The March 2016 passage of the Real Estate Regulation and Development Act (RERDA) by both of India’s houses of Parliament was seen as a net positive for the real estate business in India. The real estate industry in India is a huge business, seeing revenues that are estimated to grow to $180 billion by 2020. The dark side of this real estate growth is that it has led to a largely unregulated market in the country. Potential buyers of real estate of all kinds in India have had to deal with various levels of corruption from builders and real estate professionals. Prior to the passage of the Real Estate Regulation Act India, it was not unheard of for builders to delay construction projects, change the plans for a project without consulting the property owners, or even default on projects, and there was little a property owner or prospective buyer could do. Many prospective apartment dwellers, for example, were stuck paying rent on units they wished to move out of while simultaneously paying for the delayed apartment they were supposed to be moving into. This delay also kept buyers from benefiting from any tax deductions until all work was completed, costing them thousands of rupees on their income taxes. And even if a buyer could take the builder to court, legal proceedings could drag out for months, leading even the staunchest fighter to give up and look for a new property elsewhere. These rampant issues throughout India’s booming real estate market were what led Parliament to pass RERDA, in the hopes of reigning in corrupt builders and restoring the confidence of current & future property buyers.
The passage of RERDA will work to eliminate these issues for both Indian buyers and overseas investors such as BNP Paribas and other banks. The act will allow state governments to establish Real Estate Regulatory Authority (RERA) and appellate tribunals in their respective states. RERDA’s passage may also encourage overseas companies to purchase property in India due to the implementation of RERA; instead of having to worry about increased costs due to builder delays and other problems, overseas investors will save money and feel more confident investing in Indian property. The tenets of the act allow for a number of reforms of India’s largely unregulated real estate market.
Overall, the following reforms are being implemented:
- Improved Transparency. The builders and property developers now must be more upfront with the plans, layouts, approvals, land status, contracts, schedule, and completion status of their projects with their state’s RERA board as well as with the property’s buyers. Any builder that fails to maintain this level of transparency will be fined up to 10% of the project’s cost. This step will be a huge benefit to homeowners and property buyers, as it will allow them the information they need to make better and more informed purchasing choices.
- Faster Completion of Projects. The new regulations will forbid builders from extending the completion date of a project beyond a year under normal circumstances. This will allow buyers and homeowners to take possession of their property much sooner than under the current system.
- Less Harassment of Home Buyers. Builders, stakeholders, and real estate agents can all be held liable if they do not follow the principles of the Act, with punishments of up to three years’ imprisonment in the most severe cases.
- Expedited Redressing of Complaints. Under the Act, any grievances must be redressed within 60 days of their filing.
For new projects that have not yet been built, the following key reforms are being implemented by the Act:
- Greater certainty regarding the completion of an apartment or villa building project. Under the Act, 70% of the sale value of the property must be kept aside by the builder in an escrow account. This account may only be used by the builder for construction and land costs.
- More clarity to prospective buyers on the property they are investing in. Builders can only sell a property based on its carpet area, not it’s super-built area as they have been able to do in the past. This provides more clarity on the building for a prospective buyer.
- After-sales service. If a new property owner finds a defect or deficiency in the property, the builder can be contacted for additional work on the property within one year of the new owner taking possession.
Lastly, for all ongoing projects, the Act requires the following reforms be implemented:
- No more surprise, unexpected changes to a property. The builder can no longer unilaterally make design, structural, or or layout changes to a property. They must now receive the approval of at least two-thirds of the residents currently living there.
- Residents are given more say in managing the apartment. Within three months from the date the majority of apartments are sold, a Residents’ Welfare Association (RWA) must be founded. this association will allow residents to collectively demand timely apartment possessions by new owners and can advocate for maintenance of common facilities within the property.
- Buyers receive monetary compensation for project delays. If there are any delays in the project, both the buyer and the developer will have to pay the same interest rate.
Like many growing nations, India has struggled to come up with ways to house its population. While its real estate market is highly lucrative, this has had the unfortunate side-effect of fostering a culture of corruption among builders, investors, and developers, to the detriment of prospective property buyers. With the Real Estate Regulation and Development Act, a new light can be shone on the real estate industry, uncovering the massive issues that have been allowed to continue and working diligently to correct them. Progress in fixing all that ails the country’s real estate industry may be slow, but it is being made. If the implementation of RERDA is successful, it could open to door to additional real estate bills in India’s Parliament, which will encourage further reforms and will work to make property buying even easier for future generations of property owners. While India’s real estate industry has been a lucrative one, it has also been plagued with corruption by builders who seek to increase their profits at the expense of property buyers. RERDA will hold builders accountable for any project delays, and will give property owners better recourse to pursue penalties against unscrupulous builders.