RERA: AN EXTENSION OF CONSUMER PROTECTION ACT?

Image Credit: www.thehindubusinessline.com

States need to set rules of business in the interest of the consumer

The road has been paved for setting up of the Real Estate Regulatory Authority (RERA) after the Parliament approved the Real Estate (Regulation and Development) Bill. The nod from the Parliament has set in motion a time bound process and each of the states now have a fixed time to frame the rules for the Act and set up RERA, the regulator for the real estate sector.

RERA has been set up to regulate the stupendous growth that real estate has seen across the country over the last 10-15 years. The action now shifts to the states which will have to stick to the timelines as suggested by the new Act. State governments will have to frame the rules for the Act and constitute the Real Estate Regulatory Authority, with which real estate companies will have to register their project. There is an elaborate retinue of rules under the new Act that have to be followed by the real estate companies, failing which fines could be levied upon them.

A regulator's job is to ensure the interests of the industry is kept in mind along with that of the consumers so that there is equilibrium between the two. 

While the intention of setting up the regulatory body is noble, it has added to the uncertainty for the real estate sector. In the form that it has been legislated, the Act has ended up being an extension of the Consumer Protection Act, with a little more bite, perhaps. 

The regulator getting some teeth is welcome because if the provisions were to be fairly implemented, the companies which fail in the standards for commitment to the consumer could fall by the wayside. It may not take very long for that to happen because in the case of delay in possession, if the case is brought to the notice of the adjudicator, it will have to be disposed off in 60 days. It may be pertinent to remind here that consumer courts are also supposed to dispose off cases in a time bound manner.

While the resolution of complaints now has a deadline looming large, the companies have not been lucky. Getting government approvals can be a nightmare and, in some cases, can take 2-3 years before all the retinue of paperwork is completely. 

The Act has not made it mandatory for the government agencies to ensure timely clearances, leaving the companies in a precarious situation battling government agencies and ensuring the deadlines are met for consumers. So, for nearly 20 regulatory clearances that any project has to get, it is mandatory for the clearance process to be completed within a stipulated period.

If there is a delay on the part of the company, they stand to be fined for it, if a customer decides to knock at the doors of RERA.

The ongoing projects are also to be brought under RERA’s purview, something that could add to the uncertainty and confusion. States will have to tread cautiously on this because a stringent approach toward this could lead to litigation and, ultimately, lead to further delay in handing over the completed projects to the buyers.

When the states sit down to finalise the rules of business, it could be good to formalise a few things in the interest of people. When real estate companies deposit the monies owed to the government as external development charges that are often not spent for the purpose that it had been paid. Instead, sometimes city corporations or governments spend it for needs that may be more urgent, depriving the local community of their rightful funds for their local needs. Clearly stated rules of business will improve transparency in spending of the funds will only make buyers happier.

State governments could perhaps raise the bar by creating an escrow account where these funds could be deposited. These funds could be withdrawn only for the specific purpose for which they were collected. 70 per cent of the funds could be deposited into the escrow account. If the rules of business make this mandatory, states will be able to ensure consumer interest is served.

These measures could improve the transparency on behalf of city municipal corporations or local governments. Buyers will surely benefit from such a move. If the government agencies can help complete their part of the work in time, it will help companies be more transparent with their work too, helping the industry and consumers, in turn.

Perhaps, in a tight and consistent regulatory environment, it will be difficult for the non-serious companies to survive and the industry might see some of them being pushed out as part of the natural process.

Real estate in India has not been given the status of an industry in India. Therefore, often its views are not taken into account during formal processes where its welfare and growth are being discussed and regulated.

If the government were to be on an overdrive to improve the ease of doing business, land use for a specified purpose must be pre-notified so that there is no delay at all in securing all the approvals before construction work can begin. The industry has always been keen to work in the interest of the consumers. We need the government to take the extra step to walk ahead, together.

Will the Warehousing & Leasing Segment be the Saviour for Realty?

Suddenly, everything seems to be pointing to a potential surge in Real Estate sector. Monsoon, FDI, GST, REIT, 9th Pay Commission, ... everything seems to be only pointing to an unprecedented growth in realty. 

And what a change it highlights: From a situation of "nothing is right" for the sector as of Yesterday to Today's "everything is bright and sunny", the change in perception is quite drastic.

And if these are perceptions, so what is the reality? Quite the middling path actually. Things weren't as bad yesterday and aren't as sunny as today.

For quite some time now, the real estate sector has been looking for a lifeline. The downturn, lack of funds, Issues with overcapacity and under sales in the erstwhile growth-hubs, as well as falling prices have left the sector gasping for breath. It is a sad situation for the industry which once was touted as the sunrise sector along with education.

So will all the above inputs really impact the real estate sector’s fortunes in the immediate term? Not really!

Image Credits: www.synchronised.in

Yes the growth will come from FDI, REITs and others, but only in the longer term.

Surprisingly, the sector, which has mostly been judged by the volumes in the residential segment, is suddenly getting a boost now from a surprising quarter: Warehousing and Logistics(W&L) segment. The numbers that have been forthcoming in this segment are staggering and have the potential to really spur the Realty sector. 

I'd like to believe that the real triggers for growth for W&L segment are the Government programs like "Make in India" and "Infrastructure Development projects", but in reality I see not enough traction from these segments as yet on the ground level.

Surprisingly, the catalysts are from two "unlikely" segments - Retail(or e-Retail, to be precise) and the recent GST announcements.GST is spelt as the real game-changer for the W&L segment with the biggies in the segment already talking about expanding capacities. Both of these combined by the impetus provided by Railways which is talking about humongous investments in the W&L segment in the immediate future, are suddenly being seen as good news for the real estate sector.

The sheer investments envisaged are mammoth and can actually make the sector seem attractive to investors too. The high growth optimism is already attracting both foreign investors as well as PE firms, sensing a vast opportunity in the growth momentum.

And there are reasons why the investors are finding this segment more lucrative than the other segments. There is a huge volatility associated with the residential segment, which is not there in the W&L segment. The stability of the segment and huge lease potential is also a sure winner for a risk-averse REIT.

According to some numbers I have read, the demand in W&L segment is expected to touch 125 m sq ft in the coming 5 years. The optimism could actually become an understatement, if the indications that the Government will allow 100%  FDI in eCommerce actually come true.

"Make in India" will also spur the Manufacturing sector demand and the requirements for the segment will increase many-fold. 

And with the growth in the segment, the eventual beneficiary will be the real estate sector. The W&L segment could well be the one thing that can re-write the real estate growth story!

FDI in Real Estate

Image Credit: www.moneycontrol.com

India’s $2 trillion economy has been thirsting for more foreign direct investment across several sectors. For many global fund managers and institutional investors, being part of growth for an economy that is growing at over 7 per cent is a mouthwatering opportunity.

Since several areas of infrastructure have not matched the pace of growth for India, there is a strong need for a policy that can drive the pace of infrastructure growth. That includes the growth in the real estate sector, which could, in turn, stoke growth across consumer goods industries.

Foreign Direct Investment (FDI) in India is only permitted in construction and development activity. Hence, there are scores of examples of investors having bought equity stake in projects that are at different stages of construction. Global investors perhaps are a little apprehensive of the complex rules regarding real estate and hence do not want to take a risk.

But to get more capital there are some fundamental changes in approach that may be needed. Investors are looking for security and a certainty about Government policies while promoters are looking for partnerships, liquidity and the best returns.

Government policy therefore needs to marry the two with the interest of the real estate sector and the buyers.