Real estate is property comprised of land and the buildings on it, as well as the natural resources of the land, including uncultivated flora and fauna, farmed crops and livestock, water and mineral deposits. Although media often refers to the “real estate market,” from the perspective of residential living, real estate can be grouped into three broad categories based on its use as: Residential, (e.g. undeveloped land, houses, condominiums and town houses), Commercial (e.g. office buildings, warehouses and retail store buildings), Industrial (e.g. factories, mines and farms).
The Indian real estate sector has come a long way since the 1990s by becoming one of the fastest growing markets in the world. It is not only successfully attracting domestic real estate investment but foreign investments too. The growth of the industry is attributed mainly to India’s growing population, rising income level and rapid urbanisation. However, despite the positive outlook for the sector in the coming years, it is battling challenges. These challenges restrain the sector from yielding full benefits of the potential growth. Moreover, it is facing situational extremities such as increasing need for housing but diminishing project launches in semi-urban and rural areas and increase in inventory pile-up but shortfall of demand in urban areas. These trends point towards some major issues through which Indian real estate is passing at present.
The real estate sector in India is growing at a rate of about 20% per annum and this sector has been contributing to about 6-7% to India’s GDP but it is not able to balance the supply-demand continuum. The demand for housing has been increasing exponentially from last one decade. Inspite of government’s efforts through various schemes, it has not been able to cope up with the increasing demands. Taking advantages of the situation, the private players snatched the control of real estate sector with almost no concerns for the demand of the consumers.
Major issues and challenges in the real estate sector can be understood from two perspectives i.e. from customer’s point of view and other is from the real estate industry’s point of view. The major problems consumer face is delay of project, no compensation from government, absence of regulatory and standard guidelines etc., and the key challenges that the Indian real estate industry is facing today are approvals and procedural difficulties, lack of clear land titles, speculation in land and real estate prices, high input cost, less sources of finance etc.
The Indian real estate sector has been facing a slump since 2012. This is due to factors like unemployment, inventory pile-up, recession, low rental yield, unclear taxes, arbitration etc.
However, the property prices have not stabilised accordingly. As a result, demand for property has decreased further. This reduced demand is causing a slowdown in recovery of investment for builders.
The major issue the sector is facing is lack of transparency. The system until recently was opaque with regards to price, construction delay, construction quality, ownership (title) and litigations. Of these, the biggest issue is delay in delivery of property to buyers. During the last two decades the number of under construction properties rose to an all-time high. Particularly in major cities many builders have flouted norms by failing to keep up with project deadlines. For a homebuyer investing his life savings in the property, indefinite delays are a cause for worry.
Property agents or brokers took advantage of prospective homebuyers by misinforming them about quality of construction and completion. They misled homebuyers regarding amenities of the property. They would give assurances orally regarding property documents which were often missing or incomplete. Furthermore, the agents would hide the status of properties under litigation from prospective buyers.
Thus to handle the above issues, Government of India has launched Real Estate (Regulation and Development) Bill. It seeks to regulate contracts between buyers and sellers in the real estate sector to ensure consumer protection, and standardisation of business practices. It establishes regulatory authorities at the state level to register residential real estate projects.
The Real Estate Regulation and Development Act (RERA) 2016 is a revolutionary Act in the history of the Indian real estate sector. It was introduced first in the year 2013, but due to objections raised in the Parliament, it came into effect only in May 2016. Furthermore, it was introduced to protect home buyers interests and also to boost investment in the real estate sector. The Act aims to improve transparency and encourage fair practices in the sector.
The Act applies to under-construction as well as new projects. Residential and commercial projects are included in its ambit. Real estate agents or brokers too are included in the purview of the Bill. The scope of the Bill covers all parties to a real estate transaction. The purpose is to ensure greater accountability and transparency in the system.
RERA requires all states in India to set up an Appellate Tribunal to address homebuyers’ grievances. The Act requires all builders to register their projects with the Tribunal before initiation. The registration process requires them to detail the design and state the deadline for completion. If the deadline is not met, they are liable to compensate the buyers and face penalties and/or criminal charges.
Any project with over 8 apartments or size of over 500 sq mt is required to be registered under RERA. Builders are mandated to register critical information regarding the project and many more guidelines by government have tried to make this sector transparent. Of course, it won’t change all of a sudden but will take time to become the much hoped Act. India’s real estate market is still in its initial stages and there is a huge potential for development. The new legislation is a welcome enactment. It will go a long way in assisting upstanding developers. More importantly, it will ease the burden on innocent home buyers. Therefore, we can say that it is a good start and will surely show its benefits in future.