REAL ESTATE (REGULATIONS AND DEVELOPMENT) ACT
The Real Estate (Regulation and Development) Act, 2016 (RERA) will finally give India’s real estate sector its first regulator from Monday, May 1, 2016. The act was passed by parliament last year and the Union Ministry of Housing and Urban Poverty Alleviation had given time till May 1, 2017, to formulate and notify rules for the functioning of the regulator. RERA seeks to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on errant builders.
So what is RERA? Here is a look at the real estate regulator and how it will impact the real estate market. According to RERA, each state and Union territory will have its own regulator and set of rules to govern the functioning of the regulator. Centre has drafted the rules for Union territories including the national Capital. While many states are still behind on schedule for notification of RERA rules, many have notified rules and a regulator will start functioning. Some of these states are Haryana, Uttar Pradesh and Maharashtra.
Despite seeing a slump in the past three years, the ticket prices are relatively high and inventories are piling up. Low demand is also contributing to the reduced recovery of investment by developers. These reasons have deterred developers from reducing the ticket prices. RERA seeks to address issues like delays, price, quality of construction, title and other changes.
Delays in projects are the biggest issue faced by buyers. The reasons are many and the impact is huge. Since the last 10 years, many projects have seen delays of up to 7 years. Projects launched after the turn of this decade have faced delays as well. Some have run into obstacles even before a brick was laid. The reasons include diversion of funds to other projects, changes in regulations by authorities, the environment ministry, national green tribunal etc and other bodies like those involved in infrastructure development and governing transport. In many places, land acquisition becomes an issue. Errant builders often sell projects to investors without the approval of plans, unauthorised increase in FAR, bad quality of construction, projects stuck in litigation etc.
GENERAL FAQS
The Real Estate (Regulation and Development) Act, 2016 (the Act, from hereon) is a Government of India initiative to bring about the much needed transparency and order to the real estate related transactions by creating a systematic and a uniform regulatory environment, thereby protecting consumer interest and making real estate developers accountable for timely completion of projects.
The RERA bill was drafted in the year 2013 and was passed by the Rajya Sabha on 10th March 2016 and by the Lok Sabha on 15th March 2016. It received the Presidential nod on March 25th 2016 and came into force on 1st May 2016 with 69 of 92 sections notified.
These are the five major objectives of RERA, 2016.
To establish the Real Estate Regulatory Authority (RERA)To promote transparency and efficiency in the sale of real estate projects
To protect the interest of consumers in the real estate sector
To establish an adjudging mechanism for speedy dispute settlement
To set up an Appellate Tribunal to hear appeals from the decisions, directions or orders of the RERA
Initially, the bill was supposed to cover only residential projects. On further amendments, commercial projects including shops, offices and buildings were also included.
Yes. A Central Advisory council will be set up to advise the Central Government on the implications of the Act, recommend policy, protect consumer interest and to oversee the growth and development of the real estate sector. In addition, there will be a dedicated Appellate Tribunal set up for RERAs to hear appeals from orders of the RERAs and the adjudicating officer.
Yes, this act is applicable to all Indian states excluding Jammu & Kashmir.
FAQS BY REAL ESTATE AGENTS OR INTERMEDIARY
As per the RERA act, 2016, an intermediary is required to be registered with the RERA and retain a valid registration number before facilitating any real estate deal on the behalf of any real estate developer. He/she is also required to maintain and preserve account logs and other documents as prescribed by the Act. Also, he/she have to facilitate all information and provide any further assistance as prescribed by the Act to the consumer.
Misrepresentation, fraud, breach of any terms and conditions of the Act and any sort of unfair practice can cause the registration to be revoked; but not before the intermediary is given a chance to be heard. The Act makes it tougher for the intermediaries to conduct business in an unprofessional manner and in a way prompts them to adopt ethical means of dealing with consumers.
If an intermediary violates the rules prescribed by the RERA, he will be liable to a penalty for every day of the violation caused and the sum could increase up to 5% of the total estimated cost of the unit in question. If the intermediary breaches any orders, decisions or directions given by the Appellate Tribunal, he could face imprisonment of upto 1 year or would have to pay fine for each day of violation which may extend upto 10% of total estimated cost of the unit in question
FAQS BY CONSUMERS
As per the RERA rules, the consumer is entitled to receive information about the sanctioned plan, approved layout plan, stage wise progress of the project, carpet area and facilitation of basic amenities & services such as drinking water, electricity, sanitation etc.
The consumers can claim possession of the unit and the association of consumers can collectively claim possession of the common areas as declared by the real estate developer.
In case the real estate developer fails to meet the timeline or does not deliver what was promised then the consumer has the right to claim refund of amount paid with prescribed interest and compensation for the same.
In case the real estate developer fails to meet the timeline or does not deliver what was promised then the consumer has the right to claim refund of amount paid with prescribed interest and compensation for the same.
It is mandatory for a consumer to make timely payments to the real estate developer as per the agreement for sale. He will also have to pay his share of registration charges, municipal taxes, maintenance charges, ground rent, electricity charges, water supply charges and any other services.
Once the occupancy certificate is issued by the real estate developer, the consumer is required to take possession within two months’ time.
If the consumer is not able to make timely payments for his purchase, he is required to pay interest at a prescribed rate.
It is compulsory for a consumer to exhibit active participation in the formation of an association, a cooperative society or any federation of consumers. A consumer shall participate towards registration of the conveyance deed of the unit.
It is compulsory for a consumer to exhibit active participation in the formation of an association, a cooperative society or any federation of consumers. A consumer shall participate towards registration of the conveyance deed of the unit.
An escrow account is under the purview of a third party essentially a bank or a recognised lender. This provision thereby results in further oversight of the bank account and signing authority is with the escrow account manager say a trustee or a bank or a lender. One of the biggest pain points for consumers has been project delays. Amongst other reasons for delay, the use of collections from one project into business expansion or construction of other project or siphoning of funds by real estate developers have also been primary causes. 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. Thereby this de-risks consumer to an extent that his payments to real estate developer are being channelized for the good of the project where he owns a unit/ units.
The Act mandates setting up of an Appellate tribunal by the appropriate government within one year of the Act coming into force. So RERA is the first body to approach in case of disputes and as per set of rules this body can establish the nature of violation and prescribe the penalty/ punishment. Any person aggrieved by the decisions of the RERA or an adjudicating officer can appeal to the Appellate Tribunal. This set up will fast track the process of dispute settlement since it minimises the involvement of the existing judicial system. A person can appeal in High Court if he is aggrieved by decision of the Appellate Tribunal however this isn’t allowed in cases where the decision was reached after consent of the disputing parties. The person has to approach High Court within 60 days of receiving the decision.
In this case, the state Government will appoint any other body as Appellate Tribunal that currently exists to hear the appeals in the interim. If in case the Appellate Tribunal is established during the course of hearing then the particular appeal will be transferred to the same under and will no longer be with the interim body.
The particular appeal will be transferred to the established Appellate Tribunal under the Act and will no longer be with the one which is temporarily appointed.
FAQS BY REAL ESTATE DEVELOPERS
In order to make the real estate developers more responsible and accountable towards consumers, the RERA has made the following compulsory for them-
It is mandatory for the real estate developer to register the project with the concerned RERA and obtain a valid registration number before going ahead with the project
Any kind of marketing, advertising or selling of units is strictly prohibited before the registration of the project
The real estate developer is required to submit all documents related to the project which are considered necessary by the RERA
The real estate developer must deposit 70% of the amount received from the consumers in an escrow account from time to time and ensure that the amount is solely used for the project for which it was taken Adhere to the project plan at all times
Refund the money taken from the consumers with applicable interest in case the project cannot be completed for some reason
Compensate the consumer for the time delay if any
To repair structural defects if any in the construction even after 5 years of handover of the project
The Act lists down roles and responsibilities of the real estate developer at project launch, construction and handover stages. In fact the Act goes a step further and makes the real estate developer accountable for the project quality upto 5 years after handover of the project. The Act has been drafted well to define various nuances of real estate sector such as - phase wise development, commencement certificate, occupancy certificate amongst others. Also in its spirit the Act puts an end to the practice of launches without approvals (sometimes referred as soft launch) thereby a consumer is guarded to that extent as a violating real estate developer will suffer revocation of registration, penalties and be listed on public portal as a defaulter.
Details of the project such as name, address, type, names and photographs of the Promoters etc
Details of project already launched by the real estate developer and their status (in the preceding 5 years) Approval and commencement certificates obtained from the competent authority for each phase of the project. To simply put in a multi phased development say a township the real estate developer will have to obtain registration for every phase of the entire project separately. This is to the benefit of both a consumer (will firmly know that no changes in the particular phase will be allowed now) and real estate developer (enjoys the flexibility of changing plans for future phases of the entire project)
Sanctioned plan and layout plan, development plan for the project and details of facilities being made available like drinking water, electricity etc Proforma of allotment letter, agreement for sale and conveyance deed to be signed with the consumers Number of garages and their respective areas which are for sale in project;
Location of the project with clear demarcation of the land dedicated for the project.
Number, type and carpet areas of units to be sold along with details of open areas if any like terraces, balconies etc
Details of associated engineers, contractors and architects and intermediaries in the project
A declaration stating that the land of the project is verified authenticated and the developer has a legal title to it, that the project will be completed within specified timeline and that 70% of money received from the consumers shall be deposited in a dedicated escrow account and this amount will be used solely for that particular project.
Details of project already launched by the real estate developer and their status (in the preceding 5 years) Approval and commencement certificates obtained from the competent authority for each phase of the project. To simply put in a multi phased development say a township the real estate developer will have to obtain registration for every phase of the entire project separately. This is to the benefit of both a consumer (will firmly know that no changes in the particular phase will be allowed now) and real estate developer (enjoys the flexibility of changing plans for future phases of the entire project)
Sanctioned plan and layout plan, development plan for the project and details of facilities being made available like drinking water, electricity etc Proforma of allotment letter, agreement for sale and conveyance deed to be signed with the consumers Number of garages and their respective areas which are for sale in project;
Location of the project with clear demarcation of the land dedicated for the project.
Number, type and carpet areas of units to be sold along with details of open areas if any like terraces, balconies etc
Details of associated engineers, contractors and architects and intermediaries in the project
A declaration stating that the land of the project is verified authenticated and the developer has a legal title to it, that the project will be completed within specified timeline and that 70% of money received from the consumers shall be deposited in a dedicated escrow account and this amount will be used solely for that particular project.