Real Estate (Regulation and Development) Act 2016, which was enacted on 1st May 2016, will come into existence on 1st May, 2017.
We are all aware of the fact that the real estate sector in India is highly unorganized and largely unregulated. The implementation of a good Real estate bill has been long impending. The need for regulations and uniform guidelines was also being felt by the industry which continued to be perceived negatively by consumers because of unscrupulous activities of a few.
The Real Estate Regulation and Development Bill 2013, was initially drafted and approved by the then UPA (The United Progressive Alliance) cabinet in 2013. On 7th April 2015, the new Union Cabinet (NDA) gave its approval to the amendments to the Real Estate Regulation & Development Bill.
The Bill has been passed in Rajya Sabha on 10th March, 2016. It became an Act after the President of India gave his assent to it on 25th March, 2016.
The main objective of the Real Estate Regulations Act is to protect the interest of consumers (property buyers), to promote fair play in real estate transactions and to ensure timely execution of projects.
Key features of Central Real Estate Regulations Act (RERA)
Below are the main features of Real Estate Act – 2016 ;
- Scope of RERA :
- The Act covers both residential as well as commercial real estate projects.
- It is mandatory for the real estate developer to register the project with the concerned RERA (State specific) and obtain a valid registration number before going ahead with the project. If the project which meets RERA criteria does not get registered then the authority can levy a penalty of up to 10% of the project cost.
- The registration is valid for a specified period as mentioned by the builder in application form. The real estate developer is accountable to adhere to timelines, otherwise he/she risks suffering losses/ penalties.
- The on-going (under-construction) projects are also included under this Act. Any buildings which are not having OC are covered as ongoing projects. (Read : ‘What is Occupancy Certificate (OC) & its importance?‘)
- The Act now mandates projects on 500 sq meters of area or with eight flats to be registered with the regulatory authority.
- Establishment of Real Estate Regulatory Authority – Real Estate Regulatory Authority bodies will be set up in each State / Union Territory. Adjudicating officers will also be appointed to settle disputes (if any) and impose penalties / compensation.
- Registration & Public Disclosure of Real Estate Projects – The bill makes it mandatory to register all the real estate projects with the respective State Regulatory Authorities. The builders or real estate companies will have to mandatorily disclose the details of all the registered projects such as; details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals and disclosure of agreements, names and addresses of real estate agents, contractors, architect, structural engineer etc., For wrong disclosure of information or for not complying with the disclosures and requirements, the authority can levy a penalty. The Regulatory authority can even cancel the project approval.
- Builder’s Liability : The builder has to provide five-year warranty for any structural defects in the building. They are liable to pay equal rate of interest in case of default or delays as home buyers.
- Home buyers & Exit clause : Home buyers can now exit the real estate project at any stage of construction. The builder is also bound by law to return the money collected from buyers within 45 days, after deducting the booking amount. If builder fails to give possession of the apartment or complete the project as per the stipulated time, the home buyer can now terminate the agreement and is entitled to refund of the amount paid with interest in 45 days of such termination.
- Definition of Carpet Area :
- The RERA Act clearly defines what is ‘carpet area‘. Usable spaces like kitchen & toilets have been included in the definition of ‘carpet area’.
- Carpet area is a measure of net usable area of the unit and does not include common areas, balconies, verandahs etc; whereas, the super built up area could be an addition of both.
- Therefore, to ensure that the consumer knows what he is paying for, it has been made mandatory for the real estate developer to specify carpet area. Essentially Carpet Area is the area within the walls of a unit where a consumer can reside or have his office. Even when the balconies, verandahs or terraces are exclusively available within a unit these cannot be added to the Carpet Area as prescribed in the Act.
- Escrow Account :
- One of the biggest pain points for Flat buyers has been ‘project delays‘. Most of the builders use the collections of one project to buy another piece of land or for business expansion, instead of using the funds to complete the on-going project.
- Thereby to protect consumer of a project the Act mandates that of all collections 70% funds be deposited in an escrow account maintained with a scheduled commercial bank.
- These funds can be accessed by a real estate developer solely for purpose of construction of the project to which it belongs. The real estate developer can withdraw funds from this account in proportion to stage of work.
- The request for withdrawal of funds is to be certified by an engineer, architect and a chartered accountant in practice that real estate developer’s claims are justified.
- Adherence to Project Plans (layout / design) – To alter a project plan, structural design & specifications of the plot, apartment or a building, the Promoter has to get the consent of minimum two-third allottees (buyers) after the necessary disclosures.
- Phase wise Projects : Where the real estate project is to be developed in phases, every such phase shall be considered a standalone real estate project, and the promoter / builder shall obtain registration under this Act for each phase separately.
- Residents Welfare Association : If majority of the flats in the apartment have been allotted / sold, ‘welfare association’ has to be formed within 3 months.
- Real estate Agents : The real estate agents who intend to sell any plot or flat of a registered project have to register with the respective State Real Estate Regulatory Authority. It is now mandatory for the real estate developer to provide details about the real estate agents that are dealing with the project, the details have to be made available online. (Details about other professionals like Architects, Engineers etc., should be kept online.)
- Advertisement & Marketing of Projects :
- In most of the cases, we observe that there is no co-relation between the details given in marketing materials / project brochures and the actual / end product.
- Henceforth, the Act doesn’t permit such activities as anything shown in the marketing material needs to be in line with the final product or else real estate developer will be liable to penalties under the Act.
- The advertisement or prospectus issued or published by the developer shall mention prominently the website address of the Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority and such other matters incidental thereto.
- Guidelines for Home buyers :
- It is mandatory for a consumer to make timely payments to the real estate developer.
- Once the occupancy certificate is issued by the real estate developer, the consumer is required to take possession within two months’ time.
- It is compulsory for a consumer to exhibit active participation in the formation of an association, a cooperative society or any federation of consumers.
Real Estate Regulations Act : My Opinion
Real estate sector is a very un-organized sector. So, enactment of Real estate Act is definitely a welcome move, not only for the home buyers but also for the industry.
But, is this Act really beneficial? Will the consumers really gain from it?
It all boils down to whether State governments are going to implement the RERA as it is or not. Although RERA is a central law (applicable to all States & Union Territories except J&K), its implementation will depend on State Governments, as real estate is a state subject. The respective State Governments can modify the RERA and approve it. So, any dilution of the original Act can be a cause for concern.
But, state government of Uttar Pradesh has modified this rule and added few exclusions in their respective State RERA (U.P. govt approved State RERA on 27th Oct, 2016). Same is the case with Gujarat state, on-going projects have been excluded.
So, we can see two different versions of the applicability of the same rule. If you are planning to buy a Flat, you are advised to go through that State specific RERA rules and guidelines.
So far, some of the states like UP, Gujarat, Andhra Pradesh, Madhhya Pradesh, Odisha etc., have finalized and notified their rules. Some of the remaining states have framed their draft rules and are yet to notify them.
The central RERA is applicable as it is in all the Union Territories. Let’s hope all the States frame their rules in accordance with the Act in letter and spirit and not try to keep the buyers at a disadvantage. The whole purpose of enacting the RERA will go in vain if it is not followed in its entirety by all the stakeholders.
While searching for State specific RERA notifications, I have come across a useful portal ‘ApnaRERA.com’ where almost all State specific RERA notifications, guidelines, drafts etc., are available online.
Sample Forms :
- Download – Complaint to Regulatory Authority (Form – M)
- Download – Appeal to Appellate Tribunal (Form – L)
- Download – Application for Registration of Real Estate Agent (Form – G)
I hope you find this post useful. Do you believe that Real estate Regulations Act is beneficial to a home buyer? Will this Act keep a check on unscrupulous activities that happen in Real estate sector? Kindly share your views. Cheers!
(Post first published on : 29-April-2017) (Reference : Apnarera.com, Economic Times & Godrej Properties) (Image courtesy of Salvatore Vuono at FreeDigitalPhotos.net)