Regulation fear grip realty sector amid crisis

The legislation will bring in the much-needed transparency to the real estate

After the continuous slowdown in the sector, stringent clauses under the Real Estate (Regulation & Development) Act (Rera) have started giving sleepless nights to the construction sector. While independent directors are trying to make a quick exit from real estate companies, developers are trying to streamline and clean up their businesses fast in the fear of being hauled up.

Experts believe that the latest legislation would bring in the much-needed transparency to the sector and may just be able to clean up the sector that is linked to opaque ways of transaction.

"Rera has several provisions most of which are for protection of consumers," said Samantak Das, chief economist and national director research, Knight Frank (India). Consumers have been at the receiving end for many decades, with majority of the project information being with developers rather than consumers, Das said.

This resulted into buyers entering into agreements with 10-20 per cent knowledge of the project. "Rera will now provide the required transparency and clarity to the consumer."

Under the provisions set under Rera, developers have to reveal facts of the project such as land title, amenities, clarity on permissions, construction phase among other things. Failure to do this would attract penal charges to the developer.

Even independent directors, being a part of the developers' management team, may be liable to face those penal charges which will include warning, financial penalty as well as imprisonment, pointed out an analyst. This has got many of them spooked prompting them to resign, a company executive said.

A senior director with a major construction firm in the northern region said that he is looking into all the provisions of Rera and would base his decision of staying or exiting the company on the level of exposure he has to possible lawsuits.

"It is a tough choice to make, I do not want to abandon the company but yes if I think that we would be hauled up under Rera, I would not have a choice but to leave," said that the director who did not want to be quoted.

Das argued it depends on the risk taking abilities of directors to decide if they stay with the companies or not.

"As data reveals, there is a possibility of independent directors exiting from the boards of construction companies. Before the Rera regime, there was no clarity and transparency, so an independent director could bypass any sort of penalty. Now that Rera has been implemented, the independent directors have to think rationally before being a part of the board," he said.

According to a recent report by Colliers, while Rera is a leap forward that will boost transparency, discipline, and accountability in the property market, it has drawn flak from developers.

Colliers report even forecast a drop in new project launches in the short term, as developers will wait to see how the new norms pan out and how other projects perform.

RERA AT A GLANCE

• Mandatory registration prior to project sale and advertising to reduce delays
   
• All projects with an area of more than 500 sq m or more than eight apartments in all the phases fall under the Act
   
• 70 per cent of the project proceeds must be kept in an escrow account to prevent diversion of funds
   
• Provision for lapse and revocation of registration in case of default
   
• Real estate agents are also covered under the Act