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.
Team Jaghey
www.jaghey.com
