Enhancing Real Estate Transparency: The Role of RERA and Digitalisation

Introduction

The Real Estate (Regulation and Development) Act, commonly known as RERA, aims to enhance transparency in the real estate industry, a sector that significantly impacts economic, regulatory, social, and environmental frameworks. While progress has been made in recent years, increasing transparency in real estate markets still requires further efforts.

The Role of Digitalisation in Transparency

Digitalisation plays a crucial role in enhancing transparency; however, many real estate organizations have been slow to adopt new technologies that automate manual processes. The data available within these organizations often varies from one department to another, resulting in inconsistencies.

Given that transparency serves as a critical communication tool for sustainability information, various studies explore real estate entities’ perceptions of promoting transparency with stakeholders, such as regulators, investors, lenders, customers, and tax authorities. These studies often analyze sustainability reports published by real estate firms, highlighting the importance of non-financial information for stakeholders.

A key focus of transparency in real estate is corporate governance, where firms strive to maintain open relationships with stakeholders. Research indicates a broader approach to transparency within entities, including reports that feature assurance statements.

Emerging digital technologies, though still underutilized in real estate, present opportunities to improve transparency, efficiency, and productivity. Proptech innovations can enhance market transparency and liquidity, ultimately reducing transaction costs and positively affecting asset value.

Stakeholders in the Real Estate Industry

Understanding the types of stakeholders interested in real estate data is essential for promoting transparency. The key stakeholders include:

1. Management of Business Houses: Senior management and the board of directors require critical operational data.

2. Regulatory Body: The Real Estate Regulatory Authority (RERA) oversees all information related to real estate projects and acts as a bridge between promoters and the public.

3. Lenders: Financial institutions need assurance that funds are utilized correctly for project development.

4. Prospective Customers: Customers analyze project details and previous performance before making property selection decisions.

5. Government Agencies: These bodies, including planning authorities, grant necessary construction permissions.

6. Tax Authorities: Responsible for collecting applicable taxes based on transactions.

7. Research Agencies: Analyze data and prepare analytical reports for publication.

8. Investors

9. Stock Exchanges

Recent analyses by leading agencies indicated that lenders frequently provide excessive loans to certain real estate projects, often resulting in misallocation of funds. Loans may not be appropriately utilized for construction or payments, leading to non-performing assets and losses for lenders. Consequently, several lenders have resorted to one-time settlements to mitigate bad debts, resulting in shareholder losses.

The real estate sector garners varied attention and economic interest, attracting a range of funding sources, including family, friends, private investors, and financial institutions.

Obligations of Promoters under RERA

With the advent of RERA, promoters are mandated to share detailed information with various stakeholders. Prior to RERA, stakeholders had limited capability to verify data, which included:

1. Complete project scheme details, plans, and approvals.
2. Booking status and sales details for prospective customers.
3. Sold/unsold unit information disclosed to lenders and financial institutions.
4. Amounts collected from allottees disclosed to lenders and tax authorities.
5. Status of project completion relevant to revenue recognition for tax purposes.
6. Estimated project costs for stakeholders such as tax authorities and lenders.
7. Project profitability insights for investors.
8. Litigation details concerning project land.
9. Borrowing and mortgage details related to project land.
10. Changes in sanctioned plans.
11. Compliance information for audits as per various statutes.

Now, the onus is on each stakeholder to match the data provided by promoters with what has been submitted to RERA.

Promoters are obliged to submit the following information to RERA, which is accessible to the public:

1. Project scheme details, including sanctioned plans and approvals.
2. Information about project promoters and landowners.
3. Estimated project costs.
4. Complete inventory details – available, sold, and unsold units.
5. Area measurements for each unit.
6. Total car parking availability.
7. Litigation information related to project land.
8. Development schedules, including completion dates.
9. Quarterly and annual updates covering:
   • Total sold and unsold units.
   • Amount realized from allottees and outstanding receivables.
   • Development costs incurred.
   • Percentage of completion of development works.
   • Pending development work details.
   • Professional certifications from CAs, engineers, and architects.
   • New litigation activities.

Recently, on January 25, 2022, MahaRERA issued a circular mandating that bankers collect three professional certificates (from CAs, engineers, and architects) for every withdrawal from the RERA-designated project bank account.

Discrepancies and Reconciliation

Our experience has identified certain discrepancies in data relating to project costs and financial reporting between RERA submissions and lenders, including:

1. Mismatched estimated costs reported to RERA versus those provided to lenders.
2. Discrepancies in amounts collected from allottees between RERA records and company accounts.
3. Variations in reported completion percentages between RERA and tax authorities.
4. Recording of booked units showing different numbers across RERA, Income Tax, and GST submissions.

Recognizing these differences, it is crucial for promoters to maintain reconciliation statements. Doing so can protect them against potential inquiries from tax authorities.

Conclusion

We recommend that project promoters submit uniform data to all stakeholders to achieve the objectives of the RERA Act and ensure compliance with various regulations. Non-compliance could lead to penalties and legal repercussions. Professionals advising clients must align their guidance with the RERA Act, rules, notifications, and circulars to safeguard interests effectively.