The State Capacity Initiative at the Centre for Policy Research (CPR)’s talk series titled: ‘Know Your Regulator’ is held in collaboration with the National Council of Applied Economic Research (NCAER), the Forum of Indian Regulators (FOIR) and the Indian Institute of Corporate Affairs (IICA). In this talk series, we are talking to chairpersons and members of India’s regulatory agencies about regulation of Indian markets and the economy.
As part of the series, Mr Navreet Singh Kang, Chairperson, Real Estate Regulatory Authority (RERA), Punjab, was in conversation with Dr KP Krishnan, IEPF Chair Professor in Regulatory Economics, National Council of Applied Economic Research (NCAER) and Ms Arkaja Singh, Fellow, State Capacity Initiative, Centre for Policy Research. The event was held on 25 November, 2021.
Here is a summary of the conversation:
Why was RERA setup?
RERA is a relatively recently established regulatory authority but one that has made a significant impact on market conditions in the sector it regulates. It is seen as having set the rules of the game in what is a volatile and risky business (real estate). RERA is also unique since it is only India that has a specific Real Estate Regulatory Authority, and this is a unique Indian experience.
RERA was setup for a few reasons: to promote transparency about the promoters’ credibility; to provide necessary approvals to the promoters to start a project and lastly, to provide quick resolution through an adjudicatory mechanism. Before RERA, customers had to go to the consumer forum or to the civil courts to complaint against the promoters. The level playing field was a bit distorted and the allottee was at the receiving end of these issues. That was the trigger for bringing in this Act so that there is a focussed, dedicated agency to monitor these things.
How is RERA structured?
The RERA Act says that there needs to be a chairperson and at least two full-time members. There is an Executive Director, who is typically a retired or a serving IAS officer and then there are four teams: Legal, Finance, IT and Registration and Regulation. RERA subsequently added a Town Planning division so that an officer can look at the promoters’ plans. The town planning officer is supposed to investigate the promoters’ floor plans and find out if the plans are within the remit of the law.
RERA has a separate authority for adjudication headed by an Adjudicating Officer who is usually a serving or retired district judge. There was some lack of clarity between the role of the Authority and the role of the Adjudicating Officer, but the Supreme Court has clarified that the Officer decides only the quantum of compensation and cannot make a substantial determination of the rights of the parties. Complaints made by the parties should therefore be heard by the Authority. The Authority must pass the order that the customer will be compensated for by the promoter and the Officer will decide on the compensation.
At RERA, there is a balance between retired people from government and other people without the baggage of government. In the managerial level, there are 25% of people who were formerly in government employment, the rest are from the private sector. Every recruitment is only through an open advertisement with an objectively defined criterion. Initial recruitment and screening are done by a committee of managers and the educational qualifications is laid down in our regulations. Attracting and retaining talent has not so far been a problem at RERA Punjab. Although the organisation does not offer permanent employment, if someone has been with RERA for a longer time, they are promoted and a higher level of renumeration is given to them. In the present structure, the possibility that a person in the RERA staff could become qualified to be a member or chairperson had not been envisaged. However, it is perhaps time to re-look at the promotion system from this perspective.
Although RERA is not very different from a government body in some ways, it is autonomous and more flexible. RERA is more informal and faster than a civil court, but these courts have greater powers of enforcement than a RERA. For orders that the Authority cannot execute, the matter is taken to the civil court. In terms of compliance, when RERA passes an order on development, the experience is that there is reasonable compliance on ground. Even overall compliance has been much better after the Act came out, especially so for new projects. There are legacy issues but hopefully that is changing.
RERA’s regulatory functions
The RERA Act says that promoters cannot develop their projects without registering with RERA. When a promoter registers with RERA, she must submit disclosure documents including status of approvals, title of the land or property, financial status etc. and RERA will upload these details on the website for the benefit of a prospective customer. Along with this, the promoter agrees to comply with certain terms and conditions. This perhaps encourages a certain degree of voluntary compliance.
Additionally, RERA is a dedicated agency that provides adjudicatory mechanism for grievances of allottees. RERA is not a consumer forum for the real estate sector, but the body is a regulator that is focussed on balanced development of this sector. RERA aims to regulate and promote and is keen to ensure that both the consumers and the promoters’ interests are balanced. The RERA Act discusses ways to reset terms between buyers and sellers. For this reason, when there is a delay in a project, RERA encourages the promoters to finish the project and the Authority also brings the buyers and builders together and negotiates between them. However, the Supreme Court passed a judgement that the allottee has the right to ask for refund of the money “on-demand”. Genuine home buyers usually stick to a project despite delays but there are a group of buyers who will go by the market rate and would want to get out of the project. But when the market is looking up, buyers prefer to stick with the project.
Transparency and creating a credible platform are very important in RERA’s regulatory strategy but classic textbook perspective on regulatory authorities include elements of adjudicatory, executive, and legislative powers. Where does RERA fit into that?
RERAs have the authority to make regulations, but rulemaking power under the Act is with the state government. RERA has framed sets of regulations in the past and is hoping to come up with more in the future. These are not only specific to internal processes like staffing, recruitment procedures and administrative processes for the promoters and the consumers to raise queries, but they also include substantial regulations that have binding effect.
Executive powers of RERA include powers to enforce these regulations that RERA makes, and to enforce provisions of the Act and the Rules. Like all classic regulators, RERA has some elements of all three functions of the state – legislative, executive, adjudicatory powers – combined into one body. On a theoretical level, this is fundamentally violation of separation of powers.
However, in reality there is not much scope for conflict of interest as the rule-making function is mainly with the state government. RERA’s regulations only fill in the gap. For example, when a RERA receives a complaint, there are regulations on how the complaints should be handled. RERA only has limited powers of regulation. Recently, RERA’s regulations that said that a single member bench of the authority can hear complaints was quashed by the High Court. The Supreme Court later reversed this judgement, but this shows that RERA’s regulations are scrutinised. There are limits to the Authority’s powers.
There are three spheres in which RERA operates: a) contract enforcement where RERA looks at the builder-buyer contracts b) grievance redressal for customers in the real estate sector 3) regulation of activities in the urban sector. But all these three spheres also involve other players.Urban is a very tightly regulated sector and there are multiple authorities (like the Urban Development Authority) who regulate this sector. Contract enforcement also has its own legal machinery. RERA exists because the existing machinery is not working properly. While playing a regulatory role, the other development authorities also play a promoter role. Their entire focus is not on regulation. But RERA helps in converging focus on this sector, and the Authority shares suggestions to the development authorities.
From seeking permission to build on a land to ensuring that the papers are in order, a builder must run around multiple authorities. Will RERA help consolidate all these into a single window?
RERA does not have the power to do these things, but the Authority has suggested to the government that there needs to be more cohesiveness to the entire project.
RERA has powers to levee fees and retains the fee for upkeep of RERA. In government, this is prohibited. The fundamental principle of government is that it cannot retain the fee and only legislature appropriates the budgets for government body. In RERA’s case, is there a potential conflict?
RERA’s budget comes from the state government and the fees that RERA collects from promoters or agents is enough to run the organisation. Unlike Income Tax, the Act itself says that the fee will be retained as part of Real Estate Regulatory Fund. It also says that that fund will be used for meeting the day-to-day expense of the Authority and for the Appellate tribunal headed by a retired High Court judge. However, this fee is set up the government, and not by RERA.
On the other hand, funds collected through penalties levied by RERA are not retained by RERA, but go to the consolidated fund of the state. In this way, there are some checks and balances built into the system.
You (Mr Kang) were the first chairperson of the Punjab’s Real Estate Authority. How did the setting up happen?
Punjab was the third state in the country to set up the Authority. We started from scratch where we walked into the office of Punjab Urban development authority, and we told them that they should help us since they have constituted us as an Authority. We got a pantry and a room with a veranda for starters. We also got a personal assistant. We have changed locations since. Finding a place for the office, recruiting staff, formalising regulations, seeking government approvals for the administrative regulations we made. All this was part of the process of setting up a new Authority.
What is AIFORERA?
The All India Forum of Real Estate Regulatory Body (AIFORERA) is a registered society, a central body with a Chairman, Vice President etc. It is also a central coordinating body. Mr Kang has been an office bearer at AIFORERA for the last two years. It provides a very useful platform for the state RERAs to meet and there are usually quarterly meetings. AIFORERA collates all the orders passed by other RERAs, the body takes up issues with the Ministries and the members also help in research activities. It helps to have a common voice. Currently, AIFORERA is headed by the chairperson of Tamil Nadu RERA.
Are there measures to assess RERA’s successes?
AIFORERA has been hosting a web series every month where various stake holders including private sector developers, financing institutions etc participate. They have agreed that this has made an impact. There is no quantification yet but qualitatively, we know that the Act has made a difference. If there were to be external evaluation, one would need data and all that data (complaints received, complaints resolved etc). is out there in the public domain. This data can help evaluate RERA’s successes as well.
Regulation and Public Interest
From its inception to setting up, RERA has been a unique regulatory authority in the real estate space. There are many nitty gritty challenges here and not many want to engage with the details to understand regulatory capacity. For example, in the areas around Chandigarh, the relationship between the builder and the landowner is quite transactional, unlike in the rural areas where people are closely attached to their land. But several rural landowners and farmers have themselves become promoters. The development of the sector is dependent on the market cycles.
Regulation is part economy, part society and part politics. Regulatory purpose is ultimately in the public interest. The regulatory challenges at different parts of the country are very different for each RERAs although all the RERAs come under the RERA Act. RERA is not a consumer forum, and the Authority’s interest is to promote a balanced development of the sector. If the Act is implemented properly, it will be a big step towards ensuring this development. RERA Punjab is focussed on improving capacity and improving interaction with its stakeholders.
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