The real estate sector in India has witnessed several changes since the Indian economic growth had picked up pace in the early 2000’s. Furthermore, migration into key urban centers, increase in the disposable incomes and foreign investments steered demand for all forms of real estate in the country. Another emerging trend that has been observed is that the average age of home buyers has seen a reduction and the use of mortgage for purchase of property has surged. While the real estate sector continued to develop, the need for reforms and institutionalization had been felt for long. This was fuelled by increased litigations and consumer discontent with the practices prevalent across the industry. The need for regulations and uniform guidelines had also been felt by the industry which was continuously perceived negatively by consumers because of unscrupulous activities of a few. There wasn’t a better time to introduce the Real Estate (Regulations and Development) Act as the Indian Government is focusing on - housing for all, smart cities and infrastructural development, fulfillment of these goals will require enablers such as the act.
The Act makes way for empowering all the stakeholders engaged in the trade and consumption of real estate, be it – consumers, developers or intermediaries amongst others. An important point to note here is that the Act doesn’t cover the rental arrangements and agreements in any form. However all commercial and residential real estate including plots, apartments, shops, offices and other such offerings are all covered under the Act. While consumer interest seems to have been finally addressed by the adoption of the Act, it can’t be ignored that the regulators have codified best trade practices for the first time in this sector and these will go a long way in spearheading the nation’s growth. A few of the comprehensive themes in the Act are following –
With the Government at the centre expounding roles and responsibilities of real estate developers, it would be hard to deny that real estate is a state subject i.e. it falls under the concurrent list as per the Indian Constitution. Therefore, implementing the Act may be subject to a number of hurdles. The Real Estate Regulations and Development Act, 2016 is a much needed framework that will not only empower the consumer but also make the industry more competitive and organized.
Following is a list of prudently conceived FAQs after a complete understanding of the Act and its implications on the various stakeholders.
The Real Estate (Regulation and Development) Act, 2016 (the Act, from here on) is an initiative by the Government of India to bring about transparency and order to the real estate transactions by creating a systematic & a uniform regulatory environment, thereby safeguarding consumer interests and making real estate developers accountable for timely completion of projects. The Act makes way for setting up of Real Estate Regulatory Authority for regulation and promotion of real estate sector while promoting transparency and equity in real estate transactions.
The Bill was drafted in the year 2013 and has undergone a series of changes since then. The Amendments to the Bill were approved in April 2015. After much delay the Bill was passed by the Rajya Sabha and Lok Sabha on 10th March 2016 and 15th March 2016 respectively. It received the Presidential nod on 25th March, 2016.
Real estate sector is supposedly one of the largest contributors to the economy and amongst the largest employers too. However real estate transactions in the country have largely been a cumbersome and ambiguous affair for consumers. Real estate developers have been found to violate prudential norms of conducting business which has further resulted in litigations and disputes. In worst cases consumers have been handed over poor quality units which at times can also be a hazard. The need for the clean-up of this system was being felt for long.
The first and foremost of these was to hold real estate developers in equity with consumers and make them accountable for delivery and quality of the undertaken projects.
RERAs will have an oversight on the real estate transactions and promote timely completion of projects and bring about transparency in all proceedings related to the sale, construction and handover of projects.
The Act brings all participants - consumer, real estate developers and intermediaries under the purview of the RERA. Various disputes pertaining to these parties will be handled by the RERA. The Act elucidates the liabilities of every participant and the penalties to be awarded in case of violations.
RERA will also maintain a web portal which will host all the relevant information a consumer requires from a real estate developer including - details of land titles, project approvals, construction progress, names of intermediaries, contractors etc.
RERA therefore becomes a body which can be approached during disputes arising out of real estate transactions and contracts. It will have the power to impose penalties and punishments as set out under the Act.
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. Furthermore, there will be a dedicated Appellate Tribunal set up for RERAs to hear appeals from orders of the RERAs and the adjudicating officers.
It is tough to answer this question with certainty at this juncture. However upon gathering more information we realized that it facilitates an environment whereby the real estate sector becomes more competitive and institutionalized. Through the Act, the Government is also recommending local bodies that they should adopt single window clearance systems for real estate projects so as to fast track their development. While one can argue that real estate developer’s work will increase due to the compliances they will need to adhere to, it is also possible that the Government may bring forth an environment which is easier for this sector to thrive in.
In order to make the real estate developers more responsible and accountable towards consumers, the RERA has made the following rules 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.
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.
Some important records to be produced by real estate developers are:
Carpet area is a measure of the net usable area of the unit and does not include common areas, balconies, verandahs etc. Whereas, the super built up area is an addition of both. Therefore, to ensure that the consumers know what they are paying for, it has been made mandatory for the real estate developers to specify the carpet area. Essentially, Carpet Area is the area within the walls of a unit where a consumer can reside or have their office. Even when the balconies, verandahs or terraces are exclusively available within a unit these cannot be added to the Carpet Area prescribed in the Act. The Act thereby enacts a straightforward definition to be adopted across the country.
The RERA will be required to either grant the registration or reject the application within 30 days of its submission. On acceptance of the application, the real estate developer is to be provided with a login id and password to access the RERA portal for submission of detailed documents. If the application is not in conformation with the guidelines and RERA finds it worth rejecting, it is binding that the applicant be heard in the matter before rejection. This is a welcome change being brought through the Act that information pertaining to real estate projects will go online and regulators won’t even allow marketing of projects that are not registered with the RERA.
In this case, the application will be considered accepted and the project, successfully registered. The RERA will be mandated to provide the applicant a login id and password for its web portal within 7 days of expiry of the said period of thirty days. The Act therefore sets timelines on the regulator within which they have to respond to several requests.
The registration will be valid for a period specified by the real estate developers in the application form. Hence the real estate developers are accountable to adhere to timelines otherwise they risk bearing losses/penalties.
Registration can be extended only in the case of natural calamities like, floods, drought, fire etc. or in the case of a war. Such extensions, if applied for by the builder/developer, will be for a period of one year only.
Yes. If the project in question meets the criterion for registration (as defined ahead), the application for the same has to be submitted within 3 months of commencement of the Act.
Only projects which are still under construction at the time of enactment of the Act and any new project thereon are under the purview of the RERA, provided- they are developed on an area of more than 500 sq meter or which have more than 8 units in all phases combined. Essentially, almost all large projects which have not obtained completion certificate will immediately come under the purview of the Act. Therefore consumers of under construction project can seek protection under the Act. While the central government provides for these minimum area requirements, the local governments can change the area requirements to conform to the Act, if required such minimum area threshold can be revised or even lowered.
Yes. There will be a web based system operational within one year of establishment of the RERA, specifically for submission of details and documents by the real estate developers. This information can then easily be accessed by consumers. It is for the first time that an initiative of this magnitude is coming into effect where real estate developers have to make several declarations and comply with stringent norms, while all such information is online for consumers to access.
A registration can be revoked upon receiving a complaint against the real estate developer, if RERA is satisfied that the real estate developer has not complied to the rules and regulations stated under the Act, or has violated the terms and conditions of approval given by competent authorities or bears involvement in unfair practices to sell, market or advertise their projects.
The appeal made by the real estate developer will not be entertained by the Appellate Tribunal until they deposit 30% or higher of the penalty which would be decided in case of no appeal or the total amount to be paid to the consumer (which includes interest as well as the compensation to be paid) with the Appellate Tribunal.
RERA recognizes both registration of property and the registration of agreement for sale. In fact the Act mandates that an agreement for sale needs to be registered once 10% of the contracted amount is collected from a consumer by the real estate developer. This provision thereby takes into account that there is a lack of uniformity across the various states of India i.e. in some places property registration takes place at the time of purchase while in others only an agreement for sale is signed at the time of purchase.
The Act takes into account 2 scenarios –
Minor changes - Minor changes can be made to a unit plan (which includes plans, fixtures, fittings etc) after proper declaration and intimation to the customer and certification by an architect or an engineer that such changes are required for architectural and structural reasons. Such minor changes are also allowed which are requested by a consumer. But these do not include changes in area or height, or removal of part of a building or any such change which the authority feels materially deviates from the product offering.
Any other change i.e. changes to sanctioned plans, layout plans, and specifications of buildings or common areas cannot be brought about without consent of at least 2/3rd of consumers of the project. The consenting consumers do not include real estate developer who might still own units in the project. In fact for the purposes of this clause the Act counts all such consumers who might own several units in a project through direct and indirect ownership (company, HUF and family) as one irrespective of the number of units held.
The Act recognizes that a large land parcel or a township isn’t developed in one go. In fact real estate developers may want to change plans of the subsequent projects launched in the township frequently. Therefore the Act permits the real estate developers to register their projects in a phase wise manner as separate projects. Hence a real estate developer is then allowed to make changes in future to the phases that aren’t registered yet.
If the real estate developers violate the registration procedures prescribed by the Act, they will be required to pay up to 10% of the total estimated cost of the project in question. If found repeating the offence, the real estate developer will be penalized either with imprisonment (up to 3 years) or a fine which may extend up to a further 10% of the above project cost.
The Act makes both the developers and the landlords or any such party which is a beneficiary of sale of a project and receives payments from consumers as real estate developers (Promoters), and is liable to adhere to the Act.
It’s important that only registered real estate agents function in the real estate business. The act also makes it mandatory for the real estate developers to make a declaration about the real estate agents, architects, structural engineers and similar parties to the RERA. Since this information is easily available online, a consumer can have access to it at all the time.
All marketing collaterals are also to be uploaded on the RERA site by the builder / developer, post registration. 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. In case of any future dispute, the same can be easily referred to or produced as evidence.
Yes, from the date of enactment of the Act the real estate developers will be liable to share information with the consumers on an on-going basis. This information includes –the amount of sales concluded, the progress of the project, receipt for pending approvals and other such declarations which are important for project delivery.
While a developer is allowed to sell the project to another investor he can do so only by taking written approval of 2/3rd of project’s consumers and also the prior approval of the RERA. Again if a consumer or his family or by other means holds more than one unit in a project he is considered as one consumer only. Also the RERA need to be informed of such sale and incoming party then assumes all the rights and liabilities as the previous promoter of the project (including project delivery timelines and other such matters).
Some of the important measures that are taken with a view to empower the consumers are as follows:
Also, the consumers will have to be updated about important developments such as project progress &sales and construction status by the real estate developer.
Some duties & responsibilities of a consumer are as follows:
A consumer may be required to participate towards the registration of conveyance deed of the unit.
An escrow account is under the purview of a third party, essentially a bank or a recognized lender. This provision thereby results in further oversight of the bank account and signing authority is with the escrow account manager. One of the biggest concerns for consumers has been project delays. Amongst many 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 been observed as one of the causative factors. Therefore to protect the consumers of a project, the Act mandates that of the total collections gathered, 70% funds are to be deposited in an escrow account maintained with a scheduled commercial bank. These funds can be accessed by a real estate developer only for the purpose of construction of the concerned project. The real estate developer can withdraw funds from this account in accordance with the stage of work. Any request for the withdrawal of funds must be certified by an engineer, architect and a chartered accountant in practice stating justification for the real estate developer’s claims. This reduces the risk borne by the consumers to an extent that their payments to the real estate developers are being channelized for the good of the project.
The Act mandates setting up an Appellate tribunal by the state governments within one year of the Act coming into force. This means that RERA is the first body to approach in case of disputes and as per a pre determined 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.
A person can appeal in the High Court if he is aggrieved by the 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.
The appropriate Government will be required to appoint any other body as an Appellate Tribunal that currently exists to hear the appeals in the interim.
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.
In the aforementioned case,