Home Blog RERA provisions need a closer scrutiny

RERA provisions need a closer scrutiny

The Real Estate (Regulation and Development) Act, 2016 (RERA) has completed three years. Three years is sufficiently long period to judge the effectiveness of the law in bringing about the changes for which it was enacted. As the country is passing through one of its worst  phases in several decades, there is a need to look at some of the provisions of the Act in the light of some new developments that have evolved in recent months.

While real estate sector has grown significantly in recent years, it has been largely unregulated and this is the very reason for which the law was enacted. There was, thus, absence of professionalism and standardization and lack of adequate consumer protection. Though the Consumer Protection Act, 1986 was available as a forum to the buyers in the real estate market, the recourse was only curative and was inadequate to address all the concerns of buyers and promoters in that sector. If prevention is better than cure was the main objective for which the law was enacted then why did cases like Amrapali and Jaypee Infratech happen? Though one may give the excuse of they being the old projects, the fact is that thousands of home buyers were duped. It shows that the law is incapable of preventing such cases and this loophole needs to be plugged to prevent the recurrence of such events in the future.

RERA has made it mandatory that developers have to now register all their ongoing and newly launched projects under the Act. The provisions also bar pre-launches in the absence of necessary approvals. Absence of single-window clearance system has resulted in complications and wastage of time in getting plethora of permissions. For instance, in Delhi, developers need approximately 41 permissions from the government within a period of 60 days. Further, in case the developer intends to develop the project in phases, permission needs to be taken for each phase. Such provisions go against perceived goal of ‘ease of doing business.’

It’s a well-known fact that the real estate industry is passing through one of its worst phases and the situation has turned from bad to worse due to lockdown. Most of the realtors are facing demand slowdown and liquidity crisis. On the other hand, the escrow account provision under RERA, which requires developers to keep aside 70 percent of the advance payments from the customers for a specific project and prohibits diversion of funds to other investment ventures, is expected to take a toll on the debt levels of real estate developers. In these trying circumstances, the law makers should  give a thought as to whether there is need for making that provision little flexible at least temporarily.

Another piece of law in RERA that needs a relook is provision which doesn’t differentiate between land owners and developers (in case of joint venture between them) and considers both of them as promoters. Many landlords may not like to don the responsibility of promoters along with developers by entering into joint venture with them. On the other hand, developers faced with liquidity crisis will now have to rely more on JV with land owners. However, RERA appears to dissuade JVs between developers and land owners by terming the latter as promoters.

The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. No doubt the RERA attempts to balance the interests of consumers and promoters by imposing certain responsibilities on both. But at times one need to be pragmatic and receptive to ground realities especially when real estate sector is battling for its survival. The government should remember that any further deterioration in the health of the industry may put lakhs of jobs at stake which will be last thing one would like to see under present circumstances.

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