Real-Estate Giant Mantri Developers Got A Rs 707Cr Wake-Up Call From Karnataka’s RERA

The verdict given by Karnataka Real Estate Regulatory Authority(RERA) against Mantri Developers has given a stern reminder to everyone about the still existing issues with the real-estate scenario in India.

As per the plea, RERA sought an amount of 65 lakh Rupees in lieu of paying to the homebuyers from Mantri Developers with a narration of no less than 7 years delay in handing over the possession of flats.

This case is the top of a much more comprehensive problem of 26,030 delayed projects in Bengaluru alone at a mind-boggling Rs 28,072 crore.

So it’s a historic crisis much more than a monumental one. These numbers represent broken dreams, economic hardship, and uncertainty for thousands of families forever.

The Real Estate (Regulation and Development) Act of 2016 was a legislation that attempted to rewrite the rules of the game for an industry that is often considered a household name for opaqueness and unreliability: transparency and accountability were to be its hallmarks.

While undoubtedly, protection of consumer interest is one of the great successes, the problems in implementing such laws are aptly brought out by the Mantri Developers case.

Perhaps the most worrying part of this case is related to judgments and their implementation. Karnataka Real Estate Regulatory Authority has ordered recovery of over ₹707 crore in 1,539 cases involving 257 delayed real estate projects in the state.

Still, an alarming 88% of this remains to be recovered. Till date, compensation to the tune of ₹79.94 crore has been recovered in 185 cases, while more than ₹627.32 crore has to be recovered in 1,354 cases. These figures throw up  questions over the recovery mechanism and how far decisions taken on file are reaching the grassroots.

Perhaps on paper, a potent tool that is the issuing of revenue recovery certificates to the state revenue department, does not reflect adequate recovery rates.

Karnataka RERA Chairman Rakesh Singh admitted this, saying he was holding consultation with relevant stakeholders to devise an effective strategy within the bounds of the regulatory authority to expedite the recovery process.

“They must have made reasonable efforts but it has to be expedited and taken to a logical end… What happens is that they have their own load of work and this is also a part of their job,” he said.

Singh, who has been newly tasked with the reins of the regulatory body, has said that redressal of grievances of allottees would be one of the prime targets during his tenure.

He proposed two possible solutions: “We can carry on trying to expedite the process and there can be a reasonable, remarkable improvement. Or we can have a new model wherein a separate structure can be created under overlap of RERA and revenue acquisitions.”

Again, liabilities of listed and non-listed developers starkly vary. While listed developers owe only more than Rs 16.3 crore and form a miniscule 2.5% of the total; it’s pretty apparent that big chunks of the problem are coming from small, non-listed entities-forcing one to question the financial soundness and practices adopted by some of the smaller players in the real estate business.

The case of Mantri Developers, wherein possession was delayed by seven years after a homebuyer paid for his flat in full money is a glaring example of the need for better project management and financial planning within the sector. The practices of using funds raised from one project to finance another, which is widely blamed for delays in projects, need to be looked at more closely and then regulated adequately.

Another interesting development that it avers is the option for homebuyers to approach RERA, take over, and complete delayed projects themselves. It has the prospect of offering a resolution but leads the system into raising questions on its practicality and the implications.

But Is It The Homebuyer’s Responsibility To Force The Real-Estate Developers Into Doing Their Job?

Can the homebuyers handle the myriad complexities involved in the completion of a real-estate project? What about the legal and financial implications of such takeovers?

It would require a multi-pronged approach to adequately address these issues. While the regulatory framework must be stiffened, measures should also be taken to strengthen the financial stability of developers, particularly the smaller ones. In this regard, some of the measures may involve better access through formal credit channels, a faster and also more streamlined approval process.

What is needed, though, is for there to be transparency in the collection and usage of funds from homebuyers.

Providing an escrow account, which is supposed to be part of the RERA regulations, will be followed strictly. The public declaration of finances of the project should be complemented with random audits so that the money is spent well, and one feels safe to give the amount.

The role of the financial institutions has to be seen in this conjunction also. Banks and housing finance companies being the key players in the real estate sector could be more vigilant in seeing that there is a legitimate follow-up on project progress and is completed at the right time.

This is comparable with education and awareness among homebuyers. Most of the homebuyers who look forward to owning a place do not see the woods for the trees and miss the obvious details. So, a better-informed consumer base leads to superior decisions and may prevent such occurrences from arising in the future.

In the future, it will be very important to remember that at the very heart of this problem lie the dreams and aspirations of hundreds of thousands of families and individuals. While being much more than just an investment, a house serves as the base of security and stability in people’s lives. 

Therefore, this requires close coordination between the sector of real estate, regulators, and policymakers so that such dreams do not turn out to be nightmares of waiting endlessly and financial stress.

And, if the builder fails to pay the compensations or refund some money to the homebuyers under the Real Estate (Regulation and Development) Act, 2016, the regulatory authority can issue a revenue recovery certificate asking the state revenue department to recover the money from the builders. And, this means, though real estate regulatory authority is armed with the power of providing revenue recovery order, the power of retrieving the amount is rested upon the district administration.

The dual department approach has its drawbacks, feels Dhananjaya Padmanabhachar, Sanchalak, Karnataka Home Buyers Forum: “The current ecosystem is not working out. Dealing with two departments is a pain. So if we can have a revenue recovery official within RERA who has the same powers as the District Commissioner, that would be the best model.”

It is evident how the real estate sector in Karnataka and the rest of India would come together to respond to such challenges. There needs to be a more streamlined, efficient, and consumer-friendly system. While one views the recent RERA ruling against Mantri Developers as being towards the direction of reform, it starkly reminds everyone how much further there is in terms of meaningful reform in India’s real estate sector.

Legislatives and regulations are much needed, but the former cannot fill this void without a cultural shift towards increased accountability and responsibility and more openness by stakeholders. That’s the only way we can create not just houses but trust in an industry playing such an important role for millions.