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How RERA Is Changing The Landscape of Residential Real Estate?

With RERA execution on the rise, infusion of financial discipline and security of homebuyers is guaranteed, ensuring sustainable development of the real estate sector.

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With the prevailing discrepancies and issues in India's real estate sector, a concrete step was taken by the government in 2016. The parliament passed the RERA (Real Estate) Regulation & Development Act. Under the act, each state got a Real Estate Regulatory Authority (RERA) to regulate the sector and provide effective solutions. India is sure to have a rationalized real estate sector with a smooth workflow if RERA is implemented accurately.

Tag along and gain a deeper insight into how RERA is revolutionizing the residential real estate sector!

Systematic Challenges Faced By Residential Real Estate

The Real Estate industry is ridden with challenges that pose pains to buyers and sellers alike. Here are some of the most deeply rooted problems in this sector. 

Unsold Inventory and Poor Demand Signals

As per a JLL survey conducted in 2020, over 0.46 million properties mounting up to a value of $50 billion are ready but unsold. Besides, a whopping 0.95 million properties with a total worth of 110 billion are stuck in the making process, according to Liases Foras of RBI. This significantly restricts cash flow, reduces the number of sales, and traps funds.

Lack Of Efficient Project Management 

One of the prime challenges in the real estate industry is the inefficiency in project management. Some of the problems creating a lag in project management efficiency are multiple approval requirements, a lack of funding sources, and budget overruns due to significant delays. 

Lack of Transparency

Another issue prevailing in this industry is the absence of complete transparency. Though the real estate agents and projects are registered, all of them are not necessarily verified. This reflects the drop back of authorities in action.

Focus Only On Sales and Not On Post Sales

Post-sales property management ensures long-term relationship and allows the homeowners to resell the house with ease. Though it holds immense value, post-sales service for property management is often ignored. 

The economic return has always been focused on capital appreciation with marginal focus on rental yields. The rental yield in the residential real estate sector is only 1-2% and there are over 11 million vacant properties in urban India – not an attractive opportunity for investors. 

Why Was RERA Introduced?

To safeguard the interest of property buyers, RERA aims to add structure to the industry, streamline workflow, and eliminate lag. How does that happen?

RERA ensures builders do not default on the date of delivery. If any such delays occur, they have to compensate the buyers. Besides, it prevents developers from charging for the extra area, using your money for other projects, or promoting false commitments.

Overall, the act sets ground rules and regulates the real estate industry to help you and the other stakeholders. Moreover, the committees compensate the individuals in case they have faced injustice.

“One of RERA’s primary purposes is to address real estate consumers’ grievances. As such, the fact that the RERA authorities of various states and UTs have resolved over 65,539 consumer complaints in the last four years is noteworthy,” says Anuj Puri, Chairman – ANAROCK Property Consultants.

Demystifying RERA

So far, you are aware of how RERA can benefit the various stakeholders of the real estate sector. Moreover, you have a brief overview of its regulation policy. It’s time to dig deeper and demystify the act with its prime features.

Reduced Risk Of Builder Bankruptcy

The set percentage – 70% of the amount from the allottees assigned to real estate projects, minimizes the risk of builder bankruptcy. Resultantly, they cannot use the funds of one project for another.

Rate Of Interest

Another excellent feature of RERA ensures due compensation to buyers in case of default. It amounts to 2% plus SBI’s highest Marginal Cost of Lending Rate (MCLR). If buyers fail to pay their dues in time, they will pay the same amount of interest, which is lower than the penal rate mentioned in the sales agreement.

“In all of my over forty-five years of working in the housing sector, I have never seen interest rates at such low levels, which along with the fiscal incentives has made housing so much more affordable today,” says Deepak Parekh, the Chairman of the Housing Development Finance Corporation (HDFC).

Advance Payment

RERA forbids a promoter to accept an advance payment amounting to a sum higher than 10% of the total cost from the buyer. Developers can only accept such an amount if they have entered into a legal agreement of sale with the buyers.

Standardized Carpet Area

Cost of the property is directly proportional to the total carpet area and this has always been a bone of contention, it includes the net usable floor area covered by an apartment. This excludes the external walls, balconies, shafts, etc., but consists of the toilet, kitchen, and other usable rooms. The Real Estate Act has made it mandatory for developers to disclose the carpet area of the units that they sell.

Rights of Buyers

RERA promises an array of rights to protect the buyers from the malpractices in the real estate space. 

  • In Case of False Promises: As the buyer, you can withdraw your association with the project and receive a complete refund of the sum you may have paid in advance.
  • In Case of a Defect After Possession: Within the first 5 years of possession, you can bring any defect to the notice of the developers and they will have to rectify the defects within thirty days.
  • In Case of a Defect in Title: If you find a fault in the property title, you can demand a compensatory amount from the builder, even after successful possession of the property. 
  • RTI: To ensure transparency, the act entitles the buyer to every detail related to the associated project. These include plan, execution, progress report, and status, etc.

Grievance Redressal

Under the act, every state has a Real Estate Regulatory Authority holding power to address buyer grievances. These include all the concerns related to agents, builders, developers, etc. If you are not satisfied with the decision, you can further appeal to the Appellate Tribunal within 60 days. Builders also have the right to apply a counter appeal with the Tribunal.

Win-Win for All Stakeholders

Not just the buyers, but RERA is a win-win for all stakeholders, including developers, agents, and the industry on the whole.

While buyers enjoy transparency, security of funds and commitments, and overall justice, developers gain more funding revenues. Additionally, the latter party benefits from smoother approval processes, higher investments, and increased overall project efficiency.

RERA is advantageous for real estate agents as it provides a concrete structure to the real estate sector and ensures management efficiency. Moreover, the industry enjoys a regulated environment, improved governance, system transparency, and boosted investment.

What Does It Mean for Buy and Sell?

RERA has increased the confidence of the buyer, and this will lead to increased sale of residential projects. RERA registration is essential for the sale of a project or property. According to the RERA Act, the promoter must duly execute the sales agreement signed by both parties after receiving the advance payment from the buyer. It is mandatory for the promoter to register this agreement before the relevant authorities.

What Does it mean for Rental & Property Management?

Increased Sale of Residential Real Estate will translate into more Rental and Property Management Business. Home Buyers have clearly understood that they just cannot depend on capital appreciation for better economic returns. Rental Yield will play a very critical role. Home Buyers will depend on Rental and Property management companies to help them find the right tenant, ensure good occupancy and upkeep of the Assets. Moreover with the project execution discipline imposed by RERA and warranty, the quality of apartments will also improve and hence contribute for better capital appreciation and rental yield.

Summing Up
RERA is an all-inclusive act regulating the construction, registration, allocation, and certification of real estate projects. The act ensures that homebuyers do not fall prey to delays or fraudulent activities by builders and promotes smooth the of funds to eliminate interruptions. With RERA execution on the rise, infusion of financial discipline and security of homebuyers is guaranteed, ensuring sustainable development of the real estate sector.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Prabhat Kumar Tiwary

The author is a Stanford Business Graduate and is currently the CEO and Founder of YourOwnROOM, a leading Residential Prop-Tech Co-living, rental and property management business that is redefining the way in which millennials in India live.

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