act becomes effective May 01, 2017, incorporating sections on mandatory registration of projects, enhanced responsibilities and obligations of project promoters, as well as penalties that can be imposed for deviation from rules.

K Ravichandran, Senior Vice President and Group Head, Corporate Ratings, commented “For effective implementation of the provisions, the state governments had to frame rules governing these sections and set up state-level real estate regulatory authorities (RERA) and appellate tribunals to implement the rules. As on date, only seven states have notified the required rules, resulting in a lower compliance ratio to start with. The absence of a regulator or appropriate rules can result in a regulatory vacuum and dilution of the Act’s provisions.”

Except Uttar Pradesh, Gujarat, Madhya Pradesh, Maharashtra, Andhra Pradesh, Orissa, Bihar and the Union Territories, most have missed the deadline to notify its rules under the RERaD Act, which was October 31, 2016. Other states including Karnataka, Haryana and Telangana have framed draft rules, but the final rules are yet to be notified. The progress in setting up the RERA at the state level, as required under the Act, has also been slow and is likely to extend beyond the stipulated timeline of April 30, 2017. Only Madhya Pradesh has set up its RERA till date, whereas certain other states have set up interim regulatory authorities (as permitted under the Act). Even if the RERA is established and notified within the April deadline, the process of staffing the body with requisite personnel and streamlining of operations could take further time.

Since registration with the RERA has been made mandatory for any project to be marketed and sold, further delay in setting up regulatory infrastructure could impact the operations of real estate developers, especially in case of new project launches. All ongoing projects (which have not received occupancy certificate till date) are also required to apply for registration with the RERA within three months of the Act’s commencement. In this regard, customers may defer their purchasing decision until a project is registered with the RERA, thereby putting pressure on the demand in the near term. The Act provides that if the RERA does not reject the application for registration within a period of 30 days, the project would be deemed to be registered. Thus, if the RERA does not have adequate resources to scrutinise the applications, this may result in dilution of the due diligence at the registration stage. The RERA also plays an important function of acting upon complaints against the promoters of projects and hence the protection available to consumers can also be weakened in case of any delay in setting up the RERA. Nonetheless, some of the penal provisions including imprisonment of promoters/employees in case of failure to comply with the regulations may create an excessive fear in the developer community.

The Act is intended to cover all ongoing projects which have not received occupancy certificate (OC). However, the rules notified by some states made exceptions for projects which have either applied for OC but not yet received them, or projects where development work is completed and more than 60% area is sold, or projects where the common areas and maintenance have been transferred to the residents’ welfare association. The draft rules that were initially circulated for comments by the Maharashtra government were also seen to be diluting the consumer-friendly clauses. However, based on feedback from various stakeholders, the final rules that were notified largely followed the model rules, besides including clauses to protect the interest of debt investors in the projects.

Commenting on the developments, Shubham Jain, Vice President & Sector Head, added: “The RERaD Act is expected to bring about more transparency, stability and discipline into the sector, and thus attract better participation from prospective customers; this expectation may result in deferment of buying decisions of customers till RERA is fully set-up in their respective states. Further, the expected benefits will accrue only once the requisite regulatory infrastructure is put in place in a timely manner to implement the provisions in letter and spirit. The functioning of the RERAs to be established will be keenly watched as they will be a determinant of customer confidence and demand levels going forward.”

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