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As per the Central Government’s Real Estate (Regulation and Development) Act, 2016 (RERA), the Karnataka Real Estate (Regulation and Development) Rules, 2017 (K-RERA) were notified by the Government of Karnataka on July 10, 2017. The state government has appointed the Secretary of the Housing Department as the Interim Real Estate Regulatory Authority. Even after one year, many questions remain unanswered about Karnataka’s low compliance rate of RERA. Most importantly, has the implementation of RERA brought real estate developers and end-users closer by bringing transparency in real estate transactions? In Bengaluru, the residential real estate segment is coming out of the throes of low sales velocity as developers align their operations in line with K-RERA, but the real estate law drawn up by the state is yet to overcome several stumbling blocks.

A year of anarchy

Despite a two-month delay, K-RERA’s subsequent implementation was received optimistically by market participants. While end-users remained hopeful of resolving conflicting situations with developers, developers were equally hopeful of speedy project registration, so they could start marketing projects in the new regulatory regime environment. However, K-RERA is yet to act on the following items even after one year of implementation:

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Appointment of a Permanent Real Estate Regulatory Authority and Real Estate Appellate Tribunal to be expedited

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Registered project documents to be made available for public viewing

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Decision on applications pending for approvals to be fast-tracked

Despite its experience as a real estate regulator and the nature of complaints received in the past one year, K-RERA has not evolved as an Act. As a first step, it should borrow a leaf or two out of MahaRERA’s book, which is successfully setting new precedents every day by providing clarifications and keeping all stakeholders informed in the public interest. Hence, buyer confidence in under-construction projects in Karnataka is at an all-time low and end-user interest remains skewed towards ready-to-move-in projects. Though nearly 1,900 projects across the state have been registered, they represent only a fraction of the total residential inventory of Karnataka. In Bengaluru alone, nearly 1,650 projects are under construction. The project coverage under K-RERA should extend to the remote rural and urban areas of state. K-RERA should embark on campaigns to reach the smaller developers who have not applied for registration. While the Grade A developers and corporates engaged in real estate development may be aware of RERA compliance, it is the smaller developers who do not have the wherewithal to understand and comply with the new regulatory regime’s requirements.   

Areas that require scrutiny from the state regulator

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The dilution of the definition of “on-going projects” has put a large residential inventory out of K- RERA’s ambit. While K-RERA has laid the groundwork for the registration of new projects, the issue of retrospectively needs to be addressed for on-going projects as a priority.

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Since RERA provisions apply only prospectively, promoters registering under K-RERA are also entitled to prescribe a fresh timeline for getting the remaining work completed that can lead to a lot of discord amongst allottees and promoters.

·       Levy of interest in case of penalty also operates prospectively, as any retrospectively is based on anecdotal facts. Compounding of penalty amount w.r.t. offences for promoters, agents and even allottees instead of imprisonment is a departure from the Central RERA provisions. K-RERA specifically reads that no proceedings can be instituted or continued against such person in any court on payment of penalty. Hence, non-registration of projects, failure of any party to comply with orders of the Appellate Tribunal will not attract any imprisonment. Once the fine for an offence is accepted by the aggrieved party, it amounts to acquittal as per the Code of Criminal Procedure, 1973 (Central Act 2 of 1974).

Central RERA had outlined stringent provisions relating to the above items with the purpose of resolving issues between developers and consumers. However, due to the modifications at the state level, K-RERA is yet to issue clarifications on these items. Meanwhile, different stakeholders are relying on self-regulation and resolving disputes amicably to avoid complaints from going to K-RERA.

Real estate information transparency abysmally low

The K-RERA portal was launched only a week before the Central Government’s RERAs deadline of July 31, 2017 for completion of on-going project registrations. The slow pace of setting up the regulatory authority resulted in only a handful of 700+ project applications by this deadline. To add insult to injury, K-RERA started issuing a “provisional registration” number a.k.a. RERA Acknowledgment Number at the time of submission of applications to promoters, which was widely used by many for marketing projects. RERA Acknowledgement Number and RERA Approval Numbers created a lot of chaos amongst developers and consumers who were both grappling with understanding the nuances of the new law. It is only recently, that these provisional registration numbers were replaced with permanent project registration numbers. The provisional RERA registration stands invalid now as per a recent press release by K-RERA on March 31, 2018. As of June 26, 2018, of the total 2,298 applications processed, only 83% have been approved.

The functional portal, instead of evolving as a “go-to” real estate information tool, is struggling to provide a user-friendly interface. As opposed to the Central RERA, K-RERA has not made it mandatory to make project documents available for “public viewing” meaning even if they are furnished by the promoters and agents, they can only be accessed with login. Unfortunately, the functionality of the portal has not translated into any efficacy with which real estate information is shared with consumers at large. Salient project features such as title deeds; construction progress, percentage of units sold and approval status remain hidden from public view. What has been made available for public viewing in the last 90 days is only the registration certificate of a project, which provides some respite to consumers as projects with a registration certificate remove ambiguity between “RERA Acknowledged” and “RERA Approved”.

Expectations of various stakeholders

Nearly 60 complaints in Bengaluru Urban and Bengaluru Rural have been resolved through a compromise petition between buyers and developers but a lot needs to be changed on the ground to gain consumers’ trust. Most complaints are related to delay in possession of flats or requesting the authority to find out reasons behind delays. It is evident that K-RERA is struggling to balance the scales between providers and consumers of real estate and various stakeholder groups have their own concerns with the state regulator.

Stakeholder    Major concerns type

Consumers

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Making it mandatory to mention the RERA Registration numbers on sales deeds to avoid fraudulent registration of properties are not RERA compliant.

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No mechanism for public viewing of uploaded documents restricts customer ability to ascertain status of necessary approvals and other project level information.

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Consumers who have invested in projects not registered or “under query” are still left confused which forum to approach and how will disputes related to these projects be catered to?

Developers

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Many small developers are finding it difficult to absorb the structural shift in realty. K-RERA should consider supporting them with RERA compliance processes. Maybe, a helpline similar to GST might be useful to tackle smaller players’ concerns.

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RERA Authority should also regulate government agencies in-charge of granting approvals.

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Clarity on whether land title insurance is mandatory for registered developers is waited for more than a year now.

Landowners

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Confusion about who will maintain the escrow account where 70% of funds realised will be kept.

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Clarity on whether landowners also have a tag-along right with developers is yet to come.

Clarity from K-RERA is awaited on these items to help it evolve into a reliable watchdog that is prepared to resolve future issues and provide solutions. Proactive functioning and incorporating feedback from all stake-holders will go a long way in striking a balance and developing the institution’s credibility.

— The author is Assistant Vice President - Research, Knight Frank (India) Pvt. Ltd.

[The views expressed by the author in this article are his own.]