RERA comes into effect: Homes are now FMCG; builders may rip consumer off with frills, facilities

Buyer smart, builder smarter!

While there is a lot to cheer in the arrival of the new real estate regime in India, there may be room for some sober thought because developers who made huge profits for decades by using legal loopholes to delay the possession of flats, diversion of funds meant for one project to another or simply shortchanging on specifications are not exactly going to meekly cut their gains by adhering to the Real Estate (Regulation and Development) Act , or RERA, that comes into force this month.
It is indeed true that the new law is a game changer. With increased disclosures and mandatory registration and rules that stipulate delays are compensated for and money meant for one project is properly accounted for and not diverted, there is a lot to celebrate for buyers.

However, from all indications, 1 May 2017 may be the day when apartments officially become fast moving consumer goods (FMCG). The quicker a builder sells off a property and the more a developer can charge per square foot, higher the profit. Imagine a new world in which homes are sold just like detergents, and builders draw lessons from companies such as PepsiCo and Hindustan Unilever Ltd to increase profitability because a no-frills approach will make a "roof over your head" no longer a hot property.

Representational image. Reuters

Representational image. Reuters

In fact, the trend has been evident for a few years now, but the RERA regime -- in which 20 states are yet to spell out the rules that officially kick in the law -- will speed it up. And it is not as if realtors are simply falling in line anyway. Quite a few states have tweaked rules to help builders. While Gujarat rules exempt all projects from RERA launched before November 2016, Uttar Pradesh and Haryana exempt projects for which completion certificate has been applied for or ongoing projects. Notably, all these are BJP-ruled states, and may face controversies in the days ahead.

Beyond these irritants, there are many ways in which the builders can mimic consumer goods companies to charm or fool customers -- depending on how you look at it. When you buy a packet of potato chips, if it is not "plain salted" and has a masala or salsa flavour, the price of the packet is not increased by just what it costs to add the flavours but more -- because these chips are now a "premium" product. When you buy a blue detergent cake, you may be paying more per gram that has a dash of lemon.

In the new scheme of real estate, builders can charge you more for landscaping, or a swimming pool or doing the maintenance work of a gated community. They may build fee-based clubhouses that are "lifestyle" offerings or throw in a convenience ATM (and charge the bank does it more rent!). Buyers now need to be careful on whether it is worthwhile to pay for some frills.

A "value home" may make sense to a yuppie software geek if she gets easy fibre-to-home broadband or wi-fi on the house, but the builder may be increasing the price per square foot on that promise. If you are a middle-class wage earner with two kids, the frill may be a school close to home -- run by the builder or his associate with fees that cost more than you would pay otherwise!

Some builders have in recent years written purchase clauses that shift the onus to buyers when they delay payments, but the corresponding onus on the developer if a flat's possession is delayed is at a much lower rate. Hopefully, the new RERA regime will reduce such imbalances.

Nevertheless, the consumerisation of real estate also means that frills become expensive. Smart buyers beware!

(The author is a senior journalist. He tweets as @madversity)

Updated Date: May 01, 2017 15:27 PM

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