Real Estate (Regulation and Development) Act, 2016

Real Estate (Regulation and Development) Act, 2016 was passed on 26th March 2016 and came into effect, from May 1, 2017. Aim of the act is to protect the interests of home buyers and also boost investments in the real estate sector. Under the Act, the state governments have to notify their rules within six months, on the basis of the model rules framed under the central Act.

Salient Provisions

Establishment of the Real Estate regulatory authority

Section 20(1) of the Act requires establishment of Real Estate Regulatory Authority in each state and union territory. Its functions include protection of the interests of the stakeholders, accumulating data at a designated repository and creating a robust grievance redressal system.

Compulsory registration

Act made it mandatory for every real estate project to be registered with its respective state’s RERA. It also includes the projects where the total area to be developed exceeds 500 sq meters or more than 8 apartments is proposed to be developed ,projects which have not attained the completion certificate before coming of this act. If any project is built in phases then registration of each phase has to be done independently. Further, the promoter should provide detailed information on the project e.g. land status, schedule of completion, etc. It is only after completion of registration and getting other approvals, the promoters can start the marketing and booking of project. RERA must approve or reject an application within 30 days of filing it.

Agent registration

No agent can sell any project without obtaining RERA registration.

Reserve account

To ensure that the funds collected for projects are not diverted a separate reserve account is created wherein the promoters are now required to park 70% of all project amount. The money in the account can only be used for construction and land expenses and will be required to be certified by a professional.

Continual disclosures by promoters

The promoters have to submit a periodic detail regarding the project on the RERA website. It will help buyers to monitor the progress of the project.

Withdrawal from project

If the developer does not hand over the project on the date as mentioned in the agreement then the buyer has the right to withdraw from the project. Further, the buyer can claim the entire amount along with the interest. But if the buyer does not withdraw then he has the right to be compensated with interest for every month of delay. In case the promoter is not giving compensation then the buyer can file a complaint to RERA who is mandated to appoint an officer to hear the concerned case. It is compulsory for RERA to dispose of applications within a maximum period of 60 days; and the same may be extended only if a reason is recorded for the delay.

Real Estate Appellate Authority

Each state will have to set up appellate bodies. Appeal before the Appellate Tribunal can be filed within 60 days.

Quality of construction

The regulator will ensure protection to buyers regarding quality construction for five years from the date of possession. If any issue arises then it has to be dealt by the developer within a period of 30 days.

Standardization of sale agreement

The Act prescribes a standard model sale agreement to be entered into between promoters and homebuyers. Typically, promoters insert punitive clauses against home buyers which penalised them for any default while similar defaults by the promoter attracted negligible or no penalty. Such penal clauses could well be a thing of the past and home buyers can look forward to more balanced agreements in the future.

Provision for Penalty

To ensure that violation of the Act is not taken lightly, stiff monetary penalty (up to 10% of the project cost) and imprisonment has been prescribed against violators.

RERA definition of carpet area

The promoters have to sell the project on the carpet area which means the net usable area of the house. It does not include the common areas like clubs, swimming pools etc.

Limits on advance booking payment

Before signing the registered sale agreement the developers cannot ask more than 10 per cent of the property’s cost as an advanced payment booking amount.

Discussion

Delays in projects were one of the biggest problems faced by the buyers. This was due to range of reasons from diversion of funds to problems in land acquisition, bad construction etc. Consequently, the courts were flooded with litigations; police registered are filled with FIRs against the promoters, thus, choking the entire system. Therefore the coming of the RERA act will be a boon to all home buyers who have been clamoring for transparency and accountability in the real estate sector.

First, the registration of projects and brokers with RERA will help the buyers not only in making informed decision but also prevent frauds caused due to selling of projects without approval plans with developers, siphoning off money by the brokers etc. Also it will help organize and regulate the broker segment in India which is estimated to be a USD 4 billion industry, with an estimated 5, 00,000 to 9, 00,000 brokers. Now the broker will themselves endeavor to choose a RERA compliant developer before selling the project.

The compulsory timely compensation in case of delay of projects is expected to reduce litigations in the court. Moreover, the mandatory mention of carpet area will not provide any room to developers to employ deceiving tactics between what they promise to give and what they actually give. Therefore the act has laid down much responsible and larger role for the developers, thereby, ensuring greater transparency in project-marketing and execution.

Now the litmus test for the success of the act will depend on the timely set up of RERAs at state level and expeditious dispute resolution mechanism of the appellate bodies.