SC verdict to protect homebuyers, make realtors toe the line

The SC's verdict is now expected to trigger a major change in state-specific rules modelled on this Act

The Supreme Court’s (SC’s) recent verdict upholding the jurisdiction of the Real Estate (Regulation & Development) Act, 2016, or RERA, in two different matters is expected to help homebuyers escape unnecessary harassment and put pressure on unscrupulous developers to toe the line.

Firstly, the SC’s verdict — upholding the jurisdiction of RERA on all realty projects that were ongoing and had not received completion certificate until the law came into effect — is now expected to trigger a major change in state-specific rules modelled on this Act.

The ‘ongoing projects’ included launches which had not obtained ‘completion certificate’ from civic agencies when the RERA Act was notified in the country.

“The ‘ongoing projects’ were deliberately brought within the ambit of RERA at a time when the development of real estate projects was not regulated and homebuyers were suffering from mounting incomplete inventory in the real estate industry,” said Abhilash Pillai, partner, Cyril Amarchand Mangaldas.

Pillai said while some states have defined and expanded the ambit of ‘ongoing projects’ in their RERA rules, the essence of the central legislation could not have been diluted.

“That is why in the Newtech judgment, the SC upheld this facet of the RERA Act, as well as the constitutionality of applicability of RERA to ‘ongoing projects’. This has been done keeping in mind that such ‘ongoing projects’ are necessarily required to be brought within the purview of the RERA to protect the interests of homebuyers.  This is the only way to ensure timely completion of delayed and under-construction projects,” he said.

Anuj Puri, chairman of Anarock Property Consultants, said this verdict by the apex court reaffirms the faith of several homebuyers who were otherwise being taken for a ride, and the court through this verdict has given more powers to RERA.

“The RERA rules were diluted in many states and being misused by some developers. Many under-construction projects that had still been not completed till the RERA implementation didn’t come under its ambit. Now with the SC verdict, these under-construction projects, too, will come under RERA and thereby benefit homebuyers in the long run,” said Puri.

Puri says the sector might see increased completion of residential projects in times to come.

“Developers of many of the under-construction projects that didn’t fall within the ambit of RERA moved on and began to focus on their projects under RERA. Now with all such projects under RERA, they will have to complete these projects. Therefore, we may see reduction in the number of units that have been heavily delayed or completely stalled,” he said.

According to the Anarock data, as of July, nearly 629,000 housing units were in various stages of (non)-completion across the top seven cities. These homes were launched in 2014 or earlier and were either heavily delayed or completely stalled.

Investors, such as Amit Goenka, chief executive and managing director (MD) of Nisus Finance, said the comfort they had with regard to RERA implementation was limited to particular states and fund flows were crimped in states, such as West Bengal, that did not have proper RERA implementation.

“It was becoming impossible for investors and purchasers to understand the implementation of RERA in different states. It is important to standardise the law across states,” said Goenka.

In another judgment, the SC upheld a provision in the RERA law, which makes it mandatory for builders to deposit full compensation and interest ordered by the regulator or at least 30 per cent of the penalty as a pre-condition for challenging any such order.

Previously, if RERA authorities imposed a fine on a developer, the latter could go and appeal the order. This tactic was invariably used by few developers to waste time.

While this verdict is expected to help homebuyers, it is expected to create cash-flow problems for developers starved of funds.

“The objective of such a provision under the RERA Act is to protect the interests of a successful party that has obtained a favourable order from the RERA authority.  Such a provision will also ensure only genuine appeals are filed and required to be entertained by the appellate authorities. Practically, this requirement of pre-deposit of amount can become burdensome on developers struggling to stay afloat,” said Pillai.

From a developer-lender perspective, these are such costs which are generally not factored in the business plan of a project.  Such an upfront deposit could cause short-term cash-flow problems, which thus, has a direct impact on the payout to vendors and lenders, he said.

Niranjan Hiranandani, MD of Hiranandani Group, said the SC thinks developers do not go scot-free without depositing money and fight endlessly in courts.

“Nothing stops developers by going to the SC, but there should be some accountability,” he said.