Banks to shut out builders without RERA listing

Banks to shut out builders without RERA listing 

Builders who have been thinking of ways to beat the new Real Estate Regulation Act are fast running out of time as banks, in consultation with the Reserve Bank of India, have decided not to extend loans to those projects which have not been registered under RERA. 

"We have to look for some security mechanism, and since RERA is designed to weed out fly-by-night operators, we have decided not to extend credit to projects not registered with it," said a bank official who did not wish to be identified. "Adhering to the regulations will safeguard our interests, it's better to be safe now than regret later." 

Banks have also sought additional collateral, including on personal properties of promoters, as guarantees while disbursing loans to a few real estate developers. 

"We are very apprehensive because even if we disburse loans as prescribed under the law, the way it is designed, it does not protect our credit. If a loan turns bad, customers will be refunded but there’s no inherent protection for us under the law," said a PSU bank official. "So, we are being extremely careful about lending to the sector." 

Under the new law, Real Estate (Regulation and Development) Act, 2016 (RERA), a developer will have to maintain 70% money collected from home buyers in a separate account, which would leave them with only 30% of the sales proceeds to use for any other purpose, against 100% earlier. 

Despite the real estate industry body pushing developers to register under RERA, the turnout has been rather dismal so far. 

"We have already directed all our member developers to register their projects under RERA and they have committed to do so," said Jaxay Shah, president of realty developers' apex body The Confederation of Real Estate Developers’ Association of India, or CREDAI. 

"The spirit of RERA is to ensure that homebuyers shouldn't suffer. While developers are applying for registration, the infrastructure at the authority's level needs to be beefed up to ensure speedy processing of the same. Speed is crucial here because homebuyers are waiting for possession and we cannot further our marketing or financing efforts until we get registered," Shah explained.'

The government enacted RERA and all the sections of the Act have come into force with effect from May 1 this year, and the builders had three months to register their new and ongoing projects with their respective state RERAs. 

According to RERA, which aims to improve transparency in real estate sector and protect home buyers' interest, builders are expected to disclose project-related information, including project plan, layout and government approvals-related information to prospect customers. 

Any major changes in the project can only be done after receiving the consent of two-thirds of homebuyers in that project. To avoid diversion of funds, RERA mandates that developers should maintain 70% of the funds collected from buyers in a separate bank account in case of new projects. 

Maharashtra, apart from Punjab and Madhya Pradesh, was one of the first states to notify its rules under the Act and establish MahaRERA. Until the midnight of July 31 deadline, the regulator had received total 10,852 applications for registration of ongoing projects across Maharashtra, which has now crossed 12,000. 

The Economic Times, New Delhi, 08th August 2017