Impact of RERA on Real Estate Sector

Impact of RERA on Real Estate Sector

RERA is considered to be the most important and grandest reform in the real estate sector.

There were mixed reviews of buyers and developers when it was announced.

The act has perfectly encapsulated features to safeguard home-buyers’ interests, whereas, in the process, it poses some challenges on the developer. This may, again, be transferred to buyers.

How are the developers impacted?

The act prescribes that every development project is registered with the related authority, disclosing all relevant information such as promoters, sanctions, plans, number of units, carpet area, and more. Which means that the developer must have all the necessary sanctions in hand and are not allowed to commit beyond their reach. The developer thus becomes accountable for every commitment made during the actual sale. Although this step safeguards consumer’s capital it posed a restriction on the developer that they cannot have pre-launches, which was considered to be the most ideal route to raise the much-needed capital for construction and development. The developer gets affected as he now has to borrow the capital at higher interest rates. This impacts the developer negatively in terms of construction cost and effort in obtaining sanctions and capital.

How are buyers impacted?

One positive reform that came in with RERA is that the buyer has to pay for the actual carpet area only (usable area) and not for the super-built up area. This brings in the transparency and the buyer’s capital is safeguarded.

Interlinked Impacts on Buyers

In the light of the above, the developers will have to borne the construction cost of the super-built up area, the cost of which cannot be imposed on the consumer. To lighten the burden, the developers may raise the cost of carpet area, making it expensive for the buyer.

Another Stipulation on Developers

Under RERA, all developers are supposed to maintain an Escrow account with 70% sales proceed, without diverting funds before they finish the project. This takes away the opportunity to invest the idle money lying in the account, resulting in hampered growth in business. The cost of borrowed capital, as it is, is very high.

Conclusion: The developers are at a strict end and they will in return share these impacts with the buyers, making all the benefits that the buyer is getting under RERA negligible.

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