MAHARASHTRA NATIONAL LAW UNIVERSITY MUMBAI

LL.M
DISSERTATION

IMPACT OF REAL ESTATE (REGULATION AND DEVELOPMENT) ACT 2016 ON

FINANCIAL INSTITUIONS AND PROMOTERS

SYNOPSIS

SUBMITTED TO: SUBMITTED BY:

THE FACULTY AKSHAY PATIL
Enrolment No.: 002
INTRODUCTION

The real estate sector in India is growing at a rate of about 20% per annum and this sector has
been contributing to about 6-7% to India’s GDP but it is not able to balance the supply-
demand continuum. The demand for housing has been increasing exponentially from last one
decade. Inspite of Government’s efforts through various schemes, it has not been able to cope
up with the increasing demands. Taking advantage of the situation, the private players
snatched the control of real estate sector with almost no concerns for the demand of the

The implementation of the Real Estate (Regulation and Development) Act, 2016 brought
with itself a lot of anxiety, both for the buyers and developers. The new law, which prohibits
pre-launch sales, prompted many developers not to sign agreements with buyers before their
projects were registered under RERA. Buyers too were sceptical to put their money in
unregistered projects. This new realty landscape left its mark on home loan sales, which were
down in the first quarter of the current financial year.

A financial stability report (FSR) conducted by the reserve bank on India has stated that the
establishment of a regulator is expected to adversely affect the housing finance companies on
the back of a curbing f speculative activities in the real estate sector.

While the thrust to regulate the realty sector is expected to have an effect on housing finance
segments, there no systemic risk related concerns from the sector even with a slight upsurge
in advances in the retail housing subdivision in the last few quarters. After being passed by
both houses of parliament the draft rules for the real estate (regulation and development) act
2016 are being framed at the state level for the implementation of the same.

The FSR also revealed that after being subdued for four successive quarters, the all India
house price index registered an annual increase of 7.3% at the end of the first quarter of FY
2016-17. Further according to FSR the national stock exchange’s NIFTY index also outdid
the indices of Morgan Stanley capital international (MSCI) world and emerging market from
the beginning of the financial year till November 2016.

Bank loans are the main source of real estate finance and therefore there is an
interrelationship between the real estate prices and the bank lending. A sudden drop in real
estate prices can lead to a worsening of the banks' asset quality and the profitability of the
banking system, if the banks are heavily involved in real estate lending. Therefore, the
banking system's capital and lending capacity can be reduced seriously by a sharp fall in real
estate prices. The lending behaviour of the banks has far-reaching implications for the real
estate prices. For example, the banks loans to the developers, constructors and buyers of real
estate can alter the balance between the supply and the demand in the market and thus leads
to real estate price fluctuations. This link between the real estate prices and bank lending has
been confirmed by empirical evidence in several real estate markets around the world
(Hofmann, 2001; Davis and Zhu, 2004).

With this act coming into force only one year ago, there has been a little flux in the real estate
market with respect to the consumer spending, the bank lendings and the and the promoter
bearings .Though it is premature to assess the impact of the RERA act, it is imperative that it
be done to appropriate measures and changes in one’s tactical approach and financial
planning.

Literature review

1. Taxmann’s - A Comprehensive Guide to Real Estate ( Regulation and Development)

Act 2016
Covers the Rights of Buyer of Plots/Apartment their Function & Duties of Builders,
Rights and Obligations of Real Estate Agents also the Adjudication of compensation
by Adjudication Officer also the various Authorities under Act and specific State
Rules.
2. Real Estate Finance in India- by Julian Diaz III (Foreword), Prashant Das (Author)
This book covers the field of real estate finance in the Indian context. It focusses on
the many aspects of real estate finance, including the instrument, decision analysis,
and functioning of home loans and residential mortgages. The book also extends these
topics to cover commercial real estate.
3. Inside Unreal Estate: A Journey through India’s Most Controversial Sector – Sushil
Sayal
The book talks about his interpretation of the widespread corruption and misdeeds in
real estate, extending to discussions on the secretive link between some builders and
officials, one of the major issues troubling the sector. The author conveys the new
story of a real estate expert with an overall view of the industry, having worked in it
 for above three decades.

4. Snow White's The Real Estate (Regulation and Development) Act, 2016 with
Maharashtra Rules, 2017 by Adv. Sunil Dighe [RERA]
this book contains commentaries on the various sections of the RERA act 2016 .

5. Snow White's Commentary on The Real Estate (Regulation and Development) Act,
2016 | RERA Act 2016 by Bhoumick Vaidya

6. Understanding India's Property by Umesh Mathur

The Indian real estate sector has been thriving and it has become one of the fastest
growing markets in the world. Industry experts have claimed that the growth
opportunities presented by the Indian property market is going to attract many major
investors in the coming years, thereby giving a massive boost to the national
economy.

7. Real Estate (Regulation and Development) Act, 2016 by Dr Sanjeev Kumar

this book answers various questions related to the said act and particularly analyses all
the 92 sections of the act and offers commentaries on the same.

8. Real Estate (Regulation and Development) Act, 2016, Ministry of Housing & Urban
Poverty Alleviation Government of India
The Frequently Asked Questions (FAQs) and the responses therein are for general
information and guidance only. These questions and responses have been framed
keeping in view possible doubts that may arise and are not based on individual cases;
therefore, it is not to be taken as a final view of the Ministry of specific legal
interpretation of the extant provisions of the Real Estate (Regulation and
Development) Act, 2016.

Articles

9. RERA: Rights of banks & other financial institutions , Bhoumick Vaidya

this article talks about the relationship banking and real estate and the rights of banks
and other financial institutions with the enactment of the said act
10. What is the lowdown on the Real Estate Regulation Act ,Indrani Dutta , The Hindu
http://www.thehindu.com/business/Industry/what-is-the-lowdown-on-the-real-estate-
regulation-act/article18516198.ece
The author in this article talks about what is the said regulation, how did it come
about and its roadmap ahead for the economy.

11. Real Estate (Regulation & Development) Act, 2016 –What now??
http://www.careratings.com/upload/NewsFiles/SplAnalysis/CARE%20on%20RERA.
pdf
(credit analysis and research limited) analyses the issues pertinent to real estate in pre
and post demonetisation times.

12. Dr. Eisa Abdelgalil ,dubai chamber of commerce and industry , Relationship between
Real Estate and Financial Sectors
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.554.1057&rep=rep1&type=
pdf
draws relationship between real estate and financial institutions and their
interdependency to add to the growth of the economy.

Significance of research

Real estate sector is an ever booming sector in India and adds to the GDP of the country
in a very considerable way. This research is significant in a way which tries to analyse the
effect of introduction of new laws in the already pertaining system for regulation of the
real estate market, the allocation of funds by the promoter and the provisions of the
financial institutions in this regard.

Statement of problem

With the recent enactment of the real estate regulation and development act 2016 and the
demonetisation that occurred in the last quarter of FY 2016-17 a huge slump was
experienced in the real estate sector. Also with the REIT platform already been approved
by the Securities and Exchange Board of India (SEBI) and like mutual funds it becomes
 important to assess its impact on the policy changes of the financial institutions and the
fund allocation by the promoters/developers.

Scope of study

The research shall be limited to the state of Maharashtra where the RERA act has
repealed the Maharashtra housing and regulation act 2012. The researcher shall limit the
study to the promoters in the city of Mumbai and analyse the impact of the said act on
certain financial institutions and NBFC’s in the city of Mumbai.

Research questions

1. Does the escrow of 70% of the money collected from the allottees in anyway
affect the efficiency of the promoters?
2. The ambiguity over retrospective application of the act over the ongoing projects
impact the promoter/developer in anyway?
3. Has the new provision and the demonetisation drive impacted the disbursal of
loans by the financial institution in anyway?
4. With the approval of the real estate investment trust (REIT) by the SEBI would
the provisions of RERA draw enough interest from the financial institutions?

Hypothesis

The flux created in the real estate sector is momentary shall resolve with the setting up of the
real estate regulatory authority as per the terms of the act.

Research methodology

The researcher shall use the doctrinal method for research. The researcher shall also use the
analytical research method drawing an analysis and conclusion on the statement of problem.
The researcher shall take the help of books, articles, journals and web sources and would try
to assess the impact of RERA on financial institutions and developers.
The researcher shall in the due course of time read articles, journals, reports to support or
rebut the above mentioned hypothesis.

Tentative chapterisation
 1. Introduction
2. What is RERA?
3. Acts repealed by RERA and flaws with the old acts
4. Changes brought by the new act
5. Impact of RERA on the real estate sector
6. Impact of RERA on the financial institutions
7. REIT and its impact on the real estate sector
8. Conclusion

Bibliography

1. View: Ambiguity in law, execution problems may dilute RERA effectiveness

//economictimes.indiatimes.com/articleshow/59562038.cms?utm_source=contentofint
erest&utm_medium=text&utm_campaign=cppst

2. RERA: Implementation Status And Pertinent Issues

https://www.bloombergquint.com/opinion/2017/07/14/rera-implementation-status-and-
pertinent-issues

3. Real Estate (Regulation & Development) Act, 2016 – What now??

http://www.careratings.com/upload/NewsFiles/SplAnalysis/CARE%20on%20RERA.pdf

4. How will RERA, 2017 impact Indian real estate industry in the long term?
https://blog.ipleaders.in/rera-2017/

5. RERA’s Impact On Home Loans

https://www.bloombergquint.com/markets/2017/09/06/state-bank-of-india-gruh-finance-
explain-the-impact-of-rera-on-home-loans

6. Housing finance companies to be impacted by RERA:RBI

https://www.99acres.com/articles/housing-finance-companies-to-be-impacted-by-real-
estate-regulator-rbi-nid.html

7. Decoding RERA & REIT: Transformation of Real Estate in India

http://www.wavecitycenter.in/blogs/investment/decoding-rera-reit-transformation-of-real-
estate-in-india/

8. What REITs (Real Estate Investment Trusts) mean for Indian Real Estate
https://www.indiainfoline.com/article/article-latest/what-reits-real-estate-investment-
trusts-mean-for-indian-real-estate-117020600070_1.html

9. RBI to allow banks to invest in REITs, InvITs

http://www.livemint.com/Companies/xx2FbF0GK5Ii5LE5rqnCoK/RBI-to-allow-banks-to-
 invest-in-REITs-InvITs.html

10. PE investors cautious on real estate Rera Abhineet Kumar/Mumbai 11 May 17

http://www.nishithdesai.com/fileadmin/user_upload/pdfs/NDA%20In%20The%20Media/Qu
otes/PE_investors_cautious_on_real_estate_Rera.pdf

11. Real Estate Act comes into effect: 10 things you need to know about new law
http://www.hindustantimes.com/business-news/real-estate-act-comes-into-effect-all-you-
need-to-know-about-new-law/story-V6S6PyVhwYCzT1TwRpkYiM.html