It’s an irony that India, which has such elaborate regulations for investor protection in financial assets — making up a small sliver of the savings pie — has none for real estate, the biggest outlay for any investor. Last year, the Centre sought to remedy this by enacting the Real Estate (Regulation and Development) Act (RERA) which proposed a basic governance framework for real estate contracts, requiring registration of players, disclosure of project details and clear segregation of funds with stiff penalties for defaults. But land being a State subject, individual States were expected to give teeth to RERA by notifying rules for active monitoring of real estate projects and players. But despite the Act taking effect on May 1, only nine of the 29 states and six of the seven Union Territories have followed through.

Worryingly, even the States that have notified rules have fought shy of straightaway adopting the Model Act and have seen fit to water down its provisions. A Crisil analysis of the newly notified State rules found that none of the nine States adopted the Act in its entirety. While RERA sought to sweep into its ambit all ongoing projects as on its effective date, Andhra Pradesh, Uttar Pradesh and Kerala have introduced clauses which allow semi-finished projects to slip out of the net. One of the most anti-consumer practices in the realty sector relates to hefty booking advances on nascent projects, with the buyer ending up bearing the risk of delays and over-runs. To curb this, RERA had proposed a 10 per cent cap on booking advances, to be levied only on execution of a sale agreement. It also required builders to rectify structural defects cropping up within five years. But many States have skipped these critical clauses. In a blow to the enforcement of the Act itself, most States have also diluted provisions that call for imprisonment up to three years or fine amounting to 10 per cent of project cost, for non-compliance with RERA. These pro-industry tweaks, taken with the fact that a majority of States are yet to notify the rules, suggests that RERA in its present form may remain a paper tiger.

But it is investors who may have the last laugh yet. In the last couple of years, with developers saddled with unsold inventory and the equity markets taking off, the Indian property market has transitioned from a seller’s market into a buyer’s one. The Centre’s crackdown on black money and withdrawal of tax breaks on second homes have led to some permanent demand destruction and staunched the flow of capital from dubious sources too. It is high time, therefore, that both the State governments and realty players realise that this sector needs to make a tectonic shift in its way of doing business. Unless it turns more consumer-friendly, wooing back buyers and attracting the capital flows that it needs to survive will prove a tall order.

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