A Game Changer
Real Estate (Regulation and Development) Act
[RERA]
Short term pain, but long term gain for the sector
September 2016

FromtheDeskofCEO-RealEstateInvestmentandAdvisory
It gives us great pleasure to present our maiden quarterly theme-based newsletter.
The team endeavours to create benchmarks in the industry and provide extensive
research-basedapproachforitsnewsletter,whichshallbeusefultoallstakeholders.
With the implementation of RERA, we are entering a new phase in the real estate
sectorinIndia.
RERAisdefinitelyastepintherightdirectionasitaimstobringgreatertransparencyin
the sector. It shall not only help in bridging the trust deficit between customers and
developers,butalsoenhancefinancialdisciplineintheREindustry.
RERA will have far reaching implications on all the stakeholders involved. It is
important that we understand the broad contours and implications of the Act, even as
its implementation is taking shape. Hence, we have chosen RERA as the first theme for
theCenterofExcellencenewsletter.
We willexplore more themes in the future editions of the newsletterand look forward
toyourfeedbackinthisregard.
Regards,
RamYadav
Preface

FromthedeskofHead-RealEstate,CentreofExcellence
There are moments which mark our life- moments where we realize nothing will be
the same, and time is divided into two parts - before and after. Particularly over last
two decades, the Indian Realty Sector has witnessed several such moments, driven by
market demand, Government regulations like opening of FDI through Press Note 2
(and subsequent relaxations) or REITs, construction and engineering marvels, quality
facilities management, innovative financing structures, mortgages, project ratings,
IPOs of Indian realty companies, the entry of International Property Consultants and
manymore.
When we, at team CoE, sat down to pick a theme of our maiden newsletter, we felt
that an event which is likely to have maximum effect on all stakeholders, be it the
developer, the financial institution, the intermediary and above all, the customer, is
the RERA which will be most impactful. The output in the shape of Real(i)ty is brought
toyouthroughextensiveresearchandpostdiscussionswithmultiplestakeholders.
RERA may be the life changing moment in Indian Real Estate, where we could divide
thejourneyintotwoparts-beforeandafter!
Wethankyouandlookforwardtoreceivingyourfeedback.
Yourssincerely,
PuneetBhatia

TABLE OF CONTENTS
•Background 1
•RERA - Key Highlights 2
•RERA Implications 3
a. End Users 3
b. Developers 4
c. Brokers 5
d. Financial Institutions 6
•Industry Leaderspeak 7
•International Regulations 8
•Summary 9
•References 10
•Team CoE 10

•
JAMMU &
KASHMIR
•
HIMACHAL
PRADESH
•
UTTARAKAND
•
PUNJAB
•
UTTAR PRADESH
•
RAJASTHAN
•
GUJARAT
•
MAHARASHTRA
GOA •
•
KARNATAKA
•
ANDHRA
PRADESH
•
TAMIL NADU
•
K
E
R
A
LA
•
HARYANA
•
NEW DELHI
•
ODISHA
(ORISSA)
•
CH
HA
TT
IS
GA
RH
•
MADHYA PRADESH
•
BIHAR
•
SIKKIM
• ASSAM
•
MISORAM
• MANIPUR
• MEGHALAYA
• TRIPU
R
•
WEST
BENGAL
JHARKHAND
•
•
AR
UN
AC
HA
L
PR
AD
ES
H
•
NAG
ALAN
D
Demand
• India- burgeoning population of ~1.3 bn
[1]
• Acute housing shortage in the range of 20-70 mn units
Employer
[3]
• 2nd largest employer in country after agriculture
J BSO
Foreign Investments
• One of the largest avenues for FDI/FII
Y
C
Current Scenario
A few
reasons for the
trust deficit in the
Indian RE sector are
summarized alongside. All of
this impacts demand and partly
contributes to rising inventory
levels. Thus, regulatory guidelines
likeRERAhaveemergedastheneed
of the hour, not only to bring
much needed transparency but
help home buyers and above all
infuseconfidenceinthesector.
Lack of
information
on developer
or the project
Opaque market
with differential
pricing
Absence of structured
grievance redressal
mechanism
Siphoning
off of funds
by some
developers
Slow
project
progress,
delayed
possession
Reasons for mistrust
GDP Contribution
[2]
• Sector contributes ~6% to India's GDP
Major
Pitfalls
Background
1

Major Clauses of the Act
RERA–KeyHighlights
• Compulsory registration of all residential and commercial projects with land of
500+ sqmt or having 8+ units. RERA will apply to all projects for which completion
certificatehasnotbeenobtained
• Mandatory disclosure of promoters and project details (past 5 years data). Also,
quarterlydisclosureofprojectstatus
• Agents/BrokerstobemandatorilyregisteredunderRERA
• Launch of project only after Commencement Certificate in place; hence, no 'pre-
launches'.Notmorethan10%collectionpermittedbeforesalesagreement
• 70% collection to be maintained in a separate account for project purposes.
Withdrawalwillbeallowedtotheextentofprojectcompletion
• Unitstobesoldoncarpetareabasis
• Structuraldefectswithin5yearstoberectifiedwithoutanycharge
• Refundofamount/compensationincaseofdelayinhandingoverpossession
• Restrictiononchangingplanswithoutpriorapprovalof2/3rdallottees
• Punitive provisions, including de-registration of the project and penalties/
imprisonmentincaseofviolation
• Strictlegislationagainstreleaseofmisleadingadvertisements/falsestatements
2

End Users – The biggest gainers
RERAImplications
RERA is stacked in favour of protecting customer rights which were flouted in the sector previously
bysomedevelopers.Thisis,unequivocally,boundtochangewithRERA.
Assurance of timely
delivery and quality
• Lower probability of
RERA registered
projects running
into legal hurdles due to title or
zoning issues
• Financial discipline on developer -
restrictions on fund siphoning
• Punitive measures on developer for
delays/not honouring commitments
• Quality assurance - defects within
5 years to be rectified free of cost
Empowerement to
tackle unfair practices
• Restrictions on
unilateral changes in
plans by the
developers
• Penalty upto 5% of project cost for
non-complinace
• Compensation in cases of delayed
possession, with provision for
refund if buyer opts out
Pricing
• Pre-launch inventory
at sale without
mandatory
approvals will not be
allowed
• Uniformity of pricing as sales on
carpet area instead of super built-
up area
• In long run, cost saved due to
timely completion of projects and
standarized activities will benefit
the customer
Informed decision
making
• Access to track
record of developer
and project
• Harsh stance on misleading
advertisements
• Timley update of project
information will avoid ‘information
arbitrage’
3

Developers - Genuine players to gain, while unorganized operators bound to perish
Increased Customer
Focus
• Focus to provide
superior customer
services throughout
the buying process as
well after sales service
• Sales agreements to be registered with
regulator, empowering buyer
• Punitive measures against delayed
project delivery & misleading ads
• Onus of rectification of defects within 5
years of possession is on developer
• Maintainance of 70% of sales collections
in project account with certified
Unorganized players
will be at losing end
• Increased compliance
will tighten noose
around their necks
• RERA will curtail
practices of using land parcels without
or with partial approvals to attract
advance bookings
• Increased hestiation among financial
institutions to deal with such
developers
• Likely to face punitive measures on
their multiple incomplete projects
stuck at various levels
Higher Disclosure and
Compliance
Requirements
• Mandatory
registration of project
with RERA, entailing
disclosures of promoter's RE activities
• Detailed disclsoure of project plan,
layout, government approvals, land title
status, sub contractors leading to higher
cost of compliance
• Periodic updation of project progress,
sales, inventory and approvals
• Currently, sizeable funding of projects
happens through pre-launch sales. With
RERA, there will be an end to pre-launch
concept and launch only after project is
RERA registered
Conscientious
developers will gain
from RERA
• Already have
established systems,
processes and
management bandwidth to comply
with RERA
• No drastic changes required in
operations as already adhere to best
practices
• Premium pricing on account of
reduction in competing 'inventory’
• Attract funding from banks and PEs/FIIs
with renewed vigour
• New projects will require high capital
cost initially towards land payment and
approvals for which developer needs to
find equity partner - may see more Jvs
To sum up the impact of RERA on developers, unorganized players will find themselves in peril due to punitive
measures on stuck projects and stringent compliance requirements. On the other hand, organized and
professional players will leverage their existing processes and capability to not only comply with RERA but also
attractmorebuyersandinvestors.
RERAImplications
4

Brokers - Professionalism and Consolidation to follow
RERAImplications
Accountability
• Aggravated
customer can file
complaint against
brokers too, in
addition to developers
• Broker as a key stakeholder in RE
sector under the ambit of RERA will
now have to be more accountable
in their dealings
Secondary Market-
Unaffected as of now
• RERA covers only
new and under
construction
projects; brokers
operating in the secondary market
will not be impacted
• In future, further expansion might
bring them under RERA
Registration of Brokers
with RERA
• Presently, India has a
large number of real
estate brokers,
operating without
any regulatory overview
• RERA entails registration of agents and
brokers
• States need to formulate processes ,
systems and guidelines for application
and registration of real estate agents
The road ahead with RERA will impact the Broker as key stakeholder in the RE sector. Brokers whose
primary livelihood is property dealings and brokerage, and who demonstrate professionalism and
accountability along with good training and experience will be able to function and thrive. Also,
economies of scale at operational level, sharing of best compliance practices and education will result in
consolidationofthebrokeragesector.
5

Financial institutions - Short-term challenges, but opportunities and benefits in the long-run
Short Term -
Challenging
• Enhanced focus in
NPAs recognition
due to delays in
underlying projects against existing
loans
• Existing loan portfolio of under-
construction projects will throw up
challenges. Eg: Mandatory
prepayment clauses may face issues
due to restriction of keeping 70%
collections in project account
Long Term - Benefits
• Availability of
quality information
will assist better
credit assessment
• Funds diversion will reduce,
enabling better assessment of
project cash flows, thus reducing
deviations
• Slippages due to NPA over long
term will reduce due to more
robust risk underwriting and higher
predictability in implementation
Control on project -
Double edged sword
• Balance of control
shifts towards
customers
• Clausessuchasrevokingofproject
registrationbasedonallottee
complaintsandallotteeshavingthefirst
rightofrefusaloncarryingout
remainingwork,willshiftprojectcontrol
• Such clauses restrict enforceability
by lender in case of defaults by a
developer
Financing
Opportunities-
Increase
• End of pre-launch and
financial discipline on
sales collections
would result in more funding
opportunities for FIs
• Reduced risk exposure due to
additional and stringent compliance
• Capital requirement for
Equity/Mezzanine finance shall go up
to fund land acquisition
• Cost of Working capital will reduce
With RERA, lendings to projects at initial stages may assume higher equity/mezzanine debt characteristics to
protect the financial institution's interests. We may also witness creation of SPVs by FIs to route such
transactions, so as to ring fence the larger FI as the promoter of an RE project against possible litigations by
allottees.
RERAImplications
6

Industry Leaderspeak
“We congratulate Edelweiss RE Centre of Excellence for covering a topical
subject, the impact of RERA on Real Estate. Real estate regulation is an
established practice, tried and tested in most developed countries.
Implementation will throw up some challenges in India, and will require
some tweaking along the way. There is excitement in the market about
RERA, but we also need to put in efforts to improving our dealing with
construction permits. We currently stand at 183 out of 189 countries in
terms of pace of approvals. It is good that first world regulations are being
legislated,butwealsoneedgoodgovernancetoimplementthesechanges.
FundingrequirementsfortheREsectorwillincreaseonaccountof:
• The requirement to maintain 70% of the funds collected in project
account,tobeusedstrictlyforprojectrelatedexpenses
• Notmorethan10%collectionispermittedwithoutsalesagreement“
Mr. Surendra Hiranandani,
Founder & MD
House of Hiranandani
''Congratulations to team Edelweiss RE Centre of Excellence for taking up
an apt topic of RERA in their newsletter. RERA is a step in the right
direction for the realty sector. It will inculcate discipline in the sector and
provide relief to the customers. Developers and Financial institutions are
currently gearing up for RERA compliance and gauging the implications of
theAct.Developerswillhavetoensuretimelyapprovalssoastocomplete
projectsontime.
Financial institutions' control on projects is likely to reduce on account
higher rights accorded to allottees and the rule pertaining to 70%
retentionof collectionsinprojectaccount.Wewillwitnessthecreationof
more structured lending in the sector. While the quantum of lending in
initial stages of a project may increase, the number of projects being
funded will reduce. How conflict between RERA and existing SDR and
bankruptcylawsisresolvedremainstobeseen.''
Mr. Sapan Gupta,
National Head-
Banking & Finance Practice
Shardul Amarchand Mangaldas
RERAImplications
7

International Regulations
Dubai • The Real Estate Regulatory Authority is the Government agency in Dubai set up in 2007. The functions and
reasonsforsetupofthisauthorityinDubaiareverysimilartoRERAinIndia.
An online society has been built by the Authority to help in greater coordination between developers,
investors,buyers,financialinstitutionsandlawfirms.
• ThereasonsforsettingupsuchanauthorityinDubaiare:
• ToprovideastronglegalframeworktoalltheparticipantsintheRealEstatespace
• Tobringintransparencyandeliminatepropertyfrauds
• To protect the buyers from unfair practices of some developers. The buyers can check if the real estate
developer is certified by RERA and possesses a registration number and thereafter make payments via
escrowaccountsinRERAcertifiedbanks
• Ithelpstheindustrytodevelopstrategiesandregulateactivities
• HighertransparencyhelpsinattractingpotentialinvestorstoDubaiastheirconfidencewillincrease
• Thefunctionsofthisauthorityare:
• Regulateandsetstandardsforbrokerageactivities
• Registrationofleasecontractandrentalagreements
• IssuelicenseforRealEstatedevelopmentprofessionals
• Formulateprocessesanddocumentationrelatedtoproperty
• Providestatisticaldataaboutpropertiestogovernmentandthepublic
• Regulaterealestateadvertisementsinmassmediaandlicensingofrealestateexhibitions
Europe • TheEUhasamixofcountrieswhicharehighlyregulatedandcountrieswhichrequiremoreregulation.
• Property Services Regulatory Authority is being introduced in some of the countries to bring in more
transparency in licensing, regulation and provision of information to the public. In countries like Czech
Republic,preparatoryworkisbeingdonetowardsmoreregulation
• In Europe, there exists a Directive on the Recognition of Professional Qualifications which helps individual
countries in their regulation. The European Professional Card which is an electronic certificate issued for the
recognition of Real Estate professionals has been available from January 2016. This aims at bringing more
effectivenessandtransparencyinthesystem
• Therearesomecountrieswhicharehighlyregulatedandaremovingtowardsderegulation.Examplesinclude
Poland and Portugal where the legislation for removal of the requirement for holding a professional licence
by real estate professions has been passed. Further, the European Union is planning on a mutual evaluation
between Member States which will require them to evaluate further and justify remaining professional
restrictions.UnnecessaryrestrictionswouldbescrappedbytherespectiveMemberStates
UK • UK has a set of Building Regulations developed by the Government which are the minimum standards for
design,constructionandalterationstoeverybuilding.
• Also, in the UK self-regulation has been a strong tradition where designated self regulatory bodies appointed
bytheauthoritiesineffectregulatecertainprofessionstakingintoaccountthepublicinterest
US • IntheUS,buildingcodesareadopted,modifiedandenforcedbylocalgovernmentofficials
• Buildingcodeschangefrequentlyandvary bystate.MoststateshaveadoptedtheInternationalCodeCouncil
series.Thesecodesareupdatedevery3years.
RERAImplications
8

SUMMARY - Short term pain, but long term gain for the sector
While internationally these regulations have been prevalent in most of the countries, we are of the
opinionthatseveraldevelopersmaystruggleontheimplementationofRERAintheshortterm,asexisting
projects too will be under the ambit of the Act. Also, the number of deals will reduce in the short term,
while the quantum of financing requirement will increase. The Act augurs well in the long term, as it will
make real estate structurally a stronger industry, with better practices, making it attractive to buyers and
investorsalike.
Consolidation and
professionalisation of
industry
Timely completion of
projects- reduction in
finance cost
Higher transparency,
attracting more
buyers
Increased
investments and
PE Funding
System shortage to
tackle elaborate compliance
requirements
Higher litigations
against stuck projects
Reduction in number of
new launches
Short Term
Pain
Long Term
Gain
RERAImplications
9

References
1.
[1]
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22727486~pagePK:
64257043~piPK:437376~theSitePK:4607,00.html
2. [2]
http://www.ey.com/IN/en/Industries/Real-Estate/EY-New-avenues-in-Indias-real-estate-sector
3.
[3]
http://planningcommission.nic.in/plans/planrel/fiveyr/10th/volume2/v2_ch7_6.pdf
4. European Association of Real Estate Professions Confederation Europeenne de l'Immobilier CEPI-CEI
ConfederationEuropeenneDesAdministrateursdeBiens
http://www.b4ubuild.com/links/codes.shtml
5. https://law.resource.org/pub/au/ibr/au.ncc.1.2012.html
6. http://www.poole.gov.uk/planning-and-buildings/building-control/what-are-building-regulations/
RERAImplications
Team CoE
Puneet Bhatia
Anwar Khan T. K. Mahesh Abhinav Jindal Neharika Nawapet Tanaz Tantra
Email: re.coe@edelweissfin.com
10