Purging the realty sector: Implementing a strong RERA can help weed out the problems

Abhishek Kumar and Priyam Purohit



In the absence of adequate protection, ‘consumers’ are usually vulnerable entities, more so when they are real estate consumers. It would not be wrong to say that for most of them investment into property is a lifetime decision as it involves years of savings and much financial planning. Despite this, the Indian state had been blind to their protection for far too long. All credit to Modi government, in May 2016, we finally had a Real Estate (Regulation and Development) Act, famously called RERA. It is fundamentally a consumer protection law meant to safeguard consumer interest by ensuring fair practices and penalties on errant builders. In other words, it seeks to address issues like delays, price, construction quality, title and lack of contractual clarity, among others.


So, do real estate consumers finally have a reason to celebrate? Perhaps not!  This is because the implementation of the Act is rather tardy across states. RERA was to ensure that each state and Union territory had its own regulator and set of rules within a year of the enactment of the Act, but progress on the ground reveals a different story — only a handful of states have notified rules and many have not framed them clearly.


Provision related to escrow account is one such example. To put it simply, the escrow provision under RERA entails maintenance of a separate account by builders to prevent them from diverting consumer money received for a particular project towards any other activity. However, it is not adequately reflected in many state rules, thereby potentially compromising consumer interest yet again.  There are also issues like delays in appointing dedicated regulator and setting up of an appellate tribunal for grievance redressal.


Recently, even the Parliamentary Committee looking into the Real Estate Act criticised states of adopting a lackadaisical approach in the implementation of the Act. It clearly stated that in case of any dilution in rules by states, they would need to be amended or re-notified. A similar sentiment was earlier expressed by the current Vice-President Venkaiah Naidu when he was at the helm of Ministry of Housing and Urban Poverty Alleviation.


If one wonders why such tardiness prevails in implementation, the answer may not be that elusive. Real estate businesses have for long survived at the expense of the consumer. Knowingly or unknowingly, state governments, banks, builders, and even the RBI have had a role to play in it. For instance, it is the consumers who have been financing builders as banks don’t generally lend to them due to restrictions imposed by RBI. Many builders then engage in unscrupulous activities which range from diversion of consumer money to delayed possession or suboptimal standards in construction and services. The builder-politician nexus further feeds into this malaise and marginalises the consumer even further.


No wonder therefore that there is a reluctance by several builders to register with RERA, even though it must also be said that in few cases it could be due to bona fide reasons that can be better explained by builders themselves.


For instance, in a letter to the PM, the Confederation of Real Estate Developers’ Associations of India (CREDAI) recently sought clarity on the definition of an ‘ongoing project’ which it cited as one of the reasons for delay in registering projects with RERA along with others which include inadequate infrastructure and non-notification of rules by state governments.


There are also views that while builders are being targeted, there isn’t much focus on other aspects that sully the realty sector. For instance, there is a whole range of corrupt practices manifest at the level of seeking approvals from municipalities and development authorities or in the procurement of quality material.  The question is can RERA also catalyse reduction in corruption in areas outside its mandate? Perhaps yes, if an opportunity is ceased right here and now.


For this to happen we would need an iron-willed political dispensation in each state to allow an optimally functioning regulator. Pressure from such a regulator to ensure quality projects can have positive ramifications in the entire supply chain. There is also little doubt that a well-functioning RERA can also lead to filtering out of unethical players from the market.


Therefore, to clean up the sector it is important that all states equally abide by the spirit of the central act. This will also help in uniform urban development  the importance of which cannot be undermined given the fact that India expects 60 per cent of its population to be living in urban spaces by 2050. Variance in the effectiveness of RERA across states could distort this process and we may miss a great opportunity.