Demand for real estate is likely to remain listless unless consumer confidence revives with the effective implementation of recent policy pronouncements and regulatory changes.

The sector saw a structural overhaul of sorts in fiscal 2018, at both macro (implementation of the Goods and Services Tax) and sectoral (such as implementation of the Real Estate (Regulation and Development) Act, 2016, (RERA) levels.

However, buyers continue to be fence-sitters, awaiting effective enforcement of RERA and new launches in the affordable housing segment.

As things stand, with most States not yet in sync with the Central RERA and scheduled timelines, an improvement in demand is difficult to visualise.

States yet to notify RERA

So far, 20 states — Andhra Pradesh, Assam, Bihar, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Tripura, Uttar Pradesh and Uttarakhand — and seven union territories have notified RERA.

The Act does not apply to Jammu and Kashmir, while most of the North-Eastern States, Kerala and West Bengal are yet to notify it.

However, even among those that have notified their respective Acts, many are yet to form a permanent RERA authority and appellate tribunal.

Diluted provisions

CRISIL Research compared notified State-specific Acts with the Central Act, and found that a few States have diluted a few crucial aspects.

While the Central Act defines ‘ongoing projects’ to cover projects ongoing on the date of commencement of the Act (May 1, 2017), for which completion certificates had yet to be issued, a few States have altered the coverage to exclude projects where applications had already been made for completion certificates or agreements for specific share of units were already registered. These include Andhra Pradesh, Chhattisgarh, Haryana, Karnataka, Madhya Pradesh, Rajasthan, Telangana and Uttar Pradesh. On the other hand, Gujarat and Rajasthan have diluted the penalty payable (to 5 per cent from up to 10 per cent of the project cost) for breaching the provisions.

Project details not yet public

Despite most States having notified the Act, only a few State and UT RERA websites are fully operational and publishing project information online.

While these websites have disclosed the registered details of more than 25,000 real-estate projects and more than 16,000 real-estate agents, many have excluded crucial details such as past experience of and litigation against project promoters, land area of projects, carpet area of units and sold/unsold status of projects.

A model to emulate

The MahaRERA website leads in both project registration and disclosure, given the close monitoring by the authority.

Maharashtra has also initiated formation of the MahaRERA Conciliation and Dispute Resolution Forum — the first of its kind — for faster resolution of disputes between buyers and developers.

These measures have enthused consumer sentiment in Maharashtra (especially Mumbai), and are being studied by other States.

RERA will have the biggest impact on two major financial aspects — project execution viz. curtailment of pre-launch sales, and routing of project cash inflow through a separate bank account.

Improving trust

The Act does not permit developers to launch projects before registering them with the RERA authority. This should help eliminate the torturous delivery delays that plague the industry (up to six years in some instances).

Pre-RERA, there was no transparent mechanism to monitor project cash flows to a particular developer. Post-RERA, with 70 per cent of customer advances having to pass through a separate bank account, a developer will have to ensure that withdrawal from this account is in line with the progress of the construction, and excess funds cannot be withdrawn without requisite progress on project execution.

RERA is expected to put an end to fund diversions and make the real-estate sector more organised and trustworthy in the long run. However, in the short run, any revival in end-user demand is unlikely.

Binaifer Jehani is Director,CRISIL Research.

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