Indian Economy: Issues and Challenges

Group Assignment
RERA Act: A Game Changer for Real Estate
Sector?

Trimester 3

Submitted by:
Group 7, Div E

Name SAP ID Roll No.

Priya Ahuja 80101190058 E007
Titiksha Daga 80101190182 E017
Shankargouda Hosagoudar 80101190287 E027
Bindu Madhav Labhala 80101190400 E037
Sai Vineeth 80101190527 E047
Mrinal Singh 80101190686 E057

Submitted to:
Prof. Sangita Kamdar

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 Table of Contents
S no Particulars Page no.
1 Overview of Real Estate Sector 3

2 Evolution of RERA Act 4

3 Salient Features of RERA Act 5

4 Analysis of Macro-economic scenario in 2016 7

5 Issues and Challenges 10

6 Impact of RERA Act 11

7 Conclusion 12

8 References 12

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REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016-2017
Overview :-

Indian Real Estate sector has come a long way over the years and became one of fastest
growing major markets in India and also in the world in terms of investments. In 2017, this
market stood at US$ 120 billion and now is expected to rise to US$ 650 billion by 2025 and
US$ 1 trillion by 2030. In GDP terms, it contributes around 13%. All this growth in the
industry is mainly due to positive factors like a large population, suitable demographics,
ease in financing the projects in recent times, rising income level and urbanisation. One
major factor that helped in this growth is the Liberalisation of the economy in 1991, which
led to the opening of the industry and increase in business opportunities and availability of
cheap labour coupled with rising demand in commercial and housing sector has helped the
real estate sector. For example, urban population is expected to rise to 543 million by 2025
who will contribute to 70% of India’s GDP. This will lead to many projects in infrastructure,
commercial and housing sector. Another field is construction sector where FDI stood at US$
25.31 billion in last 20 years, 2000-2019. Adding to it, initiatives like Housing for All will bring
nearly US$ 1.3 trillion investments by 2025. Overall, the sector has shown great progress
over the span and has many green shoots to help in the future as well.

Although the sector is growing at such rapid pace, it is still not able to meet the demand-
supply equation. With the demand rising in exponential terms, the government initiatives
are not able to cope up with them which led to private players taking control in the market.
This has resulted in a highly unregulated market followed by minimal standardisation in
terms of business practises and transactions. Also, lack of transparency in transactions led
to rise in black money to surprising levels as most of them take place in cash terms. Another
major issue is the delay in projects which can be due to price, quality constraints, etc has led
to a huge cost overrun, reducing the overall revenue. Apart from these, large number of
cases are filed where property buyers are cheated by the developers or false transactions

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leading to property or money loss, etc. There is also no proper grievance mechanism that is
in place and the cases are being dragged on for years without any solution. All these factors
are causes of creating hurdles which is making the sector more downgraded even though
there ample amount of opportunities and scope for growth.

Breaking this further down, Indian Real estate sector is further divided into – Residential
sector, Commercial sector, Retail sector, Hospitality sector and SEZs. Residential sector has
grown mainly due to rise in urban population and income levels of people coupled with
booming service sector which resulted in higher job opportunities. All these led to rise in
demand for the nuclear families shifted towards cities. Now, the schemes like PMAY – Rural
and Urban – ae major boost to building more houses in the country. The Commercial sector
also has shown a lot of progress over the years. With rise in demand due to growth in IT
industries around 2005-2008 followed by the current Digital India and Startup India schemes
have brought in demand for commercial space. The established companies are looking for
expansion during that time and made them contribute nearly 75% of overall office space in
India. Although the retail market was highly unorganised till 2000, it has also shown growth
due to changing lifestyle of people leading to new business and high disposable income of
people. The data by previous decade (by 2011) shows around 3500 supermarkets, 260
hypermarkets,20,000 speciality stores and 28 cash and carry stores and the number has
grown exponentially in this decade. With Government initiative to invest more in tourism,
the Hospitality sector has also grown in rapid space. Added to this is the medical tourism
sector which is also helping in the revenue generation with added trust in Indian Hospitals
growing their business. Lastly, the Special Economic Zone (SEZ) are centres set up to boost
economic activity which helped in real estate growth as well. The market has grown from
US$ 18 billion in 2014 to US$ 78 billion by 2019.

Evolution of the Reform :-

As we discussed earlier, the Indian Real Estate sector is highly unorganised and unregulated
in the past decade. The crippling factors that effected that sector were the rising costs,
ghost buyers, confusion in FDI’s and Real Estate Investment Trust (REIT), project delays, lack
of proper grievance redressal mechanism and astounding amounts of black money rise due
to lack of transparency in business practises and transaction. On the contrary, this is also
one of the most critical sector, contributing nearly 8-10% of India’s GDP. It is also growing
around 20% CAGR giving job opportunities to millions, after agriculture, and supporting over
20 other ancillaries like cement, paints, durables, iron, steel, etc. It is also estimated to rise
to 13% contribution in GDP and generate 18 million jobs by 20025.

Keeping all this in mind, the Government has taken several steps over the years to help the
sector’s growth. It started in 2005 when the Government took an initiative to allow 100%
FDI inflow in the sector. This showed a lot of boom in the market between 2005-2008 but
the world economic crisis in 2008 and the property bubble exploding big time, the industry
has taken a hit and led to a bad liquidity crunch as well. Over the years, the rise has slightly
taken pace with India’s story in the world taking a good shape and the world understanding
that India is a very big market to explore. Keeping in mind the regularisation of the sector,

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the Government has come up with many initiatives like Benami Transactions Act, boosting
the affordable housing sector and giving subsidy to home buyers, etc. But, the major reform
that has been taken was the Real Estate (Regulation and Development) Act. The bill was
initiated in 2013 and after a long debate and approving it by passing through the Standing
st
Committee was finally passed in 2016 as it came into effect on 1 May,2016 after the
President’s approval.

This Act was mainly constituted to provide

fool-proof and comprehensive mechanism
for protection of consumers and increase
the transparency in the transaction along
with developing a safe and confidence
driven business environment for the
different stakeholders in the market like
developers, customers, agents. It was also
aimed to boost the foreign and domestic
investment in the sector and to provide
single-window clearance mechanism for
real estate projects.

RERDA Act, 2016 :-

The Act constitutes 10 chapters with 92
sections in it. It encompasses the major
definitions, process of registration for
different projects and agents, functions of
the promoters and their rights, institutions
like Regulatory Authority, Central Advisory
Council, Appellate Tribunal and also various
offenses considered under the Act along
with financial matters and various
miscellaneous clauses.

Salient Features of the Act :-

a) Establishment of Real Estate Regulatory Authority in State Level :
This Act gives permission for State Governments to establish more than one
Regulatory Authority to benefit home buyers purchasing real estate units from developers.
These institutions are mainly set up with a mandate comprising of:
Registration of different real estate projects and maintaining a robust database in the
system. It is published in the website for public view.
i. To protect the interest of different stakeholders like promoters, developers,
agents, customers.
ii. To develop a market with sustainable houses at affordable pricing levels.
iii. To advise various Government bodies and ensure their compliance with the
provisions of the Act.

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 b) Mandatory Registrations:
The Act also specifies that projects with a minimum plot size of 500 square
meters or 8 apartments are made compulsory to register in the respective Regulatory
Authorities. Also, a set of information need to be disclosed while applying for registration
like promoter and project details, project specifications and sale agreements followed by
affidavits from the developers.
c) Carpet Area:
The Act demarcates that only units in the carpet area can be sold by the
developers which is covered by the internal partition walls of the apartment.
d) Deposits:
The Act has made it mandatory for develops to deposit 70% of the collected
funds in a separate escrow bank account so that the money collected for the project will be
utilised only for that project and improves the transparency in terms of operations of the
project.
e) Liability Condition:
It is the responsibility of the developer to maintain the project if in case these
are any structural defects in the project for a span of 5 years.
f) Default Payments:
In case of default from either side, promoter or buyer, they will pay an equal
rate of interest.
g) Acceptance, Refusal and Revocation of Registration:
As the application is received from the promoter, RERA shall take a span
of 30 days to either grant or reject the project. Upon acceptance, the promoter gets an ID
and password and allowed to share details on webpage about the project. This is valid till
the completion of the project. The RERA can take up a suo moto or complaint against the
promoter in case the promoter is failed to comply with the policies or is involved in any
unfair practises. In such case, RERA shall prohibit the promoter to use the ID and password,
freeze their bank account and facilitate the project completion by others.
h) Creation of Webpage and Advertisement:
As the project gets approved, the promoter creates a webpage with details
like status of project and other details. The advertisement used by promoter should also
mention the RERA website address properly.
i) Advance Payment Cap:
The promoter, in no case, cannot accept advance payments of more than
10% of the cost of the plot from any person if there is no agreement or deal is made
beforehand.
j) Establishment of Real Estate Appellate Tribunal:
To strengthen the redressal mechanism, a Real Estate Appellate Tribunal was
established where in a person who is not satisfied with the decisions of RERA can file a
complaint within 60 days and judgement will be given within 60 days after the complaint is
received. This will be considered a civil court and decisions by the tribunal can further be
appealed in the High Court within 60 days.
k) Punishments:
In case of violation of orders of the Tribunal or the Regulatory authority by

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the stakeholder in question, he/she can be imprisoned up to three years in case of
developers and up to one year in case of agents.

Analysis of Macro-economic scenario in 2016:

Indian market became very lucrative and was rising at a rapid pace before the economic
crisis in 2008-09 at around 7-8% growth rate. But, with the financial bubble bursting, the
growth also slumped to below 4-5% but then again, strict fiscal and monetary stimulus
cushion was provided by the government which led to the economic growth. Post that, a lot
of policy driven decisions were taken and also many scans have erupted into the scene
which led to growth slowdown prior to 2014.

During this time, around 2013, is when the new GDP series came into effect with the base
year shifting from 2004-05 to 2011-12. This has shown a growth path in India’s major sectors
as well as latest numbers were being used to calculate GDP which builds the confidence of
domestic and international investors as well to be attracted towards India, mostly into Real
Estate Sector. The manufacturing and services sector were taking a hit and investments also
slumped from 2011-12 due to rising policy uncertainty, delays in project approvals, and
supply bottlenecks. This has resulted in effected the Ease of Doing Business rankings as well
which led to lack of confidence in investors to any sector post the crisis. This was coupled
with low agricultural productivity and low manufacturing base. The need of the hour was a
new India which showed consistency in term of growth prospects and also in terms of
attracting domestic and foreign investments in various sectors. In real estate sector, it was
mainly the policy uncertainty that needs to be eliminated and use this sector as a critical
sector which will affect 20 other sectors to boost the economy.

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Post RERDA Act, 2016, as we see the investment have grown over 60% in the real estate
sector mostly contributing to the Residential sector. This is also evident because the
Government in 2016 budget has brought in a lot of initiatives to supplement the growth
oriented ideas of government like Make in India, Start-up India, Housing for All 2022, 100
Smart Cities, etc. which are a big boost in terms of Real Estate sector. The Government
initiatives required a lot of infrastructure growth in terms of malls, shopping complexes,
which boosted the retail sector as well.

In terms of Housing sector, prior 2013-14, although the Gross national Savings is over 30%
of GDP but still it fell from 2011-12 margin of 33%. This is due to high inflation and negative
interest rate on bank deposit that distorted household behaviour. This has also seriously
effected home buyers from economically weaker sections as well. But, with rising
disposable income over the past few years and Government coming up with interest
subsidies through Credit Linked Subsidy Scheme (CLSS) has greatly helped the homebuyers
for cheap financing their houses.

All these schemes have helped the sector in terms of financing, budget allocation,
Government interventions to boost the supply during peak demand, etc. But, RERDA Act
was significant contributor in terms of implementation and smooth conduct of all the real
estate projects without being delayed or giving justice to the people who were affected by
false developers and agents. It stream lined all the processes involved and lessened the
misery of customer as well as agents prior to this system.

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As we see, National Housing Price Index also have shown a constant increase in prices. This
can also be due to all the projects will now be sold based on carpet area and not the super-
built-up area. The former is typically 25-30 per cent less than the latter. Thus, there is a
possibility of price per sq. ft. going a bit higher.

It should also be remembered that this period of growth in prices coincides with, and is
closely linked to, some other remarkable events, namely, demonetisation, temporary ban
on construction in Mumbai, implementation of GST, and a little later, the liquidity crisis of
2018. All of these, along with RERA, contributed to the slowdown in the industry, leading to
falling sales every successive half-year.

Along with this, the stringent policy applied for completion of projects in given deadline
made the developers to concentrate majorly on them. This has effected in serios decline in
new project launches across the country. For example, in southern cities like Hyderabad,
Bengaluru and Chennai, this number has fallen down by whooping 70% in 2017 when
compared to 2016. This shows the negative effect that RERA had on the economy.

But, apart from such repercussions which are evident during any big policy reform, RERA has
been fruitful in solving the problems of buyers as well as developers. With Maharashtra and
Madhya Pradesh taking the lead in implementation of this reform to full effect, we see its
results on cards. In Maharashtra, by 2018, nearly 5000 complaints were received and over
3100 orders passed. Over 79% of rulings were in favour of buyers. This gives an indication of
the speed and extent of buyer protection that RERA offers. If all the states make the
authorities function at such optimal efficiencies, the real estate sector will be a radically
transformed industry.

According to the World Bank's Ease of Doing Business Index, India has significantly improved
its global ranking for dealing with construction permits from 182nd to 52nd in a span of four
years supported by a steady decline in days required and processes required for such
permits. This can be improved further by closing some of these last mile gaps in
implementing RERA.

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All in all, the Act has given a lot of boost to the real estate sector and Indian economy as a
whole and brought in a lot of transparency in terms of transactions. Yes, there will be lot of
mismanagement and haphazard movement in terms of projects and sales but this Act will
definitely streamline all the process and will provide a single-window system where all
issues can be solved at a rapid pace and help the economy.

Issues and Challenges with RERA Act:

Although RERA Act was enacted after a long debate in the Parliament, even after
sending it to Standing Committee, it still has some issues in it. Some of them can be:

● It arises a question to the jurisdiction of Parliament to make changes in Real Estate

as “land” is in the State List of the Constitution. But, it is argued that the major aim
of bill is to regulate contracts and transfer of property which are in the Concurrent
List.

● The Act makes it mandatory to regulate projects of over 500 square meters or 8
apartments only. This will lead to exclusion of large number of small house projects.
So, the Standing Committee is of the opinion to make it 100 square meters.

● The Act makes all agents facilitating the sale of project to be registered but that can
be made compulsory to all the agents involved in the process.

● Requirement of Single Window system for all real estate projects which will make
the process easy as well

● Many buyers will not get benefited by the Act as it only covers new projects.
Projects stuck due to clearance or financial issues don’t come under this.

● Delay by Government bodies to clear the project which makes it difficult for
developers to launch the project on time.

● Delay in terms of launching new projects as old projects need to be completed and
new ones require a lot of time for clearance.

● It also does not cater to concerns of developers like force majeure (act of God)
which can result in shortage of labour and delay the project.

● Parallel order in terms of Consumer Forum vs RERA still exists which needs to be
eliminated and single body should be made to avoid ambiguity.

● Developer needs to address Structural Defects for 5 years which is a long duration.
That need to be reduced top one year.

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 ● It gives clarity about rights and duties of buyers and developers but no such clause is
mentioned about agents.
All these issues and challenges need to be addressed which will help in systemically bringing
the Indian Real Estate sector. We have seen the effects of implementing RERA Act coupled
with GST, IBC, etc to boost the sector as well.

Impact of RERA Act:

As we discussed earlier, the main aim of this policy reform is to bring in transparency in
transactions and protect the safety of buyers and build the confidence of investors and
developers. It has also shown positive results in investments, real estate growth, etc. Some
of the major advantages through this Act are:

● Timely Delivery of Apartments:

Strict regulations on the developers makes sure that the buildings are
Completed on time and timely delivery of flats are done. If not, he/she will have to refund
the buyer with interest.

● Accurate Project Details:

The Act makes sure that the developer goes according to the plan that
that was made before the deal and and no change in construction plan is accepted at later
stage.
● Carpet Area:

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 All this while, built-in area was used during sale of projects. Through
this Act, only Carpet Area will be used and makes it mandatory to disclose it.

● Clearances and Separate bank accounts:

Developers sometimes attract buyers with huge discounts and pre-
launch offers and later, will not be able to deliver it on those parameters. To eliminate it, all
clearances need to be made prior to start of project only. Also, each project needs a
separate bank account and the money in them need to be used to fund only those projects.
This will reduce mis use of the project money and diverting it to other uses.

● After Sales-Service:
The Developer is responsible to maintain the building till 5 years
after completion of project if any structural defects are noticed by this Act.

Conclusion:
Apart from these, it also spurred demand growth and improved investments in
terms of FDI inflow over the years. Although the sales have dipped due to growing external
economic concerns which include BREXIT, US-China Trade war, Corona Virus effect along
with internal factors like decreased private investments, reduced disposable income,
economic slowdown due to policy reforms like Demonetisation, GST, Banking sector
reforms, etc. which made the government to go fiscal-stringent measures. Due to this,
although a big initiative in Infrastructure sector was made to invest 1 lakh crores over 5
years, it has still not taken shape due to lack of confidence in public as well as investors
when it comes to real estate. But this RERA act has brought in fiscal discipline, increased
accountability and transparency and enhanced responsibility among developers.
In total, RERA Act has been a boon to the real estate sector and has multiplies its
effect to other industries relying on this sector as well. Although this big policy reform in
tandem with economic slowdown has reduced the pace of real estate sector growth, this
will show positive effects in the future and develop a more confidence-driven, transparent
Real Estate Sector.
References:
1) Reform in the Indian real estate sector: an analysis,
https://www.academia.edu/37638034/Reform_in_the_Indian_real_estate_sector_an_analy
sis?email_work_card=view-paper
2) Indian Real estate and Construction, Consolidating for Growth,
https://assets.kpmg/content/dam/kpmg/in/pdf/2018/09/real-estate-construction-
disruption.pdf
3) Real Estate Sector Analysis, https://www.ibef.org/download/Real-Estate-December-
2019.pdf
4) Two years of RERA: Impact on Indian Real estate,
https://www.outlookindia.com/outlookmoney/real-estate/two-years-of-rera-impact-on-the-
indian-real-estate-2991
5) All India HPI Press Release, RBI,
https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=45268

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