RERA And Its Impact On Developers

The act seeks to impose strict regulations on promoter and ensure that construction is completed on time

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The Real Estate Regulation (and Development) Act or RERA have started getting notified by states from May 1, 2017. As a buyer friendly measure that the Government of India has launched, RERA has been on the news for the impact that it is expected to have on the real estate sector.

Home buyers and more importantly property developers are carefully studying the impact of this landmark development.

Let us look at some of the key points in RERA and also see how it impacts developers and ancillary service providers.

Some key provisions of the act are listed below.

  1. Under RERA, each state will have to setup regulatory bodies as appellate tribunals to solve the disputes between buyer and developer within 120 days.
  2. Developer will have to put 70% of the money collected from a buyer in a separate account to meet the construction cost of the project.
  3. RERA also seeks to impose strict regulations on the promoter and ensure that construction is completed on time.
  4. The buyer will pay only for the carpet area (area within walls). The developer can't charge for the super built-up area, as is the practice at present.
  5. Developers will be able to sell projects only after the necessary clearances. Under RERA, developers and agents will have to register themselves with the regulator and get all projects with more than eight apartments registered before launch.

With all these clauses, it is natural to assume that RERA is very home-buyer centric and hence doesn't benefit developers at all.

While, RERA was brought into force to protect home buyers, there are reasons why developers will benefit:

This Builder Doesn't Advertise? Maybe He IS Really Good!

Earlier, there was no way for a buyer to know if a developer is honest or not. Often, buyers would get swayed by flashy advertisements and assume that someone who gave most advertisements was the best developer in town! That often resulted in honest developers not getting enough visibility and hence having to sell their projects at lower prices. Now, with all information being available in a transparent manner, buyers will look beyond the advertisements.

Finally Home Buying Seems Safe

For several years now, home buying hasn't really picked up steam! Instances of apartment possession being delayed for several years caused a cooling down in customer sentiment! Now that there is more certainty about project completion, buyers can be expected to com back.

Let's Not Play The Discount Game !

RERA will certainly cause some amount of consolidation in the real estate space. With developers merging or in some cases being taken over by larger developers, there will be fewer players in the market. This will allow developers to charge the appropriate premium for their projects.

Home Inspection Anyone?

This doesn't directly impact developers! A possibility is that with RERA being enforced and with some amount of uncertainty in the market that comes immediately after any new law/rule, people might take a "safe' route and prefer buying homes/ apartments that are already owned i.e. resale property. Now, as soon as there is a purchase of resale property involved, there is going to be a demand for services like home inspection, sale deed drafting, interior design (for remodelling) etc. Thus, some such providers of ancillary services will benefit.

Have The Prices Increased?

Another impact/ unintended consequence of RERA is that while it increases the cost of compliance for the developer, it is very likely that the burden of this cost will get passed on to the home buyer. This will finally result in higher price to be paid by the home buyer.

All–in-all, this is a welcome act that benefits both the home-buyer and the developers; more importantly it brings more transparency to the Real Estate sector thereby allowing the sector to realize its potential.