Introduction
Realty sector a gigantic contributor to the India’s GDP have been the most sought after stable investment segment of the Indians, unlike the capital markets. Currently, it accounts for the 7% of the GDP and is projected to contribute 10% by 20251. In addition to it, after the agriculture sector it is the second highest in providing employment to the people in the country. In financial year 2023, nearly 71 million people were employed in the real estate and construction sector2. Moreover, the sector has multiplier effect on nearly 270 ancillary sectors3 making it the spine of the Indian economy. Moreover, there has been three-fold increase, i.e. $26.6 billion between 2017 and 2022, in the foreign institutional inflows in the real estate sector in the country4. All this indicates the potential and the importance of the real estate sector in the country for its economy.
However, it is also no surprise that it is not immune to the vices of black money, cheating, quality in terms of the projects and so on. Before, the introduction of RERA 2016 (Real Estate Regulation Act), homebuyers were left on to suffer from these vices at the hands of builders leading to fear among the investors. With the advent of RERA 2016, homebuyers interests have been protected to some extent and ease of doing business has been increased which has brought in domestic as well as foreign investment in the realty sector in the country. It is the result of the introduction of transparency and efficiency in the real estate market. This paper is going to highlight the role of RERA in bringing in efficiency and transparency in the sector and ensuing impact on the Indian economy. This paper is divided into three parts. Firstly, it would deal with the key provisions of the RERA, 2016 benefiting the realty sector
most. Secondly, it would delve into its impact on the real estate sector and the overall impact on India economy, while evaluating its performance till date. Thirdly, it would highlight the present lacunas in the act and present challenges in the realty sector.
Key Provisions of RERA
There is no doubt that the provisions of The Real Estate (Regulation and Development) Act, 2016 have benefited the homebuyers thereby propelling the overall economy of the country. According to a survey of KPMG before the introduction of RERA, total 32% respondent were of the view that real estate sector is most corrupted sector in India5. However, with the introduction of the act, many positive changes have been brought in.
The builders initially used advertise false deadline for the projects causing unnecessary delay and mental harassments to the buyers. Now under section 18 of the act, if the promoters fail to deliver the project on time as specified in the agreement for sale, he shall be liable to return the amount received by him with interest to the buyer. Section 4 of the act states that 70% of the amount received from the buyer in pre-deal offers has to be deposited in the separate bank account for the purpose of the cost of construction and acquisition of land. This section abstains the promoters from investing, the received amount, in any other additional project. By virtue of this section, there would be the oversight over the amount received from the buyers eliminating the scope corruption. Section 14 of the act says that promoters are bound to rectify the any structural defects for a period of 5 years from date of handing over the possession without any extra cost. It imposes extra caution on part of the promoters to develop the project with little defects. Section 13 of the act provides that the promoter cannot take more 10% of the cost of apartment, land, or building, as the case may be, as advance payment or an application fee before entering into agreement for sale. Section 3 of the act provides that the promoter shall not sell, advertise, or book any project unless it is registered under the act. Moreover, it provides for the mandatory registration of such project where are of land exceeds the 500 square meter, and where the number of apartments exceeds 8. Section 34 of the act provides for the transparency in the sector, as it makes it mandatory for the real estate authority to maintain a database of the projects for the public viewing ranging from the photographs of the promoters, agents to the site of the project so as to maintain the transparency in the sector. Moreover, the buyer will be charged for the carpet are and for the super built area. Carpet area means the net usable area excluding the external wall, balcony or verandah and open terrace. Moreover, the act places bar upon the developer from modifying approved plan without the consent of the allotees. Section 20 of the act empowers the state governments to establish one or more regulatory real estate regulatory authority which will look into the matters of real estate project and maintain the database of such project for the public viewing. Section 43 provides for the appellate authority where the decisions of the regulatory authority can be challenged. In addition to it, non- compliance with orders of regulatory authority and appellate authority, the developers could face the imprisonment of up to 3 years, and agents and buyers could face the imprisonment of up to 1 year.
These key provisions in place have brought in many anomalies to end. It has done away with the cash transactions by mandating the developers to open a separate account to deposit the 70% of the received amount for the purpose of cost of construction and acquisition of land so as keep check on fraud and black money. Section 16 of the act provides for the insurance of the title and land by the developers. Further, the developers are obliged to transfer the insurance to the buyers at the time of sale. Such provision keeps the developers and buyers shielded from any legal battle on such land involved the litigation cost thereto.
Consequently, the act at micro-level ensures the fast delivery of the homes to the buyer. At macro-level, it brings in the trust, by introducing the discipline, between the developers and buyers benefiting the sector overall which was absent earlier.
Evaluating the Impact and Effect of RERA Act
Realty sector is the significant contributor to Indian GDP i.e. 7% of the GDP6. Moreover, it was estimated that around 270 dollar billion has been taken as home loan thereby increasing the credit flow in the economy7. In 2017, around 70 million people were employed by the real estate sector8. Considering the significance of the realty sector, it becomes important to evaluate the impact and effects of the act on the Indian economy.
The first and foremost impact of the act has been the rebuilding of trust between the developers and buyers by introducing the discipline on the part of developers. It has also reduced the delay in the projects as the act mandates the developer to specify the time of competition. The act has brought in the standardized pricing by introducing the sale of only carpet area instead of the super-built area thereby bringing in the transparency in the property pricing. Moreover, availability of the details of the project n public domain has increased the transparency in the sector. Further, the FDI (Foreign Direct Investment) in the real estate sector has helped the sector to realize its full potential. Because of such transparency in the sector, the FDI has surged to 26.6 billion dollar from in 2022 from 20179. In addition to it, now retail investors are investing in REITs (Real Estate Investment Trusts) through which the developers also raise funds for their projects in return the investors are rewarded in the form of dividend out o the rent earned from the project as well as in the form of increase in the price of the units being trade in the stock market. It is all due to the transparency, accountability and responsibility in the sector making it easier for the investor to access the details of the project on the website of the real estate regulatory authority. It has also led to the rapid urbanization and increase of commercial infrastructure in the country. As the industry has multiplier effect on about 270 ancillaries which are connected with it directly and indirectly, it has provided support to the other business activity and the economy as a whole.
Indeed, the RERA has ushered in transparency, accountability and responsibility in the sector. Moreover, many regulations at place, it has investors domestically as well as internationally. The sector has further contributed to the GDP. Hence, with the rights and duties of promoters and buyers in place, and rules for the registration of project made it most investment friendly for the domestic investors as well as foreign investors. With the changes in the regulatory environment of the sector, the confidence of the consumer has increased.
Challenges and Lacunas
It is not surprising that there are challenges and lacunas inherent in the act. However, it tries to reduce the delay in the completion of the project by imposing the entire responsibility on the developers, as it fails to take into account the actual delay arising out of delay in the approval from the government authority. Moreover, smaller developers are not bound to register their project if the area of land is less than 500 square meters or in case of apartments the number of which is less than 8. However, it address the concern of the buyer by assuring them of timely delivery of the project, yet it fails to address the concern of developer in case of any inevitable events as it does not provide solutions for force majeure events and act of gods which could hamper the development of the project on time.
The mandatory deposit of 70% of the received amount in a separate account could be manipulative. As such deposits can be withdrawn with permission of engineer, architect and chartered accountant; they all are paid by the developer so there exist the chances of the manipulation. Sometimes, the cost of construction and land could exceed the deposited amount of 70% leading wants of fund at the hands of developers. At times, fund raising is quite tedious task, which further refrain the budding developers from entering the sector. Moreover, it has become more expert intensive sector entailing the need of chartered accountant and legal professional to navigate through the project which could be a barrier for the budding developer. Resultantly, it kills the competition in the sector to some extent.
Despite all these, there is another concern with respect to the approval of project from the government as it is totally upon the regulatory authority to approve the project before it could be marketed. Moreover, there is high chance of political biasness while approving the project the said project is affiliated with any political party or politician who can effect such approval without any delay while others left to wait for the approval of the regulatory authority. In addition to it, regulatory has less power when it comes to effect recovery in favor of homebuyers as developers tend to not comply with orders of the regulatory authority10.
Conclusion
RERA Act, 2016 has brought in the transparency, accountability and responsibility in the sector. It has also boosted the confidence of the consumer in the sector. With numerous provisions in place, RERA is helping the sector to grow at its full potential while it has eliminated the opaqueness, unaccountability and irresponsibility in the sector. Moreover, the sector has attracted the domestic as well as foreign investor to invest in the sector. Coupled with new mode of investment like REITs and easily availability of detailed information with respect project in public domain, the sector has boomed. Furthermore, it is projected to grow to 10% of the GDP by 202511. Consequently, it is going to impact more than 250 businesses associated with it which will ultimately nudge the overall Indian economy.
Thus the first hypothesis is proved that the act has brought in efficiency in the sector by introducing various provisions with respect to the transparency, accountability and responsibility as discussed above. The second hypothesis has also been proved as there are certain challenges and lacunas which create barriers for the budding developers to enter the sector thereby killing the competition in the market to some extent.
The act needs to be reviewed so that the concerns of the budding developers are addressed, and situations like force majeure and act of god need to be incorporated to protect the builders from such uncertain events. Moreover, architect, engineers and architect has to be made responsible for their consent to withdraw money from the separate bank account so as to prevent any manipulation of the received amount by the developers. In addition to it, small developers, who are exempted to register the property area of which is less than 500 square meters or number of apartments are less than 8, has to be made equally responsible and accountable so as to protect the overall interest of the consumer.
1 PTI, “Realty contribution to GDP to reach 10% by 2025: Official”, Money Control, 29 Jul. 2021, Available at https://www.moneycontrol.com/news/business/real-estate/realty-contribution-to-gdp-to-reach-10-by-2025-official-7248301.html (Last visited on 2 Feb. 2024).
2 Manya Rathore, “Employment in real estate and construction sector in India FY 2017-23”, Statista, 23 Sep. 2023, Available at https://www.statista.com/statistics/1213080/india-employees-in-real-estate-and-construction- sector/#:~:text=In%20financial%20year%202023%2C%20employment,at%20just%20above%2057.4%20million. (Last visited on 2 Feb. 2024).
3 Shubhankar Kar, “The arrival of RERA & its benefit on the Indian Economy”, Social Laws Today, 26 Mar. 2023, Available at https://sociallawstoday.com/the-arrival-of-rera-its-benefit-on-the-indian-economy/ (Last visited on 2 Feb. 2024).
4 Saurav Anand, “India’s Real estate sector attracts $26.6 Billion in Foreign investment over 5 years: Report”, Mint, 12 May. 2023, Available at https://www.livemint.com/news/india/indias-real-estate-sector-sees-three-fold-increase-in-foreign-investments-reaches-26-6-billion-between-2017-and-2022-11683886840788.html (Last visited on 2 Feb. 2024).
5 John Samuel Raja D and Kaushik Dutta, “What’s wrong with the real estate sector in India”, The Economics Time, 09 June. 2011, Available at https://economictimes.indiatimes.com/realty-trends/whats-wrong-with-the-real- estate-sector-in-india/articleshow/8786642.cms?from=mdr, (Last visited on 12 Mar. 2024).
6 Supra, note 1.
7 Sakhsi, “Impact of RERA on Indian Economy”, Jus Corpus Journal, 18 Jan. 2022, Available at https://www.juscorpus.com/impact-of-rera-on-indian-economy/ (Last visited on 12 Mar. 20240).
8 Id.
9 Venkat Rao, “ Policy Shift: Reshaping Real Estate Dynamics and the Economy”, Financial Express, 9 Oct. 2023, Available at https://www.financialexpress.com/money/policy-shifts-reshaping-real-estate-dynamics-and-the-economy-3267250/ (Last visited on 12 Mar. 2024).
10 Nikitha, “Critical Analysis of RERA Act, 2016”, B&B Associates LLP, 3 Sep. 2020, Available at https://bnblegal.com/article/critical-analysis-of-rera-act-2016/ (Last visited on 12 Mar. 2024).
11 Supra, Note 1.
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