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RERA is Not a Fairy Tale That It is Being Made Out to Be

May 4, 2017


Fairy tales have happy endings.

The Real Estate (Regulation and Development) Act, 2016, or RERA for short, which came into effect from May 1, 2017, was supposed to be a fairy tale.

A fairy tale that would end all the trouble that homebuyers have while buying a house.

It would be put the big bad builders in their proper place.

But RERA is turning out to be like a bad art movie from the 1980s, where the system would inevitably crush the spirit of the hero, and win. (If you want to precisely know what I mean here try watching a movie called Paar).

This is what seems to be happening with RERA. Allow me to explain.

RERA is a central Act. But land is a state subject. Any real estate project needs land. Given this, state governments have the right to frame the operational rules for RERA.

And this has given them an opportunity to dilute the key provisions of RERA. This they have done with full impunity.

Before we get into the details, let's try and understand why an Act like RERA was required in the first place.

Let's say you want to buy a product. Let it be any product. It could be something as simple as an eraser for your child (I wonder if children still use erasers) or something a little more complicated like an air conditioner.

What do you do when you want to buy an eraser? You head to the local stationery shop, you pay the price of the eraser and you get the eraser.

What do you do when you want to buy an air conditioner? You head to a shop selling whitegoods and choose the air conditioner you want, given your budget, brand preferences, the preferences of your family and the space you have to install it.

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The retailer doesn't hand over the air conditioner to you immediately, like is the case with the eraser. (And that would be stupid given that how would you carry the air conditioner back to your house). So, the next day, the retailer delivers the AC at your house. In a few hours, a couple of people come and install it. And we are done.

What is the point I am trying to make here? When you buy a particular product from the market that is exactly what you get. I mean there is no chance of your buying an air conditioner of one and a half tonnes and the retailer delivering a one tonne air conditioner.

In the odd case that this happens, it is bound to be some mistake at the retailer's end and will be soon corrected.

Along the same lines, when you buy an eraser, the stationery shop doesn't insist on selling you a pencil sharpener or a ball pen for that matter.

At the cost of repeating, you get what you want and what you have paid for and not something else.

But when it comes to buying a home in India things don't work in the same way.

Imagine you paid for a three-bedroom hall kitchen in a society which is supposed to have a swimming pool, a club house, a lot of greenery and what not.

The way things work in India, your chances of getting what has been advertised and what has been paid for, are very low.

In fact, in many cases, the size of the apartment gets smaller. In many cases, the number of floors goes up. In the original plan the number of floors planned were ten. By the time, the building gets built, it has fifteen floors.

And in such cases, no is bothered about the fact that the foundation was originally dug for ten floors and now 15 floors have been built on it.

In some cases, the builder does not deliver on time. This leads to the homebuyer who had bought the home with the idea of living in it, having to continue paying a rent and at the same time paying the EMI on the home loan that has funded the home.

In some cases, the builder simply takes money from the buyers and disappears.

Considering all these points, a homebuyer in India considers himself lucky if he gets a home at the end of the promised period, at all.

So what if it's slightly smaller. So what if it doesn't have the facilities that it was originally supposed to have. So what if the drawing room gets seepage after the first rains.

An Indian homebuyer can adjust with all this and more.

The RERA was supposed to help the homebuyer on such fronts. It essentially has four key provisions:

a) 70 per cent of the money collected for a home project by the builder is supposed to be held in a separate bank account. Further, the money can be used only for the project and can be withdrawn according to what proportion of the project has been completed. This has been done to ensure that the builder spends a bulk of the money for the project he has raised money for and not spend it on other things, as builders are wont to do.

b) RERA recommends a fine for the builder which can extend up to 10 per cent of the cost of the project and/or a prison of up to three years, if the provisions of the Act are not followed.

c) The builder needs to treat any structural defects in the project arising within five years of him handing over possession to the buyer, free of charge.

d) RERA includes ongoing projects within the Act as well, by defining an ongoing project as a project "for which the completion certificate has not been issued" on the date of commencement of the Act. This provision was put in to ensure that many projects which have been endlessly delayed over the years, come under the Act. And in the process the Act offers help to the harried buyers.

All these provisions have been diluted by the state governments in the operational guidelines of RERA that have been notified. Take a look at Table 1.

Table 1:
States Definition of on - going projects Penelties for non - compliance Payment Schedule Norms for escrow withdrawal Clause for structural defects
Andra Pradesh Diluted Diluted In line In line In line
Bihar In line Diluted Lacks clarity In line In line
Gujrat Lacks clarity Lacks clarity Lacks clarity Lacks clarity Lacks clarity
Kerala Diluted In line In line Diluted Diluted
Madhya Pradesh In line Diluted Lacks clarity Lacks clarity Lacks clarity
Maharashtra In line Diluted With conditions In line In line
Odisha In line Diluted Lacks clarity In line In line
Rajasthan In line Diluted In line In line Lacks clarity
Uttar Pradesh Diluted Diluted Lacks clarity In line Lacks clarity
Andaman and Nicobar Islands In line
Chandigarh In line
Dadra and Nagar Haveli In line
Daman and Diu In line
Lakshadweep In line
National Capital Territory Delhi In line
Source: Crisil Research

The conclusion that one can draw from Table 1 is that if you want to fully benefit from RERA you need to be a homebuyer in a union territory.

The interesting thing is that around two-thirds of the states still haven't notified the operational guidelines of RERA as yet. This tells us how serious state governments are about implementing RERA.

To conclude, RERA hits at the heart of the basic problem with state level politics in India. The state level politics thrives on the nexus between builders and politicians. In some states builders are politicians and politicians are builders. It is difficult to differentiate between the two.

The trouble is that against whom the rules are being made are also the ones deciding on the rules. Hence, it is not surprising that the rules have been diluted or they lack clarity in comparison to the RERA Act of the central government.

But this is real life. And real life is not a fairy tale.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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12 Responses to "RERA is Not a Fairy Tale That It is Being Made Out to Be"

uttam mistry

May 20, 2017

States should not be allowed to interfere or allowed dictate terms in such Acts. Act's (Laws) of such nature should be common nationwide. We still have not learned from our past experiences



May 5, 2017

Sir can you also write regarding the issue of convenyance of land to the Co-op.Hsg.Soc., the forced corrupt procedure of going to the registrar to get deemed conveyance, developers being allowed to build with power of attorney without land being conveyed, municipal corporations allowing such practices without any changes in the property cards. The common man being subjected to unnecessary litigation on account of unfair pratices of the builders & the system.?



May 5, 2017

Dear Mr. vivek, can you see anything right?can you suggest right thing? probably you will question why sun is rising irregular? Please try to come up with some thing positive.keep in mind this country,s population,education level, and re souses.

Like (1)

Rakesh Sanghi, Advocate

May 4, 2017

In my State of Telangana, the Real Estate Act will certainly be diluted in favour of the Builders as the promoter of the biggest builder M/s Myhome Constructions is a very close friend and confidante (and same caste) of our beloved Chief Minister Sri. K. Chandrashekhar Rao and as the son of Sri. K. Chandrashekhara Rao namely Sri. K. Tarakarama Rao is the urban affairs and Municipal Minister of the State of Telangana, it is certain that the dice will be loaded in favour of the Builder at the expense of the aam Janta (mango people).

Like (1)

Prabhu Guptara

May 4, 2017

Dear Vivek

Thanks for this post: crystal clear, as usual.

But just to confirm:

So, as I understand your Table 1, our Union Territories have been the most serious about implementing RERA, while the state that is *least* serious about implementing it, is Gujarat?

And, a follow-up question: if the above is true, *why* is Gujarat the least serious about implementing it?

Not because it is the most systematically corrupt state in India?

Like (1)


May 4, 2017

A negative article, very much in line with the mindset of the author. The author also ignores the fact that it is a good beginning,something which was not there earlier. Over a period of time, things can further improve.

Like (1)

Muthuswamy N

May 4, 2017

So what do you suggest? The centre should not enact any such act is it?

Please give a constructive alternative when you say something is wrong with anything.

Like (1)

Roossi Talati

May 4, 2017

Thanks for informing & giving statewide analysis.
Pl. also inform about states putting in place Regularly Authority or not doing so.

Like (1)


May 4, 2017

Good Article. Author should also enlighten about how this rules will be diluted about penelties for non-compliance, payment schedule, structural defects, definition of ongoing projects.

Author articles is always very simple, and in very much details and understood by all


Like (1)

Rajesh Kapoor

May 4, 2017

Since RERA is a central act, how can states dilute it. RERA does not concern itself with land issues. It only fixes the responsibility on the promoter to ensure that he owns a clear land title. Is there a legal remedy possible against states diluting the law as states are required to frame rules as per the act.

Like (1)
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