RERA: Boosting Transparency in Indian Real Estate
Updated: Sep 3, 2019
After years of searing political bickering, the parliament finally cleared the way for a series of key legislation including the much awaited Real Estate (Regulation and Development) Act, 2016. The Act aims to boost investments in the real estate industry by bringing greater transparency and protecting consumer interests.
The bill was passed in both the Houses of Parliament in March 2016 and soon after given assent by the President. The state governments which have been given a deadline of one year for implementation will now have to frame rules for the Act and constitute the state RERAs- the regulatory body with which developers have to register their projects.
The following are some of the salient features of the law touted as a key reform in real estate sector
i) This law regulates both residential and commercial real estate. It seeks to set up Real Estate Regulatory Authorities in states and union territories to oversee real estate transactions. The state level RERAs will act as the government body to be approached for grievances against any builder.
ii) This Real Estate Act makes it mandatory for all commercial and residential projects with more than 500 square meters, or eight flats to be registered with the designated Regulatory Authority. It requires real estate developers to disclose all project details such as project plan, layout, land title status, approvals, schedule for completion, along with details of sub-contractors, agents, architects etc. All these details shall be posted on the website of RERA. All real estate agents also need to register with the state RERAs and make requisite disclosures.
iii) It aims to facilitate speedier dispute resolution through adjudicating officers and Appellate Tribunal. To ensure swifter resolution of grievance, a timeline of 60 days is defined for both- adjudication of cases and disposal of complaints by the Regulatory Authorities.
iv) The Act mandates the builders to set aside 70% of the project funds collected from buyers in a separate escrow account and must be used for completion of that project only. This will ensure that the developers are unable to divert the proceeds from booking money in one project to alternatives, thus delaying completion and handover to consumers.
v) The Real Estate Regulation Act clearly defines ‘carpet area’ and prohibits selling real estate projects on the basis of ambiguous ‘super built up area’. Moreover, the developer cannot make any changes to the plan as agreed with the buyer without the written consent of buyer. This will prevent the unfair practice of untimely increase in cost of projects.
vi) The law shall ensure that any delay in project completion will make the developer liable to pay a penalty at the same rate as paid by buyer in case of delayed payment. Also, builders will now be liable for structural defects for five years as against two years currently. Additionally the buyer may contact the developer in writing within one year of possession in case any deficiency in project is noticed.
vii) In case of non-compliance with the provisions of the Act or violation of orders of Appellate Tribunal, the law stipulates imprisonment of up to three years for promoters and one year for real estate agents with or without penalty.
Given the provisions of its law, RERA would certainly lead to higher disclosures related to real estate projects. However, industry players feels, the government should fix accountability of all stakeholders, including government authorities and local city administration. Developers are concerned they might be penalized for delays in project execution, even if it is due to delayed government approvals. The authorities responsible for granting licenses, permits and approvals, should also be brought under the ambit of this law and made accountable for undue delays in project approvals.
Besides, the effectiveness of the Act may be subject to will power of the state governments to enforce this new law. Selection of regulator and timely implementation by each state government will be key issues in determining success.
Overall, the passage of Real Estate (Regulation and Development Act) is a step in the right direction and will help lift overall sentiment in Indian Real Estate sector. In an environment where buyers have low trust in under-construction properties because of lack of transparency and delays in delivery, this law will help bring in clear accountability for developers and lead to greater optimism for buyers.