Short & Long Term Impact of RERA on Individual Home Loan Buyers
One major reform the government has brought into the unstructured and unregulated housing sector has been the Real Estate Regulatory Authority (RERA) Act that came into effect on 1 May 2017. The impact of RERA on individual home loan buyers has been very significant, as it has been with every other stakeholder in the realty sweepstakes.
Despite its vicissitudes, real estate tilts largely in favour of the developer, the buyers often finding themselves disadvantaged in terms of being shortchanged (duped out of the area and amenities initially assured and what they paid for), and at times unwittingly landing themselves in a quandary where they have to pay heavily for the realtor’s transgressions.
RERA seeks to address these infirmities and bring in transparency and accountability through the creation of a mechanism that effectively regulates issues such as non-compliance with sales deeds, delayed allotments, questionable pricing and quality of construction, furtive title changes, fraudulent registrations and pending permissions. The enactment is aimed at safeguarding buyer interests and establishing an arbitrating mechanism for swift redress of disputes.
The Act has also boosted the confidence of home loan applicants as it brings within its ambit all new and on-going residential and commercial projects, including plotted development, and all projects over 500 sq m (5,381.96 sq ft) or eight flats, as also all projects that had no Completion Certificates prior to the Act. However, projects undergoing renovation, repair or re-development that do not involve re-allotment and marketing, advertising or sale will not come under RERA.
The project promoters will have to login and submit requisite details on the RERA website. Once their application is successful, they are provided a registration number, a login identity and a password. RERA also requires registration from real estate agents who mediate real estate deals. They will be issued a single registration number for each State or Union Territory (UT) that they must show during any sale.
Allottee’s interests will also be safeguarded with 70 per cent of the funds collected from them needing to be deposited in a dedicated project account. Withdrawals will be only for covering construction and land costs, in proportion to the percentage completion method, and will need to be certified by an engineer, architect and chartered accountant. This will ensure against diversion of customer advances towards other purposes so that they are utilised solely towards project completion. Duplicity will be curbed with the promoter prevented from advertising or selling his project without registration with RERA where he will need to disclose fully on aspects such as project, financial and legal details. He will also henceforth sell his property only on the basis of carpet area and not built-up or super built-up area.
Promoters must also make a positive warranty on their titles and interests on the properties to enable the homebuyers to use this information in case of any discrepancies. Promoters will additionally need to avail of insurance against the construction and title, the proceeds of such insurance being made available to the buyers when the sale agreement is executed.
RERA provides for the freezing of the project bank accounts in case of non-compliance, and the interest on delay will be the same for the customer as well as for the promoter. The promoter will also need to seek the consent of 2/3rd of the allottees for any alteration or extension of his project. Misrepresentation or non-compliance with any provisions of the Act will be met with stringent punitive action, the adjudicating officers, real estate authorities and appellate tribunals obliged to dispose of complaints within 60 days.
RERA requires the Central and State governments to notify their own rules on the basis of the model rules framed under the central Act. Rajeev Jain, the spokesman for the Housing and Urban Affairs Ministry, says that till now only 13 states and UTs have established ‘regular’ authorities under the Real Estate (Regulation and Development) Act (RERA), with 14 others setting up ‘interim’ authorities. While the Act mandates that the regulatory authority be established by 30 April 2017, it provides for the appointment of an interim authority until the full-time authority is established.
Similarly, seven states and UTs have set up ‘regular’ real estate appellate tribunals under the enactment, while 13 others have ‘interim’ tribunals. Twenty-two states have fully-functional web portals under the legislation. Six north-eastern states, namely, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Sikkim, are yet to notify the RERA and its rules, due to land and other issues, while West Bengal has notified its own real estate law that it calls the Housing and Industrial Regulation Act, 2017 (HIRA), in lieu of the RERA.
The introduction of the RERA has been greeted with anxiety by the builders who are now going slow on project launches and are focussing more on execution and adhering to compliances to avoid litigation. But they have been granted much relief from the relaxed delivery timelines for existing projects. It is also to be seen how faithfully various states adopt the enactment without diluting its provisions to favour the powerful builders’ lobby. It is also hoped that corruption or partiality will not taint the regulatory bodies being set up.
This initial, and expected, slowdown in the overall property market is stunting the growth of home loans, though their interest rates have been visibly softening of late. The mood is expected to lighten up now that the festive season is upon us.
As the RERA opens up the murky real estate sector, home loan interest rates offered by different banks to their customers are becoming increasingly competitive, depending on the term and amount of the loans. For instance, Canara Bank’s rates range from 8.35 to 8.55 per cent, IDBI Bank, 8.35 to 8.65 percent, Bank of Baroda, 8.30 to 9.35 percent, DBS, a flat 9 percent, PNB Housing Finance Ltd, 8.99 to 9.75 percent, DHFL, 9 to 9.75 percent, and Axis Bank, 8.35 to 11.75 percent. They had ranged from 10.25 to 11 percent in 2013. Some banks have discounted rates further for women borrowers.
Prospective home loan customers would do well to ascertain the developer’s RERA compliance and bona fides, keeping in mind the fact that banks will now approve and disburse loans only to RERA-registered builders. All allottees, who are mostly home loan customers, also come under the purview of the RERA, and if they are denied home loans by the banks for whatever reason, they will perforce pay heavy penalties to the builders for any late EMI payments.
Banks will disburse the home loan amounts only in accounts the details of which are RERA verified and which are duly signed and stamped by the developer on his official letterhead. Allottees are also advised to check if their developer is approved by the RERA in case they have obtained a home loan to purchase a new house or they are repaying a home loan for an existing home purchase. If the developer is not RERA-approved, the allottees should take the issue up with him or with the concerned authorities if they wish to avoid any foreseeable hitches.
The RERA legislation has been designed to be a game-changer for India’s real estate industry with the aim of rendering it more transparent and accountable. As it takes off and more developers come under its ambit, real estate as we know it today will be widely restructured in the next couple of years. The home loan industry is, as a consequence, anticipated to benefit exponentially as greater numbers of customers will be forthcoming and will have greater confidence to buy the homes that they desire.