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.

Key provisions of RERA 

The promoter of a real estate development firm has to maintain a separate escrow account for each of their projects. A minimum 70 per cent of the money from investors and buyers will have to be deposited. This money 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 alterations that they made later. 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.

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.
  • 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.

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.

In the above case,

  • The RERA will debar the real estate developer from accessing the web portal for the project in which he has defaulted and list him under the defaulters
  • The RERA will also inform RERAs of other states and union territories
  • It will direct the bank to freeze the bank account for the particular project and consequently unfreeze it to facilitate further development of project
  • Can consult the appropriate Government to employ a competent authority to finish the project. The association of consumers have the first right to refuse any further developmental activities of the project
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.

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 prescribed in the Act. The Act thereby enacts a straightforward definition to be adopted across the country.

The RERA is required to either grant registration or reject the application within 30 days of its submission. On acceptance of application, the real estate developer is to be provided with a login id and password to access the RERA portal for submission of documents and details. If the application is not in conformation with the guidelines and RERA finds it worth rejecting, it is mandatory 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 is considered accepted and the project, successfully registered. The RERA is 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 thereby sets timelines on the regulator within which it has to respond to various requests.

The registration will be valid for a period specified by the real estate developer in the application form. Hence the real estate developer is accountable to adhere to timelines otherwise he risks suffering losses/ penalties.

The RERA, if it considers necessary, may extend the validity of registration in the event of a natural calamity like flood, drought, fire etc and also in case of a war. Basically only force majeure events are the ones where real estate developer can have some leeway of not delivering on time. However he is still required to make a presentation to RERA for seeking extension and pay applicable fee. Also such extension will be for a period of one year in aggregate.

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.

Every project measuring more than 500 square meters or more than eight apartments will have to be registered with the RERA.

Yes. A web based system will be made operational within one year of establishment of the RERA, for submission of details and documents by the real estate developer and this information can easily be accessed by consumers. It is for the first time that an initiative of this sort is coming into play whereby real estate developers have to make several declarations and comply with norms, while all such information is online for consumers to access.

Upon receiving a complaint against the real estate developer, the RERA can revoke registration if it is satisfied that the real estate developer has not complied to the rules and regulations stated under the Act or rules and regulations made thereunder, or has violated the terms and conditions of approval given by competent authority or is involved in unfair practices to sell, market or advertise his project.

The appeal made by the real estate developer will not be entertained by the Appellate Tribunal until he deposits 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.

No, RERA recognises both registration of property and 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 real estate developer. This provision thereby takes into account that there is lack of uniformity across various states of India i.e. in some places property registration takes place at time of purchase while in others only an agreement for sale is signed at 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. change to sanctioned plans, layout plans, and specifications of buildings or common areas can not 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 real estate developer has to specify the project completion time in the RERA application form. Hence, the real estate developer is accountable to follow the timelines otherwise, he will suffer losses/ penalties.

The Act recognises that a large land parcel or a township isn’t developed at one go. In fact real estate developers may want to change plans of the subsequent projects launched in the township. Thereby 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 not registered yet.

If the real estate developer violates the registration procedures prescribed by the Act, he will be required to pay up to 10% of the total estimated cost of the project in question. If found continuing the offence, the real estate developer will be punishable either with imprisonment (up to 3 years) or a fine which may extend up to a further 10% of the above project cost.

Yes, a developer can do so by taking written approval of 2/3rd of project’s consumers and also the prior approval of the RERA. If a consumer or his family holds more than one unit in the project then he/she will be considered as one consumer only.

The Act makes both the developers and the landlord or any such party which is beneficiary of a sale of a project and receive payments from consumers as real estate developers (Promoters), and are liable to adhere to the Act.

Firstly only registered real estate agents are supposed to function in the real estate business. Also the Act makes it mandatory on the real estate developer to make a declaration about the real estate agents, architects, structural engineers and similar parties to the RERA. And since this information is all available online a consumer can have access to it at all the time.

This is one big change coming through as a result of imposition of stricter guidelines for marketing and timing of marketing of projects. It has been seen that real estate developers use attractive marketing material including brochures, media advertisements and other forms to lure consumers. However several times there is a big disconnect between actual product and what is being shown in the marketing collateral. 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.

Yes, from the date of enactment of the Act the real estate developers will have to share information with the consumers on an on-going basis. This information includes - amount of sales concluded, progress of projects, receipt of pending approvals and other such declarations which are key to project delivery.