Impact of rera on real estate prices and market trends

What is RERA Act?

The Government of India implemented the Real Estate (Regulation and Development) Act, 2016 (RERA) to address these issues in May 2017. The objective of this Act was to uphold the rights of homebuyers and ensure enhanced transparency and accountability in the real estate market.

The RERA Act made it mandatory for builders and developers to register their ongoing projects under a Real Estate Regulatory Authority. Those who fail to register their properties under RERA are not allowed to sell or advertise their projects in India. Amongst various other obligations on the developers, the developer of a real estate project is allowed to accept only up to 10% of the property price as advance payment from their customers before execution and registration of the Agreement, the developer is required to provide quarterly updates to customers on the construction status of their under-construction properties.

This article describes the impact of the RERA Act on the Indian real estate housing market and real estate prices.

• A standard method for calculating property prices
  Before the implementation of the RERA Act, there was no standard method for builders to calculate real estate prices. While some builders used to consider the carpet area of the house to calculate its selling price, some builders considered the super-built area for the same. However, under RERA Act, all builders are directed to consider only the carpet area of a house and not the super-built area to calculate its selling price. Additionally, the RERA Act has defined a standard method for all builders to calculate the carpet area of a housing property. Although this has resulted in added convenience for buyers, builders have increased their property prices to cover the cost of constructing super-built areas.
• Timely construction of projects
  One of the RERA rules made it mandatory for builders to complete the construction of their projects within the given time frame. If they fail to provide timely possession of their properties, they must pay a full refund to the customer along with the prescribed interest thereon from the date of payment by the customer till the refund by the developer. This rule has provided a huge relief to homebuyers struggling with never-ending delays in the delivery of housing projects. However, from the builder’s point of view, this move forced them to construct only one or two properties at a time to ensure timely delivery.
• The creation of an Escrow Account
  Another clause in the RERA Act makes it mandatory for builders to create an Escrow Account and keep 70% of their sale proceeds in it. The government brought this move to curb the fraudulent practices of a few unfaithful builders in the market. Another objective of this move was to prevent the builder from going bankrupt. However, this rule made it tough for some smaller builders in the market as they were not allowed to use the money collected from their customers for their other projects. As a result, they tried to increase the prices of their properties to cover their losses.
• Fixing structural defects up to five years
  A clause in the RERA Act says that if a homebuyer comes across any structural defect in their house within five years of its construction, it is the responsibility of the builder to fix that issue. This has put an extra burden on developers to cover the cost of structural defects; hence, they have nominally raised the prices of their properties.
• Mandatory agent registration
  The RERA Act has made it mandatory not only for builders but also the real estate agents to register themselves with their respective state’s RERA Authority. However, the RERA registration fees for agents vary from state to state, and they may range between ₹10,000 to ₹5 lakh. To cover this cost, real estate agents have increased their brokerages, ultimately elevating real estate prices in India.

Conclusion

As evident, implementing the RERA Act has led to a marginal increase in real estate prices in India. However, it has also brought massive respite for homebuyers by eradicating fraudulent players from the real estate market and making the industry well-regulated and safe for homebuyers.

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