The rating of real estate projects and developers will be a major booster for property buyers, ushering in transparency in real estate transactions
The introduction of the Real Estate Regulation Act (RERA) has ushered in enhanced transparency, accountability, and customer- centricity and financial discipline, Also, post-RERA there has been a significant drop in the complaints of homebuyers ( from 23% in the pre-RERA period to 3.5% in post-RERA), as per Maharashtra RERA (MahaRERA) data. But despite this, the confidence of home buyers has not been fully restored in under-construction projects. It is evident from home buyers' buying behaviour as they are preferring ready-to-move projects, compared to under-construction projects. This is well established in the latest report by a leading real estate consultancy. The report mentions that in 2022, the share of ready-to-move homes in total home sales was as high as 58%.
There is a need to further boost the confidence of home buyers and it is in this context that MahaRERA has decided to rate real estate projects and developers. It is significant to point out that such rating systems have been prevalent in advanced countries. Since 1989, the Building & Construction Authority (BCA) of Singapore has introduced several assessment frameworks for ratings. Integrated Construction Quality Assurance Scheme (ICQA) is the latest rating system introduced by BCA to ensure greater quality, productivity, sustainability and safety in the real estate sector. Dubai Land Department has introduced 1-4 star ratings for its buildings besides an additional 4 plus rating for sustainability features. Property Council of Australia (PCA) provides a framework for the certification of office buildings with grades like Premium, Grade A, Grade B and others.
In India, in line with global practices, ratings for the hospitality segment of real estate have been in place. The Hotels & Restaurants Accreditation Committee (HRACC) under the Ministry of Tourism ranks hotels with 1-5 star ratings. The credit rating mechanism for real estate companies as per regulations of SEBI and RBI for bank financing and IPO, is in place. The Indian Bureau of Energy Efficiency (BEE) launched a 5-star rating scheme for office buildings operated only in the daytime in three climate zones- composite, hot & dry, and warm and humid. Similarly, IGBC (Indian Green Building Council (IGBC) ratings, the first rating system exclusively for residential real estate have been there. The rating system pertains to green cities, green residential societies, townships, SEZs, affordable housing, data centres etc. IGBC rating systems are voluntary, consensus-based and market-driven.Coming to the grading system proposed by Maha-RERA is aimed at facilitating home buyers get a better sense of projects that fit their needs and make an informed choice for home selection. The parameters for grading include project overview and technical, financial and legal aspects. The grading /rating system looks at any legal encumbrances, complaints against projects, NCLT or other legal proceedings and warrants against developers. It also looks at financial encumbrances, annual audit reports, penalties and financial progress. The project-related parameters include project registration date, proposed completion date, annual quality certificate, extension application, booking amount, formation of society, and conveyance to the association of allottees. The first rating list of projects is likely to be available from April 2024.
Real estate experts like Boman Irani, President CREDAI, an apex body of real estate developers believe that this rating system will create a conducive buying environment for home buyers by providing a more transparent and confidence-building eco-system. It has a dual advantage. On one hand, it will increase the confidence of home buyers about under-construction projects, making investment decisions easier, in turn increasing home sales. On the other hand, it will encourage developers to adopt good practices. Good projects will get easy funding at lower rates and for home buyers mortgage financing will become easier and better for high-grade projects. Brand experts opine that with the rating system, developers will be motivated to earn good grades which will help in better marketing, help home buyers distinguish good projects, boost the investment quotient of residential real estate and provide an overall impetus to the real estate sector.
It is high time that other states' RERA authorities also follow Maharashtra RERA in introducing grading of real estate projects and developers for creating an eco-system for safe and profitable investments in real estate. The Ministry of Housing and Urban Affairs should make a rating of real estate projects and developers mandatory under RERA. And to facilitate this, industry bodies like CREDAI and NAREDCO should lend their support. This will help boost the sentiment of property buyers and investors, paving the way for further strengthening real estate as a safe and investable asset class.
(The writer is a real estate columnist, editor of Torbit Realty and contributing Editor, of NBM & Construction World Group)