RERA: a landmark moment for Indian construction?
In India, a new law called RERA (the Real Estate Regulation and Development Act 2016) came into force in May 2017, which covers all residential and commercial projects in the country.In this article, Walter Treadwell – Mace’s Project Director on a major luxury real estate development in Gurgaon – explains the background to RERA, how it is likely to impact the construction sector and how developers can ensure that their schedules and projects continue to go to plan.
The introduction of RERA was a huge moment for the Indian property and construction market. In many ways the Act creates the first real regulator and consumer protection body for the sector, fundamentally rebalancing the market in favour of consumers.
As residential and commercial growth in India continues to grow with expectations of nearly two million homes to be built by 2022, the demand for quicker construction and higher quality is increasing, while complaints from consumers continue to grow exponentially.
The core aim of the RERA Act is to protect the interest of consumers by promoting fair play and transparency in real estate transactions and to ensure that development projects are completed within the time frame given to the consumers.
The major complaints from consumers buying off-plan property in India are about extensive delays in delivering the projects, as well as issues around build quality and developers acting in bad faith.
In order to modernise India’s construction sector, the RERA aims to introduce more transparency in the relationship between developer and consumer. The RERA Act now requires developers to register their construction plans with a state regulator, and prevents the developer from making substantial changes without the majority agreement of those purchasing the properties.
Under RERA, a developer will also have to maintain 70% of the funds collected from homebuyers in a separate account, leaving them with only 30% of the sales proceeds to use for other purposes. This is to prevent development funds being invested elsewhere, with the aim of minimising developer defaults on uncompleted schemes.
The legislation also introduces strict guidelines on handing over competed projects, preventing developers from doing so unless the majority of the new residents or investors agree that the product is up to standard.
The end result of all of these changes will be a shift in the market. Previously, strong programme and project management was often seen as a luxury in the Indian construction industry.
With the new strict penalties facing developers, it is now clear that the industry is going to have to adopt practises that are commonplace elsewhere to prevent projects over-running and investors becoming dissatisfied.
So how can developers ensure that they don’t fall foul of RERA?
In order to limit their exposure to the risks introduced by the Act, it is now essential for developers to ensure that all their projects are managed effectively. According to the international PMI (Project Management Institute), organisations that drive optimal project management practices meet their goals two and half times more often than those in low performing organisations.
With the aid of good project managers, developers should be able to introduce new methods of working, changing the sequence of the works to minimise delays and improve and seek better quality materials. This means target completion dates are more likely to be met and consumers are much more likely to sign off the completed product.
The limitation on substantial design changes during construction also means that developers will need their plans to be signed off as early as possible in the programme and their entire consultant team on-board at an earlier stage.
By doing so, developers significantly reduce the chance that consultants will request significant changes to the original plans – removing the risk that they might be forced to contact all of their purchasers to request permission to alter the approved scheme design.
The RERA also means developers need to up-skill their workforce to understand project management guidance and deliver these new ways of working. This means investing in their existing workforce, as well as employing more graduates from national and international centres of construction excellence.
Good programme managers should be able to assist developers with all of these requirements, from reviewing initial designs, managing the procurement of a construction team, providing an appropriately skilled workforce and helping to manage risk throughout the entire lifecycle of a development scheme.
Although the requirements of the RERA can seem onerous, the benefits of properly managed projects and programmes should offset any additional investment required by developers. With the right assistance, it should mean that developers are better able to manage their development and investment pipeline, as costs and income become more predictable.
The Indian construction industry is going through major change as new materials, building technology, software and new innovative ways are changing the ways we construct, plan and operate our buildings. The Act is just one element of this change – and one that should be seen as an opportunity for developers to enhance their products and compete to deliver world-class real estate development.