Subverting RERA: States are not raring to go, but real estate development depends on this

Subverting RERA 

Purchase of a house is the single largest investment an Indian often makes in a lifetime. Unfortunately, in an otherwise over-regulated country, real estate is singularly under-regulated and home owners have little legal protection. Consequently, buying a house is often fraught with risk and breaches of contract by the builder are common. To overcome this lacuna, last year Parliament passed the Real Estate Regulation and Development Act (RERA) to regulate transactions and protect consumer interests. It was the most consumer friendly real estate development in a long time. But events since then suggest that vested interests are out to stymie reform.

Land use comes under the purview of state governments in India. Therefore, they were to use last year’s central legislation as a guide to enact subordinate legislation to flesh out details and also establish a real estate regulator by end April. However, states in general have been behind schedule with a just a handful completing both aspects. Not only have states been lethargic, most have been plainly reluctant to follow the spirit of the central law. Consequently, states’ subordinate legislation has often diluted important pillars of consumer protection in the central law.

The essence of the central law is to enhance disclosure requirements of builders, narrow existing information asymmetry between buyers and builders, and ring-fence the money paid upfront by buyers. These are elements of the basic framework of consumer protection in real estate transactions. Take away even one of those elements and the environment turns against hapless buyers. But Haryana’s rules, for instance, dilute disclosure requirements which keeps the environment uncertain for buyers. Reform in real estate will be effective only if states embrace the spirit which undergirds the central legislation.

Both states and the NDA government at the Centre must work in tandem to protect consumer interests. Many large real estate markets such as the one in Maharashtra and National Capital Region are under the control of BJP-led administrations. That ought to facilitate such coordination at least in these instances. But it is important that all states move fast on legislation and establishment of the relevant regulatory bodies. One of the factors holding back real estate sector is the trust deficit between builders and buyers. Changing the status quo here will benefit everyone. Governments should not allow vested interests to hold them in thrall.