The Real Estate (Regulation and Development)
Act, 2016 (‘Act’) which has received the President assent has given a long way
to the Real Estate Industry to grow. The Act has given standardization norms
for buyers as well as for developers which in return will be able to create a
governed business practices in the Real estate Industry.
Need for Establishment of the Act:
The Act has been formed to establish a Regulator
in the form Real Estate Regulatory Authority (RERA) which can keep an eye and
regulate all the norms that shall be applicable on the Real Estate Industry.
Further, the authority shall ensure sale of plot, apartment or building as the
case may be, or sale of real estate project, in an efficient and transparent
manner and also to protect the interest of the consumers in real estate sector.
The Act also lay emphasis on establishing adjudicating mechanism for speedy
dispute redressal and also to establish the Appellate Tribunal to hear appeals
from the decisions, directions or orders of the RERA and the adjudicating
officer and for matters connected therewith or incidental thereto.
The basic aim of the Act is to protect the
buyers by providing a framework for reducing conflict with developers by RERA
keeping a watch as the Real Estate Sector was unorganized and unregulated thus
to rectify the alleged problem, a new set of norms, registrations, regulations
and clearances are being created.
Brief Overview of the Act
The Act overall covers various provisions in
order to address the weak areas of the Real Estate Industry in India,
principally by establishing a disclosure framework and setting strict
liabilities for developers and promoters irregularities.
(Regulation and Development) Act, 2016 established to regulate and keep an eye
on all the norms applicable on real estate industry – setting up of RERA and
real estate appellate tribunals.”
The Act lays down the setting up of RERA and
real estate appellate tribunals in all states and Union Territories (except
Jammu & Kashmir) within one year of its notification.
The Act provides for the mandatory registration
of real estate projects with RERA where the total area of land proposed to be
developed exceeds 500 square meters or more than eight apartments are proposed
to be developed inclusive of all phases (where phase-wise development is
proposed). It also mandates the registration of every phase of the project
separately as a Standalone project and the projects cannot be advertised,
booked or sold in any form prior to registration and obtaining necessary
construction approvals. The RERA have to either grant or reject the
registration applications within 30 days of the receiving of the application.
“Act to provide
mandatory registration of real estate projects with RERA where the total area
of land proposed to be developed exceeds 500 square meters or more than eight
apartments are proposed to be developed inclusive of all phases.
Project disclosures to be
made, defining of terms apartment, carpet area and rate of interest.
promoters are mandated to park
70% of all project receivables in a separate account”
Further, the promoters/developers of the ongoing
project for which the completion certificate is not yet issued shall make an
application to the RERA for registration of the said project within three
months from the date of the commencement of the Act.
Under the Act it is being mandated to provide
the publicly accessible disclosures of the project and promoter details,
alongwith a self-declared timeline within which the promoter is required to
complete the project. Quarterly project related disclosures also required and
all the disclosures are required to be made online available.
The Act clearly defines certain terms such as
‘apartment’, ‘carpet area’ and ‘rate of interest’ which will help in standardizing
sector practices. Also to further streamline the fund position, the promoters
are mandated to park 70% of all project receivables in a separate account.
Drawdown from such account is permitted for land and construction costs only,
in line with the percentage of project completion (as certified by an
architect, an engineer and a chartered accountant). The Act also provides that
the promoter can accept only upto 10% of the apartment cost prior to entering
into a written agreement for sale with the consumer.
The Act also mandates that the promoter shall
declare that it has legal title to the project land or authenticate validity of
title, if such land is owned by another person. The promoter is also required
to take insurance for title and buildings along with construction insurance.
In furtherance to the restrictions imposed on
promoter in the Act, the promoter is not permitted to alter the plans,
structural designs and specifications of the land, apartment or building
without prior consent of two-third of the allottees. Also the promoter is not
allowed to transfer or assign majority of its rights and liabilities in a
project without such consent, along with RERA’s written approval.
In order to ease out the
understanding for the consumers/buyers, the Act provides for the specified form
of agreement for sale between promoters and consumers as may be prescribed,
which shall prevent inclusion of biased provisions in it.
The consumers have also been granted the right to seek relief for unilateral
termination of such agreements by promoters without cause. The promoter shall
be held responsible for such defects or other deficiencies for a period of 5
years from the date of delivery of possession.
The Act also ensures the registration of Real
Estate Agents with RERA and makes prohibition for agents from facilitating any
sale or purchase of plots/apartments in projects without obtaining registration
with RERA. The agents are required to facilitate access of project information
to consumers at the time of booking and refrain from making false statements,
misleading representations and indulging in unfair trade practices.
Legal recourse is also clearly provided in the
Act for the consumers. The Act provides for the time bound steadfastness of
complaints and disputes by the RERA’s and the Real Estate Appellate Tribunals.
It is evidently cited in the Act for refund of amounts paid by the consumers
(alongwith the interest and compensation) for promoter’s failure to give
possession of the apartment in accordance with the agreement for sale, or any
breach of such agreement.
For the existing projects which have not yet
received the completion certificate as on the date of commencement of this Act,
will be required to obtain registration with RERA within three months of such commencement.
The Act imposes monetary penalties on the
promoter of up to 5% of the ‘estimated cost of the project’ (as determined by
RERA) for disclosure related defaults, and up to 10% for other defaults, along
with a maximum imprisonment of 3 years. The Consumers are also liable to a fine
of up to 10% of the apartment cost or imprisonment up to 1 year for
non-compliance with orders of the real estate appellate tribunal.
All the existing laws are being repealed and the
Real Estate (Regulation and Development) Act, 2016 will have overriding effect
on the conflicting State Laws.
Limitations of the Act
Though the Act has tried to stream line the
various loopholes of the Real estate industry but the Act still shows certain
deficiencies which will directly indirectly affect both the consumer and
promoter. It is likely that the regulatory burden will be enhanced and increase
in cost of capital and compliance.
barring the act – no single window clearance approval, prior approval for
project launch, does not establishes a definite title system for land.
Act lays down
the strict penalties, including imprisonment, for developers if they slip up,
there is no such provision in the Act to make government authorities, entrusted
to oversee and enforce regulations, more accountable.”
The Act provides for prior
approval for project launch, instead of certain specific approvals as
previously required, which may delay the project initiation and will restrict
the supply of new properties. There is no concept of single window clearance
approval system, which could further delay the projects and the act does not assign
liability of project delays attributable to state agencies.
Apart from the above mentioned limitation, the
Act does not establishes a definite title system for land. The Act is a
standard-setting instrument for the real estate sector and performs the
critical task of identifying and allocating risks associated with construction
and development projects. The current approach of the Act is to uniformly regulate
different types and sizes of projects and its implementation will require
significant capacity building at the state-level. The Act disrupts existing
sector practices to raise efficiency of the real estate market and is likely to
benefit all stakeholders by imposing financial and operational discipline,
accountability and diligence. As the Act lays down the strict penalties,
including imprisonment, for developers if they slip up, there is no such
provision in the Act to make government authorities, entrusted to oversee and
enforce regulations, more accountable.