Ms Aarthi Lakshminarayanan, Partner, Shardul Amarchand Mangaldas & Co led the conversation with Mr Sunil Kumar, IPS (Retd), Former Director General of Police & Chairman (I/C), Tamil Nadu Real Estate Regulatory Authority (TNRERA), Tamil Nadu & Andaman Nicobar Islands; Mr Jerry Kingsley, Head, Strategic Consulting and Value, Risk Advisory &
City lead, Capital Markets, Chennai; Mr Sridharan Swaminathan, Managing Director, Sabari Foundation and Construction (India) Private Limited and Vice President, CREDAI – South Zone; and Mr Hardik Chandra, Vice President, Kotak Realty Fund.
Ms Aarthi Lakshminarayanan
Partner, Shardul Amarchand Mangaldas & Co
RERA was notified on 26 March 2016 and was adapted by almost all the states. In Tamil Nadu, the rules were notified on 22 June 2017. The main objective of RERA was to protect the homebuyers; to promote transparency in the residential and commercial real estate sector and to ensure standardisation of rules and practices that are followed in all states. The key people in the Act are: allottee; promoter; real estate agent; RERA authority; Central Advisory Council and Real Estate Appellate Tribunal. A real estate project, including each and every phase, has to be registered with RERA authority before the project or the particular phase is advertised, marketed or offered for sale to the public.
Key Features of RERA
Some of the key features are that the promoters must adhere to the sanctioned plan and that they must declare the carpet area to the allottees. The act provides stringent penalties not only to the promoters but also to the agents and allottees. Gone are the days in which the promoters marketed the project without even the approvals in place.
RERA dealt with failure or delays in handover of possession of the apartments or the entire project. In case of delay, if an allottee chooses to withdraw from the project, the amount paid by the allottee will have to be returned along with interest and compensation. If an allottee desires to stay back in the project, then the promoters are asked to pay penal interest for every month of delay in handover. The penalties under RERA are hefty. It is linked to the project development cost itself. There is almost a five to 10% cost imposed in case of any critical defaults on disclosures.
Pre-RERA, there was always the problem of funds from the allottee being diverted to other projects. To prevent that, one of the regulations is that 70% of the funds must be deposited in a RERA escrow account in a scheduled bank and this amount must cover the cost of construction and the land cost. Money can be withdrawn only in proportion to the part of the project that is completed. This is a very regulated withdrawal from a particular account. The account is also required to be audited. The impact of this is that the funds are not diverted and there is liquidity maintained by the promoters.
Other significant features of RERA include registration of real estate agents and the process of filing of complaints. Any home buyer or aggrieved party can file a complaint before the RERA. There is a process that is followed. Any appeal from RERA could be heard before the RERA appellate tribunal, and thereafter it can be heard even before the High Court.
Landmark Cases and Judgements
Some of the landmark judgments are of course The Neelkamal Realtors Suburban Private Limited versus Union of India. In this matter, the constitutional validity of RERA itself was upheld. Another landmark judgment was the Pioneer Urban Land and Infrastructure Development case, where, if a default by the developer has occurred, the allottees can now be called financial creditors under the IBC laws, which means that they are treated on par with secured creditors. This was a huge victory to homebuyers. Another landmark judgment was by Maharashtra RERA, which was subsequently taken before the Bombay High Court whereby long leases of 99 years and perpetual leases were also brought within the ambit of RERA. This does not include any short-term leases. Yet, this is important feature.
Recently, in 2024, the Madras High Court held that the Directorate of Town and Country Planning should not approve any change to the original plan without the consent of two thirds of the flat owners in any project. This was a case where a leading builder’s DTCP approval had to be quashed, because modifications were carried out without the consent of the allottees. A judgment which was passed by the Haryana RERA expanded the ambit of the term ‘promoter’ to bring in even ‘lenders.’
Mr Sunil Kumar, IPS (Retd)
Former Director General of Police & Chairman (I/C), Tamil Nadu Real Estate Regulatory Authority (TNRERA), Tamil Nadu & Andaman Nicobar Islands
Roti, Kapda aur makan is a Hindi film directed by Manoj Kumar. Food, shelter and clothing are our basic necessities. While food and clothing of citizens had been well taken care of, ‘makan’ or shelter was absolutely left to the mercy of the builders, without any transparency. The chaos which was prevailing in this very big sector led to the formation of the RERA. It took several years and several rounds of deliberations and talks all over the country before this Act was enacted.
In Tamil Nadu RERA, we get nearly 600 registrations in a month, which comes to roughly 30 a day, leaving out the holidays. RERA is an act to establish the real estate regulatory authority for regulation and promotion of the real estate sector. RERA has something for everyone. 97% of the appeals come to us from the home buyers but there are cases where the complainant is a promoter.
Going Online
I’m happy to share that very soon, in Tamil Nadu, we will be completing seven years of the adoption of the RERA act. The RERA authority was formed in the State and also the TN REIT was formed with the tribunal authority. The last thing that was left to be formed, as per the direction of the act, was making the real estate authority work online. I’m very happy to share that from 1 March this year, we have gone totally online. All registrations are done online now, which is a big leap forward and perhaps in end to end online, we are one of the few who’ve done it.
TN RERA handles a remarkable volume of real estate cases, second perhaps only to states like Telangana, Karnataka, Maharashtra, and to some extent, Gurgaon and Noida. Tamil Nadu boasts a vibrant real estate economy. The Real Estate Regulatory Authority (RERA) primarily focuses on three key parties: promoters, allottees, and real estate agents. The role of real estate agents, however, has been less prominent due to low registration numbers, indicating misuse rather than effective use. This needs attention.
The Key Players
Promoters and allottees are the main focus of RERA. Promoters must register their projects with RERA after obtaining necessary permissions, making RERA the custodian of their and allottees’ interests. At registration, promoters disclose project details like super built-up area, amenities, land title, and crucially, the project’s completion date, ensuring transparency and accountability.
Once a project is registered with RERA, it gains authenticity and transparency. The project details are uploaded on the RERA website, providing both the promoter and allottees with copies. Any subsequent demands or complaints from allottees are based on these registered details, ensuring that promised amenities and commitments are legally binding and enforceable. Potential buyers must carefully review these details on the RERA website before committing to a property.
The role of the allottee primarily involves adhering to the agreed terms and conditions, including making timely stage-wise payments. This ensures smooth progress and completion of the project as per the agreements made at the time of registration.
Do Not Overcommit
Another crucial player in real estate, though not explicitly defined in the act, is the financier. Often involved in complaints, financiers are sometimes brought in as respondents. This inclusion is necessary as many financiers fail to fulfill their obligations properly. Personally, I’ve issued orders against banks due to their shortcomings. The interest rate isn’t the primary concern for promoters or allottees; mismanagement and overcommitment are more significant issues. When mistakes occur, recovery for the stakeholders is challenging, requiring extensive efforts.
Once registered, RERA monitors projects closely. Quarterly progress reports assess project health and progress towards completion. Non-compliance prompts notices, and if issues persist, registration may be revoked after due process. Even prominent builders in Chennai have received such notices. RERA thus acts as a watchdog, safeguarding the interests of all parties involved in real estate transactions.
Huge Potential for Real Estate
The real estate sector has immense potential, as evidenced by INR 2 trillion in bank loans extended in 2022 alone, underscoring its significance. Housing remains a priority, with schemes like PM Awas Yojana targeting those in need. Additionally, financial frameworks are being streamlined, notably through Real Estate Investment Trusts (REITs), facilitating investment in the sector.
Since the inception of RERA in 2017, registrations have soared from 280 to 10,558 in 2022, primarily due to government regularization policies. Despite fluctuations, registrations typically hover around 7,000 annually, with approximately 3,000 projects registered in the first five months of 2023, suggesting a consistent trend.
RERA’s impact is evident in arbitration figures, with complaints decreasing from 500 in 2021 to 409 in 2022, and further down to 116 in the first five months of 2023. Ongoing projects which started prior to 2017 remain the main source of complaints, indicating higher compliance post-2017 and a transformed, transparent environment favourable to buyers.
Looking ahead, the sector shows promise. The housing affordability rate was 3.3 in 2023 as compared to 3.2 the previous year and much lower in the earlier years. With a stable foundation laid by RERA, Tamil Nadu’s real estate sector is poised for substantial growth in the upcoming financial year 2024-25 and 2025-26, offering unprecedented opportunities and ensuring a bright future ahead.
From the RERA authority side, we have taken a lot of steps. A couple of years back, a registration of a project could take six to seven months, which now happens in about six to seven days. If there are some ambiguities in a project for registration, the promoter is called over and issues are sorted out then and there. The approval happens across the table.
Spate of Fake Complaints
One unfortunate thing which is happening in Tamil Nadu is that when any big project takes off, some people give anonymous complaints and sometimes even make false allegations, mainly to prevent the promoter from carrying on his work. In this field, every day delay leads to loss of money. The interest rates are so high. So, whenever complaints come to us relating to a project, we see if the records submitted are alright. If so, the complaint is registered and marked to the concerned agency. If there is something made out, we always have the section 7 to revoke the registration done by them. To sum up, the RERA Act has paved the way for the real estate industry to skyrocket and climb to heights. The state is developing. All over the state, there is development seen and there is business opportunity in the state.
In many states in north India, we see increasing pollution. People are relocating from places like Delhi to Coimbatore. We have, in Tamil Nadu, quiet hills which do not have extreme climates of the North Indian hills. We have well developed cities that are medically so advanced. This is an opportunity which the real estate industry should try to exploit.
Mr Jerry Kingsley
Head, Strategic Consulting and Value, Risk Advisory &
City lead, Capital Markets, Chennai
The Indian economy remains robust, distinguishing itself from the real estate markets in China, the US, and Europe, which face difficult conditions. India is poised to become the third-largest economy within the next two to three years. Key drivers include a youthful workforce and extensive infrastructure initiatives. India boasts the world’s second-largest road network and the largest rail network. Digital payments drive substantial investment in the digital sector, complemented by a thriving startup ecosystem and high university enrolments.
Competitive advantages such as strong domestic demand, a regulated real estate sector, GST regime, tax reforms, and the IBC attract numerous companies to India. Beyond residential real estate, India hosts the world’s largest office market. Each year, 45 million square feet of office space is transacted, equivalent to constructing a new Washington every three to four years and a new New York every seven to eight years. This significant investment in office space leads to increased demand in the residential sector, boosted by the influx of white-collar jobs. In the retail sector, large shopping malls and neighbourhood malls are emerging, attracting investments even in tier two and tier three cities.
Since Covid-19, there has been considerable investment in the manufacturing and logistics sectors. The rising demand for data has also triggered investments in data centers. Real estate investments have seen exponential growth since 2015, buoyed by increased Foreign Direct Investment (FDI) due to regulatory reforms. India’s rise on the transparency index further enhances its attractiveness to global investors. Even when there was paucity of global funds, domestic capital providers stepped up, driving continued investments across various sectors like office space, retail, hotels, warehousing, and data centers. Japanese investors are increasingly active in the Indian market.
Real Estate Investment Trusts (REITs) are gaining traction, with four currently operational (three in offices and one in retail), and more expected to follow. Successful exits by REITs underscore India’s transparent regulatory framework. For instance, Blackstone recently exited its REIT successfully, instilling confidence in investors about entering, investing, earning returns, and exiting the Indian market.
Panel Discussion
Ms Aarthi: Since RERA was introduced, there seems to be an inherent bias towards promoters. How do promoters handle this bias to protect their interests?
Mr Sridharan Swaminathan: First, I would like to clarify that when RERA was brought in, it was not objected to, by the developers. I was the one of the parties involved in the formation of the rules. You must understand that RERA did not come because of what happened in the south. What happened in some parts of the country was the main reason RERA was brought in. That legacy of stalled projects even now continues. Because of RERA, a lot of financial institutions now come forward to support the developers. There is no negativity against RERA. People feel that RERA is only for protecting the customer. The fact is RERA is a regulator of all the stakeholders.
A lot of projects which were taken up in the pre-RERA period and are not yet completed must also register now on RERA. The legacy of these stalled projects still continues. From 2017 onwards, we do not find any major complaints. Majority of the builders are registered with CREDAI, which is a self-regulatory body. If an issue is not sorted out by CREDAI, then only it goes to RERA.
From 2017, we have had three to four meetings with the Union Housing Minister and we have requested for bringing all stakeholders under RERA. The completion certificate can be delayed due to various reasons. The promoter needs to get compliance from the fire service, Electricity Board and so on. These agencies are not bound by any time frames and they can delay giving their approvals for various reasons. All these stakeholders must also be brought under RERA. Only then, RERA can be truly successful.
Aarthi: Would you propose amendment be made to the Act to include other stakeholders and probably impose some timelines for giving such approvals?
Sridharan: This has to be done at the national level. If you go to Delhi, Noida has got a very peculiar problem. In Noida, the land is allotted by the Noida authority. One government allots; the other government questions. The purchaser is a bonafide customer, believing in the allotment he has bought. Where will he go? We have asked that the Noida Authority should also be brought under RERA.
Majority of the complaints have come down and we are very happy about it. But even now, there are issues coming up. So, amendment is needed. It is also almost six, seven years since the RERA act was brought in. After that, all the states formed the rules. Each state has got a different rule and the rules are interpreted in different ways. That has created a lot of problems. We have made a comprehensive list of all the changes which need to be taken up and amended.
Aarthi: What are those key challenges that a lender faces as a result of the implementation of RERA?
Mr Hardik Chandra: Speaking from the lenders’ fraternity, RERA has been a tremendous inflection point in changing the entire industry, bringing transparency in dealings, bringing financial discipline in the developers and in corporatisation of the developers. All these bring a lot of confidence to the lenders. RERA has also addressed a few nitty gritties like the super built up area or carpet area.
Having said that, one of the key concerns that lenders are facing is that there are a lot of rules and regulations being followed differently in different states and there are different interpretations of those rules. That is becoming a challenge for the lenders in how each state has to be dealt with.
For example, I want to highlight one specific provision- the 70: 30 rule. As per RERA, 70% of the funds must be deposited in a separate account. It also states that the funds after completion of the projects are available only for the developer and no lien or charge can be created on such an such account. For lenders who invest in a project, having that control is very critical. One of the lenders’ request is that after the completion of the project, RERA should allow a creation of charge on that 70% escrow account. A few of the states have clarified or given certain relaxations on that rule, but that needs to be consistently implemented across the country.
Aarthi: How are lenders impacted with stalled projects like for example the Amrapali project? Also, now the homeowners are also termed as financial creditors. What is your view on this?
Mr Hardik: That home buyers are now classified as financial creditors is a major detriment to the lenders. Our primary responsibility is that the homebuyers should get their flats and their hard-earned money should be safe. Majority of the lenders think that the delivery of the project is the most critical aspect. If the project is delivered, all the stakeholders will be happy. However, the homebuyers being considered as financial creditors is a setback for us.
There is another provision of RERA that says that when there is any change in the approved plan or modification of the project, it requires a two thirds consent of the allottees. Fine. But there is no time limit specified by when the consent of the allottees will be received. Every day delay is a loss of money for us. Because of these uncertain timelines, lenders stay away from such projects. That’s why there is a shift in funding and it has gone to very select and specific developers and builders, with whom the lenders have much more confidence of getting the project through.
Aarthi: What are the best practices that real estate consultancy firms must adopt to improve credibility?
Mr Jerry: Consultancy firms can play a pivotal role across the entire project lifecycle, starting from the initial advisory stage when projects are being conceptualized and listed. We provide essential inputs to developers, investors, and lenders, offering customized market research, trends, and projections based on data collection and analysis. Our services extend to project monitoring, ensuring transparency and timely utilization of funds.
Once projects receive approvals, we support with project marketing and sales efforts. In case of disputes, we offer assistance and can provide valuations and viability studies. Throughout, our project monitoring services ensure comprehensive progress updates and compliance with approvals. Our goal is to facilitate smooth project execution and maximize stakeholder satisfaction.
Aarthi: What are the typical causes for project delays?
Mr Sridharan: The major cause of the delay can happen if the developer oversteps his commitment. That is why we always propagate that the buyer should know who’s the seller. But that percentage has come down drastically after the introduction of RERA. Another major problem is getting the environmental clearance. Some activist goes to court and the whole project gets stalled.
Sometimes, in a group development where you have phase 1, phase 2 and so on. After completing one phase, when we proceed to phase 2 using the common roads, the phase 1 people object. Where do we go? There is a multiplicity of problems but in spite of all that, we try to come out. The major issue is when someone goes to court. That is why many developers are happy to do plotted development projects rather than house construction projects. Luckily, we do not find any big complaints coming in from Chennai and we are very happy about it.
