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RERA Transforming Residential Real Estate Dynamics

An RERA has emerged as a changer in recent times, with the establishment of the RERA (real estate) Regulation & Development Act, the government ensures each state has a regulatory body for the effective real estate sectors with a smooth implementation. It aims to safeguard the interests of property buyers while promoting a more organized and regulated real estate market with proper product pricing, buyer protection, and the builder's accountability.

Challenges encountered in the residential real estate sector
In the world of residential real estate, many challenges have come up that affect how things work. These challenges are like obstacles that people involved in real estate, need to deal with. They are part of how the industry operates and can be both complicated and bring chances for improvement. To succeed in real estate, it's important for those involved to understand these challenges and find ways to adapt and do well in a changing real estate world.

The real estate sector grapples with significant challenges, as revealed by recent surveys. A JLL survey from 2020 indicates a staggering 0.46 million unsold properties valued at $50 billion, coupled with 0.95 million properties in the construction phase worth 110 billion, as reported by liases foras of RBI.[1] This surplus inventory and poor demand scenario not only hinders cash flow but also restrains sales, resulting in trapped funds.[2]

Adding to the complexity is the inefficiency in project management, a prevailing issue in the industry. Challenges such as multiple approval requirements, insufficient funding sources, and budget overruns due to substantial delays contribute to the hindrance in effective project management. Together, these factors underscore the pressing need for strategic solutions to address both unsold inventory and project management inefficiencies in the real estate landscape. Another issue is the lack of transparency in the industry. The real estate agents must register their projects, however, most of the projects are not necessarily verified by the authority.

Lastly, it can be noted that along with sales, post-sales are also one challenge. While the real estate sector traditionally prioritizes sales, the often overlooked aspect of post-sales property management plays a crucial role in fostering long-term relationships with homeowners and facilitating seamless resale opportunities. Despite its significant value, post-sales services are frequently neglected.

Economic returns in real estate have concentrated on capital appreciation, with minimal attention given to rental yields. In the residential sector, rental yields typically hover around 1-2%, presenting a less appealing opportunity for investors, especially considering the overabundance of over 11 million vacant properties in urban India.[3] This underscores the need for a shift in focus towards comprehensive post-sales strategies to enhance the overall sustainability and attractiveness of real estate investments.

In its mission to protect property buyers, RERA establishes a structured framework, streamlines workflows, and eliminates delays in the real estate industry. This is achieved through stringent measures that ensure builders meet delivery deadlines, with compensation mandated for any delays. RERA also prevents unjust practices, such as charging for extra space, diverting funds for other projects, and making false commitments.

In essence, the act serves as a regulatory force, setting ground rules to benefit buyers and stakeholders alike. Committees formed under RERA further ensure compensation for individuals facing injustice, contributing to a more transparent and accountable real estate landscape.

Demystifying key features of RERA in real estate governance
RERA provides several protections for buyers. In India, RERA minimizes the risk of builder bankruptcy by ensuring that 70% of the amount from allottees assigned to real estate projects cannot be used for other projects. This reduces the risk of default and protects the interests of buyers. [4]

Another feature of RERA that benefits buyers in case of default is the interest rate compensation. If buyers fail to pay their dues in time, they will pay an interest amount that is lower than the penal rate mentioned in the sales agreement. This is calculated as 2% plus the highest marginal cost of lending rate (mclr) of the State Bank of India.[5] The Real Estate Act mandates developers to disclose the carpet area, encompassing the net usable floor space, excluding external walls, balconies, etc. Buyers, protected by RERA, hold various rights.

In case of false promises, they can withdraw, receiving a full refund. Within 5 years of possession, defects can be reported for developers to rectify within 30 days. In case of title defects, compensation can be demanded even after possession. The act ensures transparency, granting buyers access to project details through RTI, including plans, execution, progress reports, and status.

Further, RERA forbids a promoter from accepting an advance payment amounting to a sum higher than 10% of the total cost from the buyer. Developers can only accept such an amount if they have entered into a legal agreement of sale with the buyers. RERA extends a comprehensive set of rights to safeguard buyers against malpractices in real estate. Buyers can withdraw and receive a full refund in case of false promises.

Within the initial 5 years of possession, defects can be reported, and developers must rectify them within 30 days. In case of title defects, compensation can be demanded even after possession. RERA ensures transparency by granting buyers access to project details through RTI, covering plans, execution, progress reports, and status.

The act establishes a grievance redressal mechanism, empowering state-level real estate regulatory authorities to address concerns. Dissatisfied parties can appeal to the appellate tribunal within 60 days, with builders having the right to counter-appeal.

Win-win for all stakeholders in real estate
RERA's impact extends beyond just benefiting buyers; it creates a win-win scenario for all stakeholders, including developers, agents, and the entire industry. Buyers experience enhanced transparency, secure fund commitments, and overall justice. Developers gain increased funding revenues, smoother approval processes, higher investments, and improved project efficiency.

Real estate agents benefit from a structured sector and management efficiency, while the industry enjoys a regulated environment, improved governance, system transparency, and heightened investment.

For buy and sell transactions, the rear boosts buyer confidence, leading to increased residential project sales. RERA registration becomes essential for project or property sales, ensuring proper execution of sales agreements and mandatory registration before relevant authorities.

In terms of rental and property management, the surge in residential real estate sales translates into expanded business for these sectors. Buyers now recognize the importance of rental yield alongside capital appreciation, relying on management companies for tenant acquisition, occupancy maintenance, and asset upkeep. With RERA's project execution discipline and warranties, the overall quality of apartments improves, contributing to better capital appreciation and rental yield.

In conclusion, the Real Estate (Regulation and Development) Act (RERA) has emerged as a transformative force in the residential real estate sector. By addressing challenges, such as unsold inventory, poor demand, and inefficiencies in project management, RERA aims to create a more organized, transparent, and accountable industry.

The act not only safeguards the interests of property buyers but also establishes a win-win scenario for all stakeholders, including developers and real estate agents. RERA's comprehensive framework, coupled with key features like standardized carpet area disclosure and buyer rights, seeks to ensure fairness, streamline processes, and enhance the overall sustainability and attractiveness of real estate investments in India.

End-Notes:
  1. https://naredco.in/notification/pdfs/jll-in-the-next-normal.pdf
  2. https://cashflowinventory.com/blog/excess-inventory/
  3. https://www.statista.com/statistics/1413745/india-gross-rental-yields-by-major-city/
  4. https://assetmonk.com/articles/news-trends/an-analysis-of-rental-yield-in-india/
  5. https://assetmonk.com/articles/news-trends/an-analysis-of-rental-yield-in-india/

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