RERA – Regulating the Unregulated sector

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The Real Estate Regulation and Development Act (RERA) has come into effect across India on May 1st 2017. This act is aimed at bringing more transparency in India’s real estate sector and addressing grievances of home buyers. RERA Act is, largely, being touted to be a consumer friendly initiative.

5 key points you must know about RERA Act:

  • Every State Govt. has to set up a consumer facing regulatory authority

This is a good move, overall.  It provides consumers with a legal forum where they can raise concerns against the builders and have them redressed within 60 days. However, measures have to be taken to ensure that this facility is not put to misuse.

  • Registration is mandatory for all commercial and residential real estate projects

Any piece of land that is over 500 sq mts and /or includes more than 8 apartments has to be legally registered. If the real estate developer fails to do so, then it could attract penalty up to 10% of the project cost and repeat offenders could even land up in jail.

  • 70% of money collected from buyers has to be channelled towards construction cost of that particular project

The larger objective of this initiative is to ensure that developers don’t divert buyers’ money to other projects and ensuring that construction is completed on time. However, real estate industry across the world has operated on complex cash flow models and this mandate may disrupt the growth and prospects of builders and discourage new players to enter the segment.

  • Pay for carpet area, not super built-up area

Again, sounds like a blessing to consumers. However, in reality this may have a reverse effect. Real estate builders have to somehow compensate for the actual cost of building up the common areas and this may drive up the rate per sq feet prices across all major cities.

  • Increased Transparency and Accountability ON THE PART OF THE BUILDERS

The RERA Act requires the builders to make a whole host of information public and report quarterly progress on projects. This includes – status of construction (with photos), approvals required and pending, modification in sanctioned plans etc. This way consumers can make an informed choice on investing in any real estate project.

Overall, once this act comes into effect it will definitely benefit both the builders as well as buyers. It will bring in the much-needed confidence to infuse more investment into the real estate sector and in turn stabilize the prices.

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