RERA: Property broking market in Karnataka may be hit by high agency fees

BENGALURU: Real estate brokers in Karnataka, hit by slowdown and demonetisation, fear that the new draft state Real Estate Regulator Act (RERA) will make their business unviable, with some even apprehending the prospect of a closure. The government expects an agency to pay a proposed registration fee of Rs 5 lakh in the city and Rs 2.5 lakh in rural areas in the new state RERA rule. Currently, 80% are individual agents while just 20% work with agencies in the city.

The registration fee set by the regulatory authority in Gujarat and Uttar Pradesh is Rs 10,000, which is much more affordable in the light of the relatively lower income levels of real estate agents. “The agents work for a mere two percent commission on the consideration value. The high cost of operations and the long gestation period in real estate transactions diminish the real returns. Given this, it is unviable to expect a real estate agent to pay Rs 5 lakh as registration fee," said Farook Mahmood, CMD, Silverline Group, a real estate developer and a broking company .

The Bangalore Realtors Association of India (BRA-I) has expressed its reservations on the proposed rules,­ the first being registration fees, and the other is the issue of penalties for default by developers.

“Such measures will be a setback for the trade," said Ayub Khan, owner, APEX Estates & Properties, a real estate brokerage firm in Bengaluru.

The new draft regulation is likely to hinder the growth of a parallel unorganised real estate agents' sector comprising individuals who cannot afford the high registration fee.

“Honest brokers won't be able to afford paying such a high fee.There should be a clear demarcation of what the role of a broker should be. The government should have conducted a written exam for the brokers rather than taking money for doing business," said BM Pounacha, a Bengaluru-based independent property broker.

The draft regulations propose a penalty of 5-10% on the total value of a unit and imprisonment of up to one year in case of a default by the developer.

"A real estate agent is only a facilitator who brings prospective buyers and developers together, and helps them close the transaction. This is unfair because every agent acts in good faith after the due diligence of the property. A default by the developer for whatever reason cannot be held against the independent agent who is not part of the developer's business processes. While it is definitely right to prosecute an agent for any offence committed by him, it is illogical to hold him responsible for an offence committed by the developer," argued Mahmood.

According to Colliers, Bengaluru noted nearly 4,300 new unit launches, totalling about 21,800 new units year-to-date during the third quarter of 2016. The city witnessed about 63% q-o-q decrease in new launches.


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