Has Rera really served its purpose?

Has Rera really served its purpose?

Such is the sorry state of affairs in India’s glowing real estate sector. For most people, buying a house is both a financial and life goal. But risks abound, especially if you are investing in a new housing project. Most well-laid plans go awry when the builder delays handover of your dream house or fails to deliver it at all, for various reasons. Besides, any litigation involving the builder often takes years to be settled. So, when the government enacted the Real Estate (Regulation and Development) Act and set up the Real Estate Regulator Authority (Rera) in 2017, homebuyers heaved a sigh of relief. Errant builders were expected to fall in line and projects were scheduled to meet delivery deadlines. But has Rera matched the expectations of homebuyers?

Enter the Rera

Property dealers tell you there has been a sea change in the real estate market after the implementation of Rera. Their slogan is catchy as well, ‘Rera hai to bharosa hai’ (You can rely on Rera). But homebuyers are not impressed.

Builders are still playing truant, housing projects are getting delayed and Rera is unable to take builders to task, say many homebuyers and industry experts. Industry officials say builders exert their influence in civic bodies and hence get away with any delays. But when such delays happen, they are bound by law to pay interest penalty to homebuyers. However, they refuse to do so. Even if Rera issues orders for recovery of such interest penalty in favour of homebuyers, builders do not comply with it. Homebuyers then have to reach out to higher government authorities for grievance redressal.

Take the case of a Bengaluru-based IT professional who is stuck in a judicial quagmire for more than 12 years now. “I booked the apartment in 2012 with an expected delivery in 2014. By early 2013, over 90% of the amount had been paid through a combination of self-funding and a bank loan. Construction stalled when almost 90% of the project was completed due to reasons not disclosed to buyers. In late 2018, we approached Rera and received a favourable order for repayment of principal and interest in early 2019. The respondents (builder) did not comply with it. I approached the offices of the deputy commissioner and the tahsildar. My files suddenly went missing. Later, with the help of a friend who is an IAS officer, I pursued the matter and my file was found the same day ,” says the IT professional who did not want to be named because his complaint is still pending in the courts.

The builder challenged the Rera order in the high court, which has directed Rera to take a relook a the case. “The entire process will begin all over again,” says the IT professional.

Sanyal faced a similar plight when she booked her flat in Acme Boulevard, a project by Mumbai-based builder Acme Realties, in 2015. “The flat was to be delivered in 2018 as per the agreement. The project started in 2014. The builder got the Rera registration number in 2016, the year the Act was enacted, but has been granted multiple extensions for the project completion. Nearly 300 homebuyers had collectively given more than 600 crore to the builder and are awaiting possession of their flats. A few buyers approached Rera, which issued a recovery certificate. The developer was also sanctioned a loan from a leading bank. How could it go bankrupt?” says Sanyal.

Acme Realties did not respond to an email from Mint. The buyers have moved National Company Law Tribunal (NCLT) now and hearing in the insolvency case against the builder has started. Sanyal is now staying in a rented flat after paying 1.10 crore to book her flat.

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(Graphic: Mint)

Toothless tiger

Real estate is a state subject where the recovery process—interest penalty that builders are asked to pay homebuyers for delays in handover of flats—is at the mercy of the state revenue department. Rera does not have any enforcement machinery.

“Amendments are needed in the Act so that Rera has control over not only passing the recovery order but also its timely implementation. It should be in a position to seize the properties of promoters if they disregard the recovery order. This will have a telling impact on promoters,” says Godfrey Pimenta, an advocate who practices in Maharashtra Rera and is a trustee of the Watchdog Foundation, a voluntary organization that campaigns against corruption.

To be sure, the ministry of housing and urban affairs (MoHUA) has directed state governments to follow the Gujarat Rera model to execute recovery warrants. “Gujarat Rera has appointed retired district judge as its adjudicating officer whose job is to recover dues from builders. They have also constructed a civil prison to put errant promoters behind bars,” says Abhay Upadhyay, member of the central advisory council for Rera.

An email sent to the ministry on the rise in real estate litigation in the country did not elicit any response. Real estate lobby bodies, too, are silent about the issues.

Recovery in the case of project handover delays is just one of the many issues that need attention. Builders are also blatantly violating almost all Rera laws. This reporter recently responded to a social media promotion of an upcoming project by Godrej Properties, a reputed builder. The project, proposed to come up next to the recently launched Godrej Tropical Isle project in sector 146 of Noida near New Delhi, is yet to be registered. Over a phone call, the sales team demanded a cheque for 10 lakh to book a unit of her choice during pre-launch. Sales team at the location informed that the Rera registration number for the project had already been obtained and would be announced soon. Ten days on, there has been no such announcement.

To be sure, Section 3(1) of the Rera Act lays out that a promoter shall not advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment, or building in any real estate project or part of it, in any planning, development or municipal area, without the Rera registration number.

Responding to Mint’s query, a spokesperson of Godrej Properties said, “As a responsible developer, we always follow prescribed guidelines set by Rera for all our projects. We do not accept any bookings for a project prior to its registration with the concerned Rera authority.”

“Many developers generate hype in the market to garner interest leading up to project launches. Agents often suggest that Rera registration will be obtained within a week, but this process can extend by 2-3 months. During this time, builders and agents capitalize on the frenzy created from online campaigns, collecting expressions of interest and selling out entire projects within days,” remarked Pradeep Mishra, a real estate analyst based in Delhi.

Further, there are cases of discrepancy between the proposed date of project completion as shared with the Rera and the duration of building approval. Upadhyay cites an example. “As per disclaimer information on Godrej Tropical Isle property, the building plan is valid for 5 years from June 2023, but the project completion date as per Uttar Pradesh Rera (UPRERA) website is 28 February 2030 which is legally not tenable. Notably, the Bihar Real Estate Appeal Tribunal had last year held that the registration of a project on a lapsed building approval is illegal. This clearly shows that Rera is only doing mechanical registration of projects without proper verification of documents,” he says.

Responding to this, the Godrej Properties spokesperson said, “the building plans for our project Tropical Isle have been sanctioned by the NoidaAuthority, as per extant rules and regulations and the same can be renewed further upon expiry basis the process. UPRERA has granted registration of the project basis the required documents submitted with the application.”

Separately, the real estate regulator is facing a lack of manpower and vacant positions of chairpersons and members in some states. “We have been writing to the Maharashtra chief minister about it. Moreover, Rera members need to get trained. Sometimes orders are passed that are not in consonance with the law. This makes us file appeals which adds to litigations. It is important to appoint members having a judicial background,” says Pimenta.

Rera needs to be strict with project completion deadlines. Section 6 of the Rera Act says that the Authority cannot extend the deadline for project completion beyond one year under normal circumstances. “Yet, inordinate extensions for project completion have been provided in many cases without disclosing details of why the extension was sought,” says Upadhyay.

In some cases, after multiple extensions, builders have been offering possession of flats without an occupancy certificate (OC). “I bought a unit in ATS Le Grandiose in 2018 when the project was launched in 2016. Possession was due in June 2020 for phase 1 of the project but it got extended multiple times. The Rera website shows the project completion date as June 2023. It is almost a year now but the project is still incomplete. The builder has not paid land dues to the Noida Authority and has started giving fit-out possession without OC. They are also not complying with the Rera order in which the Authority awarded a 10% interest penalty to buyers,” says Noida-based chartered accountant Akshay Aggarwal (30). The project has now been admitted to NCLT, according to the UPRERA website.

An ATS spokesperson said, ‘since the matter is subjudice and pending before the honourable Supreme Court, we are not in a position to comment on the issue. As you may be aware, on a legal note, admission of any company into NCLT automatically triggers a moratorium against any and all claims, which would also be the case here.”

(Graphic: Mint)

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(Graphic: Mint)

Making sense of Rera websites

Details of registered housing projects are available on a Rera website but these cannot be analysed easily. A lot of information remains ‘undefined’ or are labelled ‘not applicable’. A common homebuyer may not be able to ascertain the quality of the project or the track record of a property developer from this. For example, the marketing brochures by developers promise a plethora of amenities in a project while the Rera website mentions only a few of them. “It is difficult to ascertain how many amenities have actually received approval from the authorities concerned,” says Upadhyay.

Upadhyay tracked Rera disclosures of a project launched in 2023 of a leading developer. “It was surprising to see that the garage column was left undefined. The size of the garage space and the ceiling height of units could not be found either on the UPRERA website or that of the developer. There was no information about furniture and fixtures also,” he says.

A builder-buyer agreement is sacred for homebuyers. “It is a legal requirement for promoters to upload the draft of the same at the time of the registration. However, the draft copy was not available for this particular project, which is a violation of the Rera Act. The authorities seem to have deliberately overlooked it,” says Upadhyay.

It is also surprising that developers manage to register new projects while the old ones are incomplete. From a buyers’ perspective, if they can track all projects of one developer at one place, they can ascertain the quality of a developer. However, this information is not available. “While Rera provides for disclosure of promoter’s track record, it is confined to the promoter entity alone. Many developers have started launching projects in SPV or LLPs or a single entity for one project. These companies or project-specific LLP / company may not have any track record or legacy issues. This way lot of legacy issues are not available to prospective allottees,” says Venket Rao, Rera expert and advisor to UPRERA.

“A change is required to make it mandatory for promoters to disclose track record of all projects executed by its Group companies/LLP or under a brand name,” says Rao.

The details of financial defaults by promoters are also not disclosed in Rera websites. “Project-specific finances are disclosed, but a company’s overall health is a key factor. Developers should be made to share loan/borrowing details with repayment default status, if any,” he says.

Pimenta says there have been cases where funds have been diverted for personal use, but no penal action has been taken despite complaints. “If number of complaints are rising against a project, Rera must monitor how much funds have been collected and how much of it has been deployed in the project. If 80-90% funds have been collected while only 20% project has been completed, it is a clear indication that funds have been diverted. The authority needs to call the developer for explanation and issue a show-cause notice. If developers are unable to explain the reason, they should report them to the Economic Offences Wing. Individuals don’t have the wherewithal to reach out to different authorities. If Rera does it, it’ll be a big relief for homebuyers,” he suggests.

What the data says

The Rera ‘implementation status’ available on the website of MoHUA only shows the number of registered projects and agents and total number of complaints disposed by Rera authorities. This number stood at 1, 20,605 as on 26 February this year. To be sure, publishing annual reports is one of the responsibilities assigned to state RERAs under the Act but they have not been doing it.

“Most of the state Rera authorities have either not published any annual report or have uploaded only till 2019-2020. Only Punjab Rera has uploaded such reports till 2020-21 and Gujarat Rera has uploaded these till 2021-2022,” says Upadhyay.

Data such as number of registered projects which are completed, number of delayed projects, number of extensions sought by a project, number of recovery certificates issued and the amount of the recovery are some of key data points that will help homebuyers in making an informed decision. Extreme action against errant builders are needed to set an example for course correction by others. For now, it is business as usual for builders even as homebuyers, pushed from pillar to post, rue their decision to buy a house.

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