RERA will clean up real estate sector, but fear is rise in home prices

With the Real Estate Regulation and Development Act (RERA) coming into force from May 1, there is hope that the interests of consumers would be protected and transparency ensured in the sector. However, only 13 states and union territories have notified the rules till now. Some states, like Gujarat, have been accused of diluting the more stringent provisions of the Act in favour of builders. The key fear is that strict implementation of RERA may actually lead to a surge in real estate prices across the country.

The sector had been in a slump over the past few years, and the recent demonetisation further dealt a blow. Certain established players have welcomed RERA. Ashish Puravankara, MD of Puravankara Ltd, a Bangalore-headquartered real estate developer, says, "RERA is the much-needed impetus for the entire real estate industry. Its proper implementation will aid in restoring and building upon a relationship of trust between developers and consumers."

Some others like Surendra Hiranandani, CMD, House of Hiranandani, are cautious. "RERA does not address the concerns of the developers. Though the objectives are noble, we believe the lack of clarity on various mechanisms proposed will only add to costs through delay, making projects not only more expensive, but ensuring that affordability continues to be a distant dream." He cites issues such as the lack of clarity on whether RERA applies to under-construction units as well. "The central rules state that these would apply to under-construction units, while state rules say otherwise. But, can existing projects comply with retrospective legislation?" he asks.

RERA would force weaker players to down their shutters. Kishor Pate, CMD, Amit Enterprises Housing Ltd, says in the months to come, small-time developers who do not have the capacity or willingness to abide by RERA's rules will vanish from the market either by selling off incomplete projects or land to bigger players, and dissolving their real estate businesses. This consolidation, he says, will create a more transparent property market.

If this happens, a price rise is imminent in the short term. Irfan Razack, CMD, Prestige Estates Projects, had said in an earlier conversation with BT, that while RERA was good, "in the short run, supply could get constrained, pushing up prices as smaller builders who don't have the financial and technical wherewithal to comply might be forced to exit the industry."

The government has provided time till July 31 for builders to register their under-construction projects. And all new projects of course have to comply with RERA. A clearer picture will emerge only once all states notify its rules.

Home buyers may consider twiddling their thumbs until the dust settles, much to the builders' dismay. But Pate says there is no need to wait for clarity. "It is certain that RERA will clean up the market. And it is equally certain that only the strong, reputed developers will be able to do business in the future. The soundest strategy for buyers is to identify projects by these builders which are either complete or in advanced stages of completion, and make use of the very favourable market conditions."

@venkateshababu