On notification of the most awaited Tamil Nadu Real Estate (Regulation and Development) Rules, 2017, the residential real estate sector in the state is all set to experience a tide of changes. The optimistic side of the act is creating a picture of future real estate with a level playing field for developers, better transparency and accountability, on time delivery of projects and boost in absorption rates accompanied by the increase in consumer confidence. On the other hand, RERA’s compliance appears to be challenging for developers and promoters in the beginning, as it requires all construction approvals before registration.
Moreover, promoters are legally bound and liable with either imprisonment up to 3 years or compensation of up to 10% of the total project cost in case of failure in compliance or contravenes in land title, scheduled completion and maintenance of the project. Therefore, in our opinion, developers should be extremely careful about providing accurate estimates regarding their projects and sale agreement.
“The need for a regulator in the Indian real estate business has been long awaited and RERA would essentially be the Indian realty watchdog. Chennai market will begin to see a positive sentiment and therefore robust demand post RERA. Potential investors in Chennai who refrained from investing in real estate for want of transparency would now have an ‘a la carte’ list to choose from and make well informed and intelligent decisions”, says Shaju Thomas, Director, Office Services, Colliers International India.
As per Colliers Research, the holding cost for developer should increase and may result in increase in prices as it is mandatory for developers to assure compliance of their ongoing and upcoming projects with stringent guidelines specified by the Act. However, considering the present skeptical situation in residential market post demonetization and announcement of RERA, the pressure of increase in cost is not likely to be passed on to homebuyers in the short run.
In addition, Chennai recorded about 2300 units of new launches in Q1 2017, majorly contributed by reputed developers, whereas small developers are watchful in launching their projects in the city. We also observed that the developers are being highly attentive in completing their existing projects and getting cleared of the available inventory. On successful implementation of RERA, we expect the market to witness exit/ consolidation of small builders and fly-by-night developers while the organised developers will get greater in their endeavors.
Colliers Research would advise the developers to be more realistic in marketing their projects as they have to ensure no deviations in the final product from the approved layout and specifications as mentioned on the website/ product brochure. Likewise, in view of 70% of the project amount to be deposited in the dedicated project account, developers will have to strategise project specific plans and cost estimates, as every single project will consume its own specific funding requirement at various development stages. Therefore, improved project planning, obtaining all necessary approvals on time and use of modern construction technologies to speed up the construction process will help developers to avoid delays, manage project funds efficiently and align themselves with all the RERA guidelines for a smoother transition.
As the final rules are already delayed in Tamil Nadu, it is now important for the state government to set further events on track in order to avoid any further postponement in extensive implementation of the Act. Until the regulatory body is established, the Secretary, Housing and Urban Development Department has been assigned to take the role of Real Estate Regulatory Authority for the state. It is mandatory for the promoters to register the ongoing residential projects and the same applies for the real estate agents as well. Moreover, in spite of the absence of a permanent regulatory authority and a functional website for project registration, the Union Ministry of Housing and Urban Poverty Alleviation is insistent on immediately commencing registration of projects based on the manual applications submitted to the interim regulators. Thus, the developers and agents should now gear up for the registration process. As the developers, promoters and real estate agents only have a three month window to complete the whole process, we expect a rush among developers and brokers to register themselves within the stipulated timeframe.
The key entities for registration with RERA include projects with land area greater than 500 sq m, projects with more than 8 apartments inclusive of all phases and all ongoing projects where occupancy certificate (OC) or completion certificate (CC) has not been received. Considering the concerns in the definition of ongoing projects in the draft rules, the state has framed more clarity in the final rules. It states that ongoing projects exclude layout projects where land is developed into plots and the roads and open spaces gifted to the local body concerned and for the projects within Chennai Metropolitan Area (CMA) for which application for completion certificate has been already filed with Chennai Metropolitan Development Authority (CMDA) after being certified by the associated architect/licensed surveyor/structural engineer confirming the structural completion along with photographs.
In the case of projects outside CMA, the promoters should immediately rush to intimate the structural completion of the projects to the corresponding Local Planning Authority within 15 days from the date of notification of these rules with a copy to the office of the Director of Town and Country Planning in order to be excluded from RERA registration. Furthermore, with a view to support the ‘Housing for All’ Vision and encourage affordable housing, the registration fee has been excluded for Tamil Nadu Slum Clearance Board developed projects, Affordable Housing projects of the Tamil Nadu Housing Board and Housing projects executed by the Tamil Nadu Police Housing Corporation.