Real Estate Act Enforcement: Anticipated Impacts and Consequences

The Real Estate Regulatory Act (RERA), which was introduced in the previous year, officially came into effect in India on May 1, 2017. This groundbreaking legislation represents a pivotal moment in the Indian real estate sector, aiming to bring much-needed transparency, accountability, and regulation to an industry that has long been plagued by issues such as delayed project deliveries, unclear property titles, and misleading marketing practices. RERA is a significant step forward in protecting the interests of homebuyers while ensuring that developers adhere to strict guidelines, thereby fostering a more trustworthy and efficient real estate market across the country.

 How Will RERA Be Implemented?

The implementation of RERA is structured to ensure that its provisions are rolled out in a phased and systematic manner. Of the 92 sections in the Act, 69 were approved and notified by the Ministry, setting the stage for RERA's enforcement from May 1, 2017. These initial sections lay down the foundation for the rules and regulations that will govern the real estate sector under RERA. The Ministry of Housing and Urban Poverty Alleviation (HUPA) is tasked with formulating the rules for all Union Territories, with the exception of Delhi, where the Urban Development Ministry will be responsible for drafting and enforcing the regulations.

Within one year from the Act's enforcement date, each state is required to establish a RERA authority. This regulatory body will be responsible for addressing grievances and complaints from both developers and buyers, with a mandate to resolve disputes within a two-month period. Until these permanent authorities are fully operational, interim officers have been appointed in various states to carry out the regulatory functions. States like Madhya Pradesh have already established a functional regulatory authority, while others, including Maharashtra, Haryana, Punjab, Kerala, Mizoram, and Rajasthan, have designated interim authorities to oversee the initial phase of RERA’s implementation.

 Impact of RERA on Homebuyers

For homebuyers, particularly those interested in under-construction projects or properties that have yet to be registered, RERA provides a significant layer of protection. The Act requires that developers must clearly define and disclose all project details, including the approved layout, plan, and timeline for completion. This transparency ensures that buyers are well-informed about the properties they are investing in, reducing the likelihood of being misled by exaggerated claims or hidden costs.

Moreover, the introduction of RERA coincides with the implementation of the Goods and Services Tax (GST), which together are expected to influence property prices. While the combined impact on real estate prices may take between six months to a year to fully materialize, RERA ensures that buyers are only required to pay for the carpet area—the usable area within the walls of the property—rather than the super built-up area, which includes common areas like staircases and lobbies. This change is particularly beneficial for buyers in cities like Mumbai, Pune, and Bangalore, where high real estate prices have made every square foot of space valuable.

Another key provision of RERA is the requirement for developers to deposit 70% of the funds collected from buyers into an escrow account managed by a third party. This account is specifically designated for the construction and development of the project, ensuring that the funds are used for their intended purpose and not diverted to other ventures. This measure provides a safeguard for buyers, as developers can only withdraw money from the escrow account for project-related expenses, and only after obtaining the necessary approvals from chartered accountants and engineers. This system promotes transparency and accountability, reducing the risk of project delays and ensuring that the project progresses according to the agreed timeline.

 Impact of RERA on Builders and Developers

RERA imposes a series of stringent regulations on builders and developers, fundamentally altering the way real estate projects are marketed, sold, and developed in India. One of the most significant changes is the requirement for developers to obtain a RERA registration number before they can market or advertise any project. This registration process involves submitting detailed project plans, timelines, and financial disclosures to the regulatory authority, which must approve the project before it can be offered to the public. Failure to secure RERA registration can result in severe penalties, including the revocation of the developer's license to market and sell the project.

This requirement is particularly impactful in major real estate hubs like Mumbai, where the market is highly competitive, and developers are keen to launch new projects as quickly as possible. By mandating that all necessary approvals be obtained before a project can be marketed, RERA effectively eliminates the practice of pre-launch sales, where developers would sell units in a project before securing the necessary clearances. This change not only protects buyers from investing in projects that may face legal or regulatory hurdles but also ensures that developers adhere to a higher standard of project planning and execution.

RERA also introduces a five-year warranty period during which developers are obligated to address any complaints related to the quality or structural integrity of the property. If any structural defects or issues arise within this period, the developer is required to rectify them at no additional cost to the buyer. This provision is particularly important for buyers in cities like Delhi, Gurgaon, and Bangalore, where rapid urbanization has sometimes led to compromised construction quality. By holding developers accountable for the long-term quality of their projects, RERA ensures that homebuyers receive a product that meets the promised standards.

 Broader Implications of RERA on the Real Estate Sector

The introduction of RERA marks a significant shift in the Indian real estate landscape, particularly in major cities like Mumbai, Pune, Bangalore, and Delhi, where real estate activity is at its peak. The Act is expected to bring about a more regulated and transparent real estate market, benefiting both homebuyers and responsible developers. In the long run, RERA is likely to encourage the entry of more organized players into the real estate market, while pushing out smaller, less reputable developers who may not have the resources or expertise to comply with the new regulations.

For cities like Pune and Hyderabad, which are emerging as key real estate destinations, RERA could help establish a more stable and reliable market, attracting both domestic and international investors. The increased transparency and accountability brought about by RERA are expected to boost investor confidence, leading to greater investment in the Indian real estate sector.

Furthermore, RERA's emphasis on timely project completion and quality assurance could lead to a more efficient real estate market, where projects are completed on schedule and to the promised standards. This would not only benefit homebuyers but also contribute to the overall growth and development of India's urban infrastructure, as more reliable and high-quality housing projects are delivered across the country.