Evaluation of impact of real estate (Regulation and Development) ACT, 2016

Abstract

1.0 Introduction: Real estate can be defined as space delineated, relative to a fixed geography, intended to contain an activity for a specific period of time. Real estate can be classified as Residential, Commercial shopping centers and offices, Industrial and manufacturing buildings and property and vacant land and agriculture farms. Real estate sector, which has forward and backward linkages with more than 250 different sectors, is the second largest employment generator in India after agriculture. Regulatory environment for real estate before RERA can characterized as predominantly the sector was unorganized. Primary source of financing was using proceeds from customers from advance bookings. There was large scale diversion of advances paid by buyers to other projects. There was no mechanism for enforcing defect liability. Wide spread delays in completions and no formal mechanism was available to protect interests of buyers in the event of defaults and delays. 2.0 About RERA: The Real Estate (Regulation and Development) Act, 2016 (RERA) is an Act passed by the Indian Parliament. The primary objective of the act was to put in place a unified legal regime for the purchase of flats, apartments, etc. and to standardize the practice across the country and bring transparency in the industry. 59 of its 92 sections were notified on May 1, 2016, and the remaining provisions came into force from May 1, 2017. The act is applicable to all commercial and residential projects including plotted development. All projects measuring more than 500 sqm or 8 units. Even the projects which were already in progress before enactment of RERA were also brought under the ambit of the Act if completion certificate was not issued. The major provisions in the act include, Establishment of the regulatory authority on the lines of SEBI, Establishment of Real Estate Appellate Authority (REAT) as a forum for appeals, Compulsory registration of all real estate projects of size more than 500 sqm or 8 apartments, 70% of all project receivables into a separate reserve account, insurance against the title and construction, standardization of sale agreement for more balanced agreements, defect liability for 5 years, consent of 2/3rd allottees for any other addition or alteration, formation of RWA within specified time and mandatory registration of real estate brokers. 3.0 Objectives of the study: The subject study considered two aspects of real estate market to study the impact of RERA. The first parameter considered for study is ‘consolidation of the builder community’ post RERA. Idea being the “bad apples” drop out as a result of the regulation and only those who are law abiding survive. The second parameter considered for study was ‘changes in RE prices’ due to implementation of RERA by linking with overall macroeconomic scenario. 4.0 Study Methodology: Market consolidation was studied using 3 parameters viz Change in number of builders, Change in Herfindahl-Hirschman Index (HHI) and change in concentration of top-4 firms (C4). Variation in the RE prices was studied using multiple liner regression model. The increase in RE prices caused due to other confounding factors such as change in the general macroeconomic environment was accounted for by including macroeconomic variables such as Consumer Price Index, GDP, Inflation, and Unemployment rate etc. 5.0 Sampling and Data Collection: State of Maharashtra has been chosen for the study as it was at the fore front of implementation of RERA. Within this state, cities of Mumbai and Pune were selected for study to represent matured and emerging real-estate markets in India. Primary Data required for the study has been obtained from official data of MahaRERA through Real Estate Research Initiative (RERI) of Indian Institute of Management Bangalore (IIMB). The secondary data was obtained from PropEquiy through library/RERI.