Real Estate Regulation Act 2016

The Real Estate (Regulation and Development) Act, 2016 (RERA) finally gave India’s real estate sector its first regulator on, May 1, 2016. The act was passed by parliament in 2015 and the Union Ministry of Housing and Urban Poverty Alleviation had given time till May 1, 2017, to create and notify rules for the operating of the regulator. RERA seeks to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on lawbreaking builders.

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 had notified rules and a regulator started functioning. Some of these states are Haryana, Uttar Pradesh and Maharashtra and Madhya Pradesh.

Despite seeing a plunge in the past three years, the ticket prices went comparatively high and inventories were piling up. Low demand was also a major reason for 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 Consumers. The reasons are many and the influence is huge. Since the last 10 to 15 years, many projects have seen delays of up to 7 or more years. Projects launched after the turn of this tenure have faced delays as well. Some have run into hurdles even before a brick was laid. The reasons include deflection of financial sources to other projects, changes in rules and regulations by authorities, the environment ministry, National Green Tribunal etc and other Government bodies like those involved in infrastructure development and governing transport. In many places, land acquisition becomes an issue. Lawbreaking builders often sell projects to investors without the approval of proper plans, unauthorised increase in FAR, poor quality of construction, projects stuck in legal disputes etc.

The promoter of a real estate development company has to maintain a separate escrow account for each of their projects. A minimum 70% of the funds from investors and buyers will have to be submitted. These funds can only be used for the construction of the project and the cost borne towards the land. To provide clarity to buyers, developers will have to keep them informed of their other ongoing projects.

RERA requires builders to submit the original approved plans for their ongoing projects and the changes that they made in the future. They also have to furnish details of revenue collected from allottees, how the funds were utilised, the timeline for construction, completion, and delivery that will need to be certified by an Engineer/Architect/practicing Chartered Accountant. It will be the responsibility of each state regulator to register real estate projects and real estate agents operating in their state under RERA. The details of all registered projects will be put up on a website for public access.

RERA talks about the quality of construction in projects. Over the last few years, buyers have protested about poor of flats. The regulator will ensure protection to buyers in this matter for five years from the date of possession. If any issue is highlighted by buyers in front of the regulator in this period including in quality of construction and the provision of services, the developer will have to rectify the same in a matter of 30 days. Developers can’t invite, advertise, sell, offer, market or book any plot, apartment, house, building, investment in projects, without first registering it with the regulatory authority. Furthermore, after registration, all the advertisement inviting investment will have to bear the unique RERA registration number. The registration no. will be provided project-wise.

After registering the project, developers will have to furnish details of their financial statements, legal title deed and supporting documents. If the promoter defaults on delivery within the agreed deadline, they will be required to return the entire money invested by the buyers along with the pre-agreed interest rate mentioned in the contract based on the model contract given by RERA. If the buyer chooses not to take the money back, the builder will have to pay monthly interest on each delay month to the buyer till they get delivery.

After developers register with the regulator, a page will be created for the builder on the regulatory authority’s website. The developer will be given login credentials using which it will upload all the information regarding the registered projects on the regulator’s website. The number, type of apartments, plots and projects and their completion status will be updated at a maximum quarterly basis.

To add further security to buyers, RERA mandates that developers can’t ask more than 10 per cent of the property’s cost as an advanced payment booking amount before actually signing a registered sale agreement. The regulator will have the power to fine and imprison errant builders based on a case by case basis. The imprisonment can go up to a period of three years for a project.