Rera - the Game Changer in the Real Estate Industry

Rohit Gera, Managing Director,  Gera DevelopmentsThe commencement of the RERA, implemented on 1st May 2017, is a landmark moment in the history of real estate sector in India. For decades, there have been no barriers to the entry in the industry and absolutely no performance parameters. The risks of delayed delivery, poor quality of construction, changes in the final product from what was promised, sales made without permits, developers running out of money on account of fiscal indiscipline used to be borne by the consumer. However, with the advent of RERA, the real estate industry will witness accountability amongst the key stakeholders, healthy co existence translating into a level playing field and sustained growth.

The primary objective of RERA has been to protect customers especially through the construction phase of the project. With the introduction of RERA, firstly the risks which were previously borne by the consumers will now be passed on to the developer. The scenario was way different, previously. For a large number of developers, the primary source of capital was the advances collected from customers for purchasing of the apartments. This cheap capital would be moved across projects and used for purchasing new land parcels with complete disregard to the project from where the money came from. Secondly, the next step with the implementation of RERA act is to eliminate corruption in the sector which will help bring more homes to the end consumer at a lower price and at a faster pace. There fore, this act
has the potential to completely and totally transform the way real estate has been done in this country.

In a nutshell, the RERA act will pave way for greater transparency, more accountability and usher in a sense of positivity among the Indian home buyers

The changes that the act will bring about are –

1. In the future, developers will need to have adequate capital to get the project to the approval stage. This will lead to much more equity from the developer which was not the case earlier. Developers will therefore have to either be far more capitalized or reduce their scale at current levels of capitalization.

2. Construction quality was never required to be supported with any form of warranty. However, this is now mandatory for all projects across the country and will force developers to raise the quality standards of the projects. Making changes in layouts and plans now requires approval from 60 percent of the flat purchases which will be very hard to obtain, and therefore developers will need to take a farmer data oriented approach to determining their product mix

3. In the case of ongoing projects, builders can provide their expected date of delivery and are required to submit the original e-date of delivery in the registration form for the project. For the new projects, the committed date of delivery will be a choice of the developer. However,customers will need to take a decision if they find that the committed date of delivery is too distant, then they can opt not to purchase the apartment

4. Transparency,a separate redressal mechanism, as well as many other features included in the new law will lead to a reduction in the number of developers and those left will be the real professionals who will be in the business from a long term perspective

5. There will now be a pressure to deliver projects on time and this pressure will be translated to contractors, who in turn will demand much higher rates for construction. This in turn will lead to an upward pressure in prices for the end customer. In other words, the increased costs associated with these risks will eventually be transferred to the end consumer through an increase in prices