<p>The Karnataka government had notified the Karnataka Real Estate Regulation Act (KRERA) on July 10, 2017, after an inordinate delay and with much reluctance. This followed the central RERA Act, passed in May 2016, mandating implementation by all states by July 2017 as ‘land use’ comes under the domain of the states. The intention of the law is to regulate the opaque real estate sector, which is the epicentre of unaccounted money, with well-defined roles and rules for developers, brokers and customers.<br /><br />Projects with a land size of 500 sqm (5,382 sft), or eight apartments, or more come under RERA and must be compulsorily registered with the state regulatory authority. A few exceptions have been permitted. <br /><br />1. Residential/commercial projects for which occupancy certificates (OC) have been received prior to May 2017, applied for OC after May 01, 2017, and received the OC approval during the 90-day window by July 31, 2017, are exempted from the KRERA. <br /><br />It is clear that builders cannot escape RERA compliance by misleading prospective purchasers of apartments/bankers by merely ‘applying for’ OC with an acknowledgement of submission on record.<br /><br />KRERA chairman Kapil Mohan’s recent reported statement at a workshop that “We will not touch projects that are almost complete or have already taken off. We will touch projects that are tremendously delayed” is misleading, or perhaps he was misquoted.<br /><br />2. Development works completed as per the approved plan, sale deeds of 60% of the apartments/houses/plots which have been duly registered at the sub-registrar’s office are exempt. <br /><br />3. Apartments where common areas and facilities have been handed over to the ‘registered associations’ consisting of a majority of the allottees and layouts under plotted development wherein civic amenity sites, streets and services have been handed over to the planning authority for maintenance, are exempt. <br /><br />The operation of KRERA to make all builders and brokers register their ongoing residential projects or new launches on the KRERA portal (rera.karnataka.gov.in) was enabled only during the last week of July 2017, with an extension up to August 31, 2017. The extension was facilitated to overcome technical issues, software glitches and the frequent ‘server collapse’ that occurred as the builders uploaded large amounts of data. But the progress with respect to project registrations by builders (1,450 so far) and agent registrations (600) is appalling. <br /><br />There are 60,000 ongoing residential and commercial projects in Karnataka and around 6,000 agents who should have uploaded their project details and enrolled by the extended deadline of August 31. KRERA has issued a public notice on August 28 that registrations with effect from September 1 will be with 100% penalty, up to a maximum of Rs 10 lakh. <br /><br />The builders are shocked as in most cases the delay in uploading the data on the website was on account of the KRERA portal’s ‘server down’ problem and that the registration requires that all the necessary construction plan approvals are in place at the time of uploading the application for registration itself. <br /><br />There have also been delays in builders getting building plan approvals due to red tape, demands for ‘speed money’ and confusion created by the government on the policy of obtaining transfer of development <br />rights (TDRs), delay in akrama-sakrama scheme, and the problem of B-Khata. Worse, builders cannot undertake sale of apartments with effect from September 1, 2017 for any ongoing project or new launch that is not registered under KRERA. <br /><br />Violations attract 10% of project cost as penalty, three years rigorous imprisonment to the builders (!), cancellation of approvals, display or sharing of the information on action taken in public domain, including with other state RERAs. The penalty clauses are draconian and KRERA is painting all builders ‘black’ without making the bureaucracy accountable for the delay in approvals.<br /><br />Damaging the economy<br /><br />The whole construction activity in Karnataka and more so in Bengaluru, which is just recovering from the shocks of demonetisation, will come to a grinding halt. The third quarter of 2016 (October-December) was dented by demonetisation. Lack of clarity on GST rates for builders on construction materials and on rates to be charged for flats (now decided at 12%) for ongoing or completed projects (no GST), dampened business in the first and second quarter of FY 2017 (April-September). Now, KRERA will ruin the critical real estate sector, which has a multiplier effect on employment, income, savings and investments with linkages to 130 ancillary industries, for the rest of the year and 2018. <br /><br />Moreover, KRERA is yet to address the issue of registration of agreement to sale (ATS) with respect to apartments booked where more than 10% of the sale consider-ation has been received. Builders can’t raise <br />loans if ATS is executed at just 10% of the sale consideration. They will be left hanging dry in case the “10% buyer” goes absconding or just stops paying the balance.<br /><br />The gloom is already being felt. The number of new project launches in Bengaluru during January-June 2017 (13,400) fell drastically by 23% over the same period <br />in 2016. Sales had nosedived 19% by August 2017, with an alarming three-year inventory of unsold flats of nearly 1,50,000! <br /><br />KRERA cannot work in isolation as a small stand-alone office in Bengaluru with skeletal staff. It has to gear up to get complete information of all the approved projects under construction in Karnataka through multiple departments, and chase the builders concerned to make them RERA compliant.<br /><br />This requires a huge task force, political and bureaucratic will, nodal KRERA offices in the district headquarters to effectively implement RERA. Otherwise, KRERA will be a monumental failure and cause damage to the economy. <br /><br />(The writer is a Bengaluru-based economist)</p>
<p>The Karnataka government had notified the Karnataka Real Estate Regulation Act (KRERA) on July 10, 2017, after an inordinate delay and with much reluctance. This followed the central RERA Act, passed in May 2016, mandating implementation by all states by July 2017 as ‘land use’ comes under the domain of the states. The intention of the law is to regulate the opaque real estate sector, which is the epicentre of unaccounted money, with well-defined roles and rules for developers, brokers and customers.<br /><br />Projects with a land size of 500 sqm (5,382 sft), or eight apartments, or more come under RERA and must be compulsorily registered with the state regulatory authority. A few exceptions have been permitted. <br /><br />1. Residential/commercial projects for which occupancy certificates (OC) have been received prior to May 2017, applied for OC after May 01, 2017, and received the OC approval during the 90-day window by July 31, 2017, are exempted from the KRERA. <br /><br />It is clear that builders cannot escape RERA compliance by misleading prospective purchasers of apartments/bankers by merely ‘applying for’ OC with an acknowledgement of submission on record.<br /><br />KRERA chairman Kapil Mohan’s recent reported statement at a workshop that “We will not touch projects that are almost complete or have already taken off. We will touch projects that are tremendously delayed” is misleading, or perhaps he was misquoted.<br /><br />2. Development works completed as per the approved plan, sale deeds of 60% of the apartments/houses/plots which have been duly registered at the sub-registrar’s office are exempt. <br /><br />3. Apartments where common areas and facilities have been handed over to the ‘registered associations’ consisting of a majority of the allottees and layouts under plotted development wherein civic amenity sites, streets and services have been handed over to the planning authority for maintenance, are exempt. <br /><br />The operation of KRERA to make all builders and brokers register their ongoing residential projects or new launches on the KRERA portal (rera.karnataka.gov.in) was enabled only during the last week of July 2017, with an extension up to August 31, 2017. The extension was facilitated to overcome technical issues, software glitches and the frequent ‘server collapse’ that occurred as the builders uploaded large amounts of data. But the progress with respect to project registrations by builders (1,450 so far) and agent registrations (600) is appalling. <br /><br />There are 60,000 ongoing residential and commercial projects in Karnataka and around 6,000 agents who should have uploaded their project details and enrolled by the extended deadline of August 31. KRERA has issued a public notice on August 28 that registrations with effect from September 1 will be with 100% penalty, up to a maximum of Rs 10 lakh. <br /><br />The builders are shocked as in most cases the delay in uploading the data on the website was on account of the KRERA portal’s ‘server down’ problem and that the registration requires that all the necessary construction plan approvals are in place at the time of uploading the application for registration itself. <br /><br />There have also been delays in builders getting building plan approvals due to red tape, demands for ‘speed money’ and confusion created by the government on the policy of obtaining transfer of development <br />rights (TDRs), delay in akrama-sakrama scheme, and the problem of B-Khata. Worse, builders cannot undertake sale of apartments with effect from September 1, 2017 for any ongoing project or new launch that is not registered under KRERA. <br /><br />Violations attract 10% of project cost as penalty, three years rigorous imprisonment to the builders (!), cancellation of approvals, display or sharing of the information on action taken in public domain, including with other state RERAs. The penalty clauses are draconian and KRERA is painting all builders ‘black’ without making the bureaucracy accountable for the delay in approvals.<br /><br />Damaging the economy<br /><br />The whole construction activity in Karnataka and more so in Bengaluru, which is just recovering from the shocks of demonetisation, will come to a grinding halt. The third quarter of 2016 (October-December) was dented by demonetisation. Lack of clarity on GST rates for builders on construction materials and on rates to be charged for flats (now decided at 12%) for ongoing or completed projects (no GST), dampened business in the first and second quarter of FY 2017 (April-September). Now, KRERA will ruin the critical real estate sector, which has a multiplier effect on employment, income, savings and investments with linkages to 130 ancillary industries, for the rest of the year and 2018. <br /><br />Moreover, KRERA is yet to address the issue of registration of agreement to sale (ATS) with respect to apartments booked where more than 10% of the sale consider-ation has been received. Builders can’t raise <br />loans if ATS is executed at just 10% of the sale consideration. They will be left hanging dry in case the “10% buyer” goes absconding or just stops paying the balance.<br /><br />The gloom is already being felt. The number of new project launches in Bengaluru during January-June 2017 (13,400) fell drastically by 23% over the same period <br />in 2016. Sales had nosedived 19% by August 2017, with an alarming three-year inventory of unsold flats of nearly 1,50,000! <br /><br />KRERA cannot work in isolation as a small stand-alone office in Bengaluru with skeletal staff. It has to gear up to get complete information of all the approved projects under construction in Karnataka through multiple departments, and chase the builders concerned to make them RERA compliant.<br /><br />This requires a huge task force, political and bureaucratic will, nodal KRERA offices in the district headquarters to effectively implement RERA. Otherwise, KRERA will be a monumental failure and cause damage to the economy. <br /><br />(The writer is a Bengaluru-based economist)</p>