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Context

• The 4th meeting of the Central Advisory Council (CAC) constituted under RERA under the Chairmanship of Minister of Housing & Urban Affairs was held.

What is RERA Act?

• RERA stands for Real Estate Regulatory Authority came into existence as per the Real Estate (Regulation and Development) Act, 2016 which aims to protect the home purchasers and also boosts the real estate investments.
• The bill of this Parliament of India Act was passed on 10 March 2016 by the Upper House (Rajya Sabha).
• The RERA Act was effective on and from 1 May 2016.
• At that time, out of 92 sections only 52 were notified. All the other provisions were effective on and from 1 May 2017.

Objectives

• For long, home buyers complained that real estate transactions were lopsided and heavily in favour of the developers. In India, RERA and the government’s model code, aim to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market.
• RERA, it is hoped, will make real estate purchase simpler, by bringing in better accountability and transparency, provided that states do not dilute the provisions and the spirit of the central act.
• The RERA will give the Indian real estate industry its first regulator. The Real Estate Act makes it mandatory for each state and union territory, to form its own regulator and frame the rules that will govern the functioning of the regulator.

It has the following objectives:

• To protect the interest of the allottees and ensure their responsibility
• To maintain transparency and reduce the chances of fraud
• To implement Pan-India standardization and bring about professionalism
• To enhance the flow of correct information between the home buyers and the sellers
• To impose greater responsibilities on both the builders and the investors
• To enhance the reliability of the sector and thereby increase confidence amongst the investors.

Some Points Under Real Estate Regulation and Development (RERA)

• Security: Under the RERA act, a minimum of 70% of the buyers’ and investors’ money will be kept in a separate account. This money will then be allotted to the builders only for construction and land related costs. Developers and builders cannot ask for more than 10% of the property’s cost as an advance payment before the sale agreement is signed.
• Transparency: Builders are supposed to submit the original documents for all projects they undertake. Builders are not supposed to make any changes to the plans without the consent of the buyer.
• Fairness: RERA has now instructed developers to sell properties based on carpet area and not super built up area. In the event that the project has been delayed, buyers are entitled to get back the entire money invested or they can choose to be invested and receive monthly investment on their money.
• Quality: The builder must rectify any issue faced by the buyer within 5 years of purchase. This issue must be rectified within 30 days of the complaint.
• Authorisation: A regulator cannot advertise, sell, build, invest, or book a plot without registering with the regulator. After registration, all the advertisement for investments should bear a unique project wise registration number provided by RERA.

Salient Features

RERA was established to enhance accountability and transparency with respect to housing transactions and real estate. Here are the salient features of this Act:

• Establishment of Real Estate Regulatory Authority in every Indian state in order to monitor as well as adjudicate and arbitrate any disputes with respect to real estate projects in the concerned state.
• Establishment of a fast-track mechanism for settlement of disputes. This will be done via an appellate tribunal and dedicated adjudicating officers.
• All real estate projects must be registered with RERA so that the authority will have jurisdiction over the projects. The registration of a particular project can be rejected by the authority if guidelines have not been adhered to.
• In case a promoter wishes to transfer or assign a majority of your rights and liabilities in a real estate project to a third party, written consent from two-thirds of the allottees will be needed in addition of the written approval of RERA.
• If there is any default from the side of the buyer or promoter, both will be liable to pay an equal rate of interest.
• If the promoter causes any losses to the buyer due to other people laying claim to property (defective title of land) which is under construction or has been constructed, the promoter will have to compensate the buyer. There is no limitation provided by any law currently with respect to the compensation amount.
• If a person has any problems regarding violation of the provisions or rules of this Act by a promoter, buyer, or an agent, they can file a complaint with RERA.
• While an enquiry is taking place, RERA can stop an agent, promoter, or buyer from continuing any activity against which a complaint has been raised.
• If any of RERA’s decisions regarding a complaint is not satisfactory, the aggrieved party can submit an appeal before the Appellate Tribunal.
• If the promoter fails to follow RERA’s orders, they will have to pay a penalty. This amount could be up to 5% of the evaluated cost of the property.
• If the Appellate Tribunal’s orders are not complied with, a penalty will have to be paid. This can either be imprisonment for up to 3 years or a fine (up to 10% of the approximate cost of the project), or both.
• If a company commits an offence under this ACT, any person who was in charge of the business at the time of the offence being committed and the company will be held guilty and will be punished.
• No civil court will have any jurisdiction with respect to any matter that comes under RERA or the Appellate Tribunal’s jurisdiction. As such, no court can grant an injunction with regards to any action taken by RERA or the Tribunal.

Benefits of RERA

RERA has a number of benefits for the buyer, the promoter, and the real estate agent. These include:

• Standardisation of carpet area: Before RERA the manner by which a builder calculated the price of a project wasn’t defined. However, with RERA there is now a standard formula that is used to calculate carpet area. This way, promoters cannot provide inflated carpet areas to increase prices.
• Reducing the risk of insolvency of the builder: Most promoters and developers tend to have multiple projects being developed at the same time. Earlier, developers were allowed to move funds raised from one project to that of another. This is not possible with RERA since 70% of the funds raised need to be deposited in a separate bank account. These funds can be withdrawn only after certification by an engineer, a chartered accountant, and an architect.
• Advance payment: As per the rules, a builder cannot take more than 10% of the cost of the project from the buyer as advance or application fees. This saves the buyer from having to source funds fast and having to pay a large amount.
• Rights to the buyer in case of any defects: Within 5 years of possession, if there is any structural defects or problems in quality, the builder has to rectify these damages within 30 days at no cost to the buyer.
• Interest to be paid in case of default: Prior to RERA, if the promoter delayed possession of the property, the interest paid to the buyer was much lower than if the buyer delayed payments to the promoter. This has changed with RERA and both parties have to pay the same amount of interest.
• Buyer’s rights in case of false promises: If there is a mismatch in terms of what was promised by the builder and what has been delivered, the buyer is entitled to a full refund of the amount that was paid as advance. At times, the builder may have to provide interest on the amount as well.
• If defect in title: If at the time of possession, the buyer discovers that there is a defect in the title of the property, the buyer can claim compensation from the promotor. There is no limit to this amount.
• Right to information: The buyer has the right to know all the information about the project. This includes plans related to layout, execution, and completion status.
• Grievance Redressal: If the buyer, the promoter, or the agent has any complaints with respect to the project, they can file a complaint with RERA. If they aren’t pleased with RERA’s decision, a complaint can also be filed with the Appellate Tribunal.

Impact of RERA Act

After the Real Estate (Regulation and Development) Act, 2016 enforcement, registration of sale deed of a project unit cannot be done in the office of the sub-registrar without obtaining Occupancy Certificates or Completion Certificates. At present, unit registrations are taking place without checking. It is occurring without obtaining Occupancy Certificates or Completion Certificates. No one is bothered about the legal consequences. The Department of Stamps & Registrations know about the RERA Act implications but they have not taken necessary steps to stop the unlawful sale deed registrations of such properties. Below are the few impacts:

• Fewer project will be launched as the promoters and builders will spend time to understand the impact of the Real Estate (Regulation and Development) Act, 2016. However, the honest promoters / builders / developers will benefit from this scenario as they will face lesser competition.
• Dishonest builders will disappear as they will fail to sustain in the market after the RERA Act is implemented.
• The 32 sections that have been added to the Real Estate (Regulation and Development) Act, 2016 will encourage a financial discipline in this sector.
• After the Act implementation, the developers will have to follow several formalities if they wish to make certain changes to the project after its commencement. A short-term chaos might break out in the real estate industry but in the long run, it will boost the confidence of the customers and they will invest more.

Carpet Area Defined Under RERA Act

The Real Estate (Regulation and Development) Act, 2016 has mandated the developers on how to sell their apartments depending on the carpet area.

• According to the Act, carpet area is the total area of the floor that can be used within the walls of the apartment. This does not include areas like open terrace, shafts, balconies, etc.
• This normalization of the carpet area definition will ensure that buyers are not mislead by the unlawful promoters.

As the loading factor is high, the saleable area can be inflated by the developer. This will allow the developer to reduce rate per square feet on the saleable area that is inflated. This is extremely misleading as the home purchasers get happy assuming that they are getting amazing rates. However, the flat size never changes, only the loading factor does.

Using the standard for carpet area will ensure that there is a certainty on the usable area. This also helps in the analysis of cost per square feet. Comparison between the different projects also becomes easier.

How to Ensure that the Property is RERA Compliant?

Things that must be considered to understand if a property is RERA compliant are mentioned below:

• If the area of the property is more than 500 square meters, the builders should register it under RERA Act before launching or advertising a project on that particular property.
• Builders must provide proof that 70% of the total payment has been deposited by them into a discrete escrow account instead of using it for some other investment.
• Builders must get all the necessary consents before advertising a new project. Discounts for early bird bookings and pre-launch offers will not be there anymore.

Penalties Under RERA

For Buyers

Offence	Penalty
Non-compliance with RERA	Daily penalty up to 5% of the approximate cost of the project
Non-compliance with the Appellate Tribunal	Imprisonment up to 1 year or 10% of the approximate cost of the project, or both

For Promoters

Offence	Penalty
Non-registration	10% of the project’s estimated cost
Giving false information	5% of the project’s estimated cost
Violation of laws	Up to 3 years’ imprisonment or a fine of 10% of the estimated cost of the property, or both

For Agents

Offence	Penalty
Non-registration of projects	Rs.10,000 per day up to 5% of the approximate cost of the project
Non-compliance with RERA	Daily penalty up to 5% of the project’s estimated value
Non-compliance with the Appellate Tribunal	Imprisonment up to 1 year or 10% of the project’s estimated cost, or both

Applicable penalties under RERA

Under the Real Estate (Regulation and Development) Act, 2016 (RERA), there are certain offences for which applicable penalties are imposed. Listed below are certain offences for which penalties are imposed under applicable sections:

Offence	Applicable Section	Applicable penalties
Breach of terms for which registration is obtained Securing registration through fraud or misrepresentation	Section 9 (7)	Cancellation of registration number of the agent.
Violation of orders of Appellate tribunal	Section 66	Jail term of up to 1 year or with fine up to 10 percent of cost of unit sold.
Violation of Section 9 and 10 of the RERA Act	Section 62	Fine of Rs.10,000 per day during which the default continues extending up to 5 percent of cost of unit sold.
Violation of orders of RERA authorities	Section 65	Fine up to 5 percent of the cost of unit sold.

In a nutshell,

• RERA can bring a lot of relief to homebuyers as the buyer’s interest is protected under various circumstances. Also, the builders will be accountable for the timely delivery of projects.
• In case of any default in payment by the buyer or delay in completion of the project by the builder then the rate of interest that needs to be paid shall be the same for both parties.
• If the project gets delayed, the homebuyers are entitled to get back their entire investment with interest (as specified by the authority). However, if the homebuyer chooses to stay invested then the builder has to pay an interest for each month of delay till the final handover of the project.
• If there is any violation of law, the authority has various powers to impose penalties on errant builders.
• According to RERA, a buyer can file a complaint against the builder for any form of violation by the builder. The Appellate Tribunal has to resolve the complaint within the stipulated time of 60 days from the date of receipt of the complaint.
• RERA reduces the risk of builder insolvency because the builder has to deposit 70 per cent of the buyers’ money in an escrow account, which will be utilised for construction of the project. As a result, the funds can neither be diverted nor can they be used for any other purpose.
• RERA eliminates unscrupulous builders, protects buyers from fraudulent sellers and ensures safety of the homebuyers’ Therefore, the real-estate industry will only include genuine and honest builders, who will engage in good-quality construction of projects.
• Since the selling of projects is done ethically on the basis of carpet area, the buyer gets what they have paid for.

PRACTICE QUESTION Q. For long, home buyers complained that real estate transactions were lopsided and heavily in favour of the developers. But now, RERA is hoped to make real estate purchase simpler, by bringing in better accountability and transparency. Throw light on the important provisions of the RERA Act. How will RERA help in curbing malpractice in the real-estate sector?

https://pib.gov.in/PressReleasePage.aspx?PRID=1922862