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Thursday, April 19, 2018

RERA: What it is; how it’ll affect builders, buyers, agents

Almost a decade after the idea was first mooted, the real estate regulatory Act came into force on Monday. The law is still not watertight, and faces resistance from powerful lobby groups. But it does give buyers certain guarantees and a grievance redressal mechanism.

Written by Shalini Nair | Updated: May 2, 2017 12:05:55 am
RERA, real estate, real estate regulation, new real estate laws, economy news, business news, indian express Underconstruction NRI residency at Greater Noida, on Dec 26th 2012. Express photo by RAVI KANOJIA

What is the status of RERA vis-à-vis the central and state and UT governments?

The Real Estate (Regulation and Development) Act, 2016, was passed by Parliament in March 2016, and a part of it came into effect on May 1, 2016. However, 32 significant sections of the legislation — from registration of ongoing projects to penalties for non-compliance — were not notified. This was because these required an institutional framework to be in place first. States were given a year to set up this framework — namely, the Regulatory Authority and the Appellate Tribunal. From May 1, 2017, the Act has come into force in its entirety. However, even now, of the 29 states and 7 Union Territories, only Madhya Pradesh has appointed a Regulatory Authority. Maharashtra, Kerala, Punjab, Rajasthan, Delhi, Haryana, Mizoram, Chandigarh and Andaman and Nicobar Islands have set up an interim Regulatory Authority, while the rest of the states and UTs are still in the processing of appointing one.

In October 2016, the Centre had notified the RERA Rules, which were applicable to all UTs that don’t have their own legislatures. The Rules were also meant to serve as the template for states to notify their Rules. But till date, only 14 states and UTs have notified their Rules; another 15 have prepared draft Rules. Sikkim, Arunachal Pradesh, Meghalaya and Nagaland have sought legal opinion due to issues arising out of community landholding patterns. There is no information on Goa, Manipur and West Bengal.

Why was there a need for such a law?

Data for 8 major cities from the real estate research agency Liases Foras show that over 80% of the 25 lakh-odd residential projects launched over the last 10 years have been delayed. A quarter of these were delayed by more than 4 years over the promised date of delivery. The National Capital Region-Delhi accounted for most delays, followed by the Mumbai Metropolitan Region. Ahmedabad, Kolkata, Pune, Bengaluru, Hyderabad and Chennai didn’t fare much better.

Homebuyers, at the receiving end of such delays, overcharging, and other fraudulent practices of real estate developers, have until now had no option but to watch their cases languish for years in the over-burdened consumer courts. Moreover, states have had obscure and varying definitions for terms such as carpet area, common areas, or car parking, leaving ample room for manipulation by developers. The new law provides for a series of safeguards to not only redress such situations, but to also pre-empt them.

At the level of the state, the Regulatory Authority and Appellate Tribunal must dispose of cases within 60 days. Appeals to the High court can be made within 60 days. The law attempts to end the non-transparency that characterises transactions, where agreements are often tilted in favour of developers. Builders of both new and ongoing projects (ones that have not received completion certificate) must mandatorily register their project with the Authority in the next 3 months. Real estate agents too have to register themselves with the Authority within 3 months.

What’s in it for the homebuyer?

RERA will be applicable to all proposed and ongoing residential and commercial realty projects over a minimum area of 500 sq m, or having 8 flats, including projects outside urban areas. Developers cannot even market the project without registering it with the Regulatory Authority; the registration can be revoked in case of violations. In such cases, the bank account of the project can be frozen, and the money used to complete the work.

Builders have to mandatorily disclose every detail of the project on the website of the Authority, and update them quarterly. Failure to do so can attract a penalty up to 10% of the estimated cost of the project. Repeat offenders can be fined an additional 10% of the project cost, or sent to jail for up to 3 years.

Real estate agents and brokers too have to be registered. Non-compliance with the orders of the Appellate Tribunal, by both brokers and property buyers, could attract a penalty up to 10% of the apartment cost and/or a jail term of 1 year. In the case of builders, the jail term may extend up to 3 years.

In case of deliberate delays, builders will have to pay the same rate of interest as they levy on defaulting buyers. The consent of two-thirds of buyers will be required for a builder to make changes to the original plan, even if the planning body sanctions the modifications.

What hurdles did the legislation face?

Attempts to stall or water down the Act were made from its inception, and state-level rules are yet to be issued in many cases. But many attempted dilutions were forestalled or reversed, thanks largely to constant vigil by consumer groups and nationwide homebuyers’ collectives such as Fight for RERA.

But the law was, indeed, diluted in some ways. For instance, to prevent the widely prevalent practice of developers diverting the bulk of sales proceeds to buy more land, the Bill had originally wanted builders to deposit 70% of the collections in a separate account, to be used solely for the purpose of construction. But before the Bill was placed in Parliament, the clause was tweaked to cover both land and construction costs.

Intense lobbying by the realty sector has resulted in several states issuing RERA Rules that in some cases effectively favour developers over homebuyers. Maharashtra’s Rules, for example, allow builders to sell open areas within a project as parking lots, a practice the Supreme Court had struck down.

Both Maharashtra and Madhya Pradesh allow builders of ongoing projects to submit details of only their last sanctioned plan, giving them scope to not reveal details of changes or delays with respect to the original plan and promise.

Rules issued by Gujarat exempt projects launched before November 2016 from the purview of the Act. Similar tinkering has been evident in Delhi (which comes under the union Urban Development Ministry), Uttar Pradesh, Haryana and Karnataka. Some of these were found to be in clear violation of the Act, leading to Union Housing Minister Venkaiah Naidu calling an urgent meeting of state housing secretaries and chief secretaries and directing them to issue Rules that are true to the spirit of the central Act.

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