Alignment of state and Central RERA norms likely to boost consumer confidence in realty sector: ICRA

New Delhi, December 14, 2017: The recent Bombay High Court order, upholding the constitutional validity of the Real Estate Regulatory Authority (RERA) and its applicability to all unfinished projects prior to the implementation date, i.e. May 01, 2017, of the RERA Act, 2016, is seen as a confidence booster from the consumers’ perspective. ICRA believes that the recent order passed by the Bombay High Court could have a far-reaching impact. Stakeholders in other states are expected to ensure that the applicability of ‘ongoing projects’ in their respective states is in line with the definition clarified in the Central RERA Act.

The Central Government has been advising states to align their respective state Acts with the Central one in its true spirit; however, there have been deviations. However several states notified their respective state RERA’s after tweaking the definition of ‘ongoing projects,’ resulting in many unfinished projects being left outside the purview of the RERA Act, leading to a negative impact on the consumers. For example, states like Karnataka and Andhra Pradesh exempted projects from registration where either all the slabs have been laid or common area and maintenance has been handed over to the association of buyers.

According to Mr. Shubham Jain, Vice President & Sector Head, “The Bombay High Court ruling is a positive from the consumers’ perspective. The real estate sector has been facing demand headwinds on account of various factors like affordability, low consumer trust in the developers because of delays in project delivery, and an uncertain business environment. Any measure that rebuilds the confidence of the buyer community in the sector is a long-term positive and should underpin demand growth. “

The inclusion of earlier excluded projects, under the definition of ‘ongoing projects’, would mean a time-bound completion, which would only strengthen consumers’ faith in the regulatory framework as well as the real estate sector. Further, ICRA believes standardisation of rules across states will also contribute towards ease of doing business for other associated stakeholders.

The Court order has also provided relief for developers where the projects may have got delayed on account of exceptional circumstances. Extension for date of completion may be granted without any penalty being levied on the developer. Nonetheless, some of the penal provisions including imprisonment of promoters/employees in case of failure to comply with the regulations may create an excessive fear in the developer community. In addition, provision related to 5-year warranty against any structural flaw will also require developers to further strengthen their due-diligence mechanism towards their vendors, which may further increase their costs. Furthermore, delay in formation of RERA Authority, under staffing and streamlining of operations of RERA authority, absence of draft sale agreement formats continue to impact the operational performance of the developers to an extent.

Finally, ICRA observes some signs of a pick-up in demand with 11.67 million sq. ft. sold by developers in H1 FY2018, thus, registering a 23.9% growth over H1 FY2017. Nevertheless, the sales velocity continues to remain lower than the average half-yearly sales of 14-15 million sq. ft. witnessed in FY2015. Thus, the improvement is partly attributable to the lower base. Going forward, sustained improvement in volumes coupled with a reduction in quarter-to-sell (QTS) for the sample set will indicate stabilisation of a demand-supply scenario.

Corporate Comm India(CCI Newswire)