Today, one of the biggest pain points for the common man is the challenges encountered when buying or selling a real estate property. Be it residential or commercial, the industry is marred with unaccounted monies and transactions that happen in “black”. In fact, sometimes a buyer or seller wanting to declare the transaction transparently and being ready to pay the taxes to the government is even discouraged to do so by the other party. At the moment, there seems to be no remedy for such a situation.
Transparency and jargon
Currently, the transparency in the dealings is quite low, and builders of apartments and villas exploit the ignorance of the buyers. In effect, the industry suffers from the “seller’s might”, and this high hand is due to their sheer financial muscle power and proximity to regulators. A small retail investor does not have any protection against such large players.
Part of this is the use of complicated industry jargon to confuse the customers. Usage of terms like “carpet area”, “built up area” and “super built-up area” are widely practiced, and in the process the customer loses track of what he is paying for the usable area he is eventually delivered.
The real estate industry is also infamous for the presence of dubious agents and middlemen who facilitate deals between the buyer and the seller. Usually, the buyer or seller does not clearly understand the roles and responsibilities of such middlemen, and are often confused as to what needs to be paid to them. In some cases, the commissions are collected from the buyer or seller, or sometimes even from both.
These uncertainties often seriously hamper the experience of buying or selling a property, and can sometimes even lead to threats and counter threats between the parties and the middlemen.
Delays in delivery
Delay in delivering a project is also a major concern, and the buyer has hardly any say or control in this issue. In general, there are penalty clauses like a “fine per day” of late delivery. However, these are often even advantageous to the builder, and anyway, whether such penalties are being honored has always been an area of debate.
RERA: The regulatory oversight
The Real Estate (Regulation and Development) Act, 2016 (RERA) is intended to address all these pain points, and is expected to make real estate transactions more transparent. The objective is to provide a superior, unambiguous experience to the parties involved in a real estate transaction, and also plug loopholes in the leakage of tax revenue emanating out of a real estate deal.
The Act also safeguards small retail real estate investors against the large real estate sharks by making projects more transparent. This is expected to allow buyers to benchmark value and price with competing real estate companies on a meaningful “apple to apple” basis. The RERA has been passed by both the houses of Parliament and was implemented from May 1, 2017.
RERA: What it entails
The Act stipulates that the state governments need to make rules for implementing the Act. While a number of states have already notified rules for implementation, some states are lagging behind. Uttar Pradesh is the one of the first states to publish rules for RERA implementation.
Henceforth, buyers can demand to purchase only RERA compliant projects so that they get the best deal without being taken for a ride by builders. They can also ensure they get a property that is safe and secure and the transaction is also completely tax compliant. Buyers will be able to see authentic information on the project on the RERA website once the builder registers the project with RERA. To that extent at least, the transparency is assured for the buyer.
What do the new regulations provide?
The RERA brings in all large real estate projects under the enactment straightaway. It will henceforth be mandatory for all real estate projects where the land is over 500 square meters, or eight apartments, to register with RERA. The biggest positive aspect of the Act stems from making real estate transactions completely transparent and the finances involved fully tax compliant. By eliminating black transactions that are unaccounted for, the Act streamlines one of the biggest pain points in real estate dealings.
Transparency is likely to be largely improved. The new regulation is streamlining such a practice by directing the builders to quote only on carpet area, so that the customer can compare the prices of two different builders on one single referential scale.
The Act also brings the middlemen into the purview of the transaction. Real estate agents who facilitate a transaction are required to make a prior registration with RERA. Complete details on the transaction facilitated by each broker or middleman are accounted for in the Act, and a benchmark for the reasonableness of the fee paid is also available to the parties.
Will RERA really help?
The question is: How realistic will the implementation be? With the real estate industry infamous for cash dealings and deep-rooted corruption, how effective will the Act be in the short to medium term?
With so many unfinished projects that are delayed or abandoned, whether the Act will provide immediate relief for such parties is a serious question, especially since the implementation date of RERA has been delayed a number of times in the past; state governments not immediately notifying the rules is also a concern!
It is also important to evaluate how effectively this piece of regulation can be implemented across all states in a timely manner and provide relief to the buyers. The Act requires the states to establish a real estate appellate tribunal. However, in spite of the deadline having passed, many states are yet to implement this.
The rules relating to RERA registrations are quite stringent and will to a large extent curtail unprofessional practices of the real estate developer. Smaller players in the business making money out of the uneducated buyer may very probably find it extremely unviable to register with the RERA. It is also quite possible that they may think of exiting the industry, since it may no more be viable for such players, especially if they have to be RERA compliant.
On balance, this is quite a far-reaching legislation and is well intended to secure the interests of the small retail real estate investors. Furthermore, this is likely to being in substantial order and transparency to the real estate dealings and at the same time favour the exchequer through more efficient tax collections. It will also dis-incentivise black money hoarding. The catch only lies in the speedy implementation across states
About the author – Dr Suresh Srinivasan is a Chartered Accountant, has an MBA (Bradford UK) and a Doctorate in Strategy. He is the Director of the 2-year PGDM at Great Lakes Institute of Management, as well as a Sr. Associate Professor. He is also a management consultant.
This article was first published here