The Real Estate (Regulation and Development) Act 2016 (RERA/the Act), which aims at protecting the interests of consumers and investors by introducing a regulatory regime to regulate and improve the level of transparency and accountability in the sector, was to be implemented by states with effect from May 01, 2017. With one and a half years having passed since that targeted timeline, ICRA notes that despite a slow start, the RERA finally seems to be on its way to becoming a reality, with most eligible states notifying rules under RERA, and over half of them establishing a permanent authority.
“Given the issues that have plagued the highly fragmented real estate sector till now, including information asymmetry and lack of standardisation, the enactment and successful roll out of the Act has been recognized as a critical step towards creating a positive shift in the functioning of the housing market. With the onus of execution being on the states, ground-level implementation in each state is crucial for the envisaged benefits to actually flow to the consumers and consequently to the sector”, Shubham Jain said.
While 21 of 28 states falling under the purview of the RERA have notified the rules, West Bengal has introduced its own Act, with some deviations observed in certain critical clauses. The six states in the North East - Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland and Sikkim, however, are yet to notify any rules under the Act. Notwithstanding the status of the RERA in the north-eastern states, the Act has largely been brought into force on a Pan-India basis. Ground level implementation, however, varies considerably from state to state, with many states diluting certain Central provisions, and delaying establishment of the basic infrastructure required for implementation.
In ICRA’s analysis, the implementation of the Act has been most effective in West and North India. Maharashtra, in particular, has led the way in terms of proactive enactment, with the state accounting for around 59% of the total projects registered thus far countrywide. In terms of exhaustiveness of infrastructure, including website coverage, smoothness of arbitration proceedings and complaint resolution as well, the state stands at the fore. Other states with a high number of project registrations and healthy infrastructure include Gujarat and Madhya Pradesh. South and East India, however, are lagging in terms of implementation and infrastructure, with registrations yet to commence in Kerala, West Bengal notifying its own Act with deviations being present in certain key clauses, and six states in the North East yet to notify the Act.
Going forward, ICRA expects the current regulatory regime to facilitate improvement in transparency and credibility, with the information asymmetry slowly being bridged in most states. However, while benefits are likely to accrue to all stakeholders over time, teething issues remain at present. In addition to the reduced scope of the Act in many states, there is also a lack of supporting infrastructure, with certain states facing issues pertaining to the upload of large data files, and others finding quarterly updates challenging. However, the need to maintain the spirit of the law and creation of tech-enabled platforms with the capability to scale up and manage high amounts of data is increasingly being recognised. With a rising focus on implementation of the Act, the percolation of the expected benefits from the same is likely to keep increasing.
“The true impact of the Act will only be felt over time, as an increasing number of new launches are developed under the provisions of the Act, and developer systems and processes are re-engineered to comply with the Act, both in letter and in spirit”, Jain added.
Increasing consolidation is also expected going forward, with reputed and credible developers coming out on top. Overall, both the Central and the state governments need to continue to focus on increasing the level of organised activity and transparency in the real estate industry, while simultaneously improving the ease of doing business in the sector.