RERA is a short form of – The Real Estate (Regulation Development) Act, 2016. The Act aims at protecting the home purchasers and also boosts the real estate investments.
The Act would regulate the real estate sector that involves over 76,000 companies and is expected to trigger a “new era” of transparency and efficiency for both the buyers and developers.
The absence of a proper regulator (like the Securities Exchange Board of India for the capital markets) in the real estate sector, was long felt. The Act establishes Real Estate Regulatory Authority in each state and union territory. Its functions include protection of the interests of the stakeholders, accumulating data at a designated repository and creating a robust grievance redressal system. To prevent time lags, the authority has been mandated to dispose applications within a maximum period of 60 days; and the same may be extended only if a reason is recorded for the delay. Further, the Real Estate Appellate Authority (REAT) shall be the appropriate forum for appeals.
What is the Real Estate Regulatory Act?
The Real Estate (Regulation and Development) Act, 2016 (RERA) is an Act passed by the Indian Parliament. The RERA seeks to protect the interests of home buyers and also boost investments in the real estate sector. The Rajya Sabha passed the RERA bill on March 10, 2016, followed by the Lok Sabha on March 15, 2016 and it came into force from May 1, 2016. 59 of its 92 sections were notified on May 1, 2016 and the remaining provisions came into force from May 1, 2017. Under the Act, the central and state governments, are required to notify their own rules under the Act, six months, on the basis of the model rules framed under the central Act.
Why RERA?
For long, home buyers have complained that real estate transactions were lopsided and heavily in favour of the developers. 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.
Salient Features of 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.
Compulsory registration: According to the central act, every real estate project (where the total area to be developed exceeds 500 sq mtrs or more than 8 apartments is proposed to be developed in any phase), must be registered with its respective state’s RERA. Existing projects where the completion certificate (CC) or occupancy certificate (OC) has not been issued, are also required to comply with the registration requirements under the Act. While applying for registration, promoters are required to provide detailed information on the project e.g. land status, details of the promoter, approvals, schedule of completion, etc. Only when registration is completed and other approvals (construction related) are in place, can the project be marketed.
Reserve account: One of the primary reasons for delay of projects was that funds collected from one project, would invariably be diverted to fund new, different projects. To prevent such a diversion, promoters are now required to park 70% of all project receivables into a separate reserve account. The proceeds of such account can only be used towards land and construction expenses and will be required to be certified by a professional.
Continual disclosures by promoters: After the implementation of the Act, home buyers will be able to monitor the progress of the project on the RERA website since promoters will be required to make periodic submissions to the regulator regarding the progress of the project.
Title representation: Promoters are now required to make a positive warranty on his right title and interest on the land, which can be used later against him by the home buyer, should any title defect be discovered. Additionally, they are required to obtain insurance against the title and construction of the projects, proceeds of which shall go to the allottee upon execution of the agreement of sale.
Standardisation of sale agreement: The Act prescribes a standard model sale agreement to be entered into between promoters and homebuyers. Typically, promoters insert punitive clauses against home buyers which penalised them for any default while similar defaults by the promoter attracted negligible or no penalty. Such penal clauses could well be a thing of the past and home buyers can look forward to more balanced agreements in the future.
Penalty: To ensure that violation of the Act is not taken lightly, stiff monetary penalty (up to 10% of the project cost) and imprisonment has been prescribed against violators.
How Does RERA Act Benefit the Home Purchasers?
The Real Estate (Regulation and Development) Act, 2016 is expected to increase the real estate demand. There are different ways in which RERA Act can help the home buyers.
- Builders will not be able to delay projects
- Builders will not be allowed to charge for area beyond the walls
- Builders will be held responsible for defects found in the house
- Builders will not be allowed to use your money to build someone else’s house
- Grievances will be redressed quickly
Important Compliances
Important compliances under the Act are
- Informing allottees about any minor addition or alteration.
- Consent of 2/3rd allottees about any other addition or alteration.
- No launch or advertisement before registration with RERA
- Consent of 2/3rd allottees for transferring majority rights to 3rd party.
- Sharing information project plan, layout, government approvals, land title status, sub-contractors.
- Increased assertion on the timely completion of projects and delivery to the consumer.
- An increase in the quality of construction due to a defect liability period of five years.
- Formation of RWA within specified time or 3 months after majority of units have been sold.
The most positive aspect of this Act is that it provides a unified legal regime for the purchase of flats; apartments, etc., and seeks to standardise the practice across the country.
Impact of RERA on real estate industry
- Increased project cost.
- Tight liquidity.
- Rise in cost of capital.
- Increase in project launch time.
Initially, a lot of work is to be done to get the existing and new project registered. Details such as status of each project executed in last 5 years, promoter details, detailed execution plans, etc., needs to be prepared.
With the advent of RERA, specialised forums such as the State Real Estate Regulatory Authority and the Real Estate Appellate Tribunal, will be established for the resolution of disputes pertaining to home buying and the aggrieved party will have no recourse to other consumer forums and civil courts, on such matters. While the RERA sets the groundwork for fast-tracking dispute resolution, the litmus test for its success, will depend on the timely setting up of these new dispute resolution bodies and how these disputes are resolved expeditiously with a degree of finality.
RERA in states
Maharashtra RERA – The Maharashtra Real Estate Regulatory Authority (MahaRERA) came into existence on May 1, 2017. Builders and real estate agents have been given a 90-day window, to register their new and ongoing projects, with the real estate authority, which ends on July 31, 2017.
Uttar Pradesh RERA – The draft Uttar Pradesh RERA Rules, were notified in October 2016. However, these rules are likely to be revised.
Karnataka RERA – The Karnataka RERA Rules, 2016, was approved by the cabinet on July 5, 2017.
Tamil Nadu RERA – The Tamil Nadu RERA Rules were notified on June 22, 2017. Exclusion/inclusion of projects for registration, will depend on whether they lie within the Chennai Metropolitan Area (CMA) or outside the CMA, among other factors.
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 Can You 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.
Many developers across India follow a common practice of pre-lauching a project without securing requisite approvals for the project from the local authorities, which is termed as “soft launch”, “pre-launch” etc. Buyers also lap into this opportunity as they get discounted prices during the pre-launches period. But if it is from a developer who is unscrupulous or a fly by night operator, then it carries a great risk. Hence, to plug this gap, registration of every project with the regulatory authority has been mandatory before it is launched for sale and for registration the basic pre-requisite is that the developer must have all the requisite approvals. Thus the buyer is protected as the project is ring-fenced from the vagaries of non-approvals or delays in approvals which are one of the major causes of delay for the project.
Prior Registration of Real Estate project with Real Estate Regulatory Authority
A promoter shall not advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment or building, as the case may be, in any real estate project or part of it, in any planning area, without registering the real estate project with the Real Estate Regulatory Authority established.
The projects that are ongoing on the date of commencement of this Act and for which the completion certificate has not been issued, the promoter shall make an application to the Authority for registration of the said project within a period of three months from the date of commencement of this Act.
Authority in the interest of allottees, for projects which are developed beyond the planning area but with the requisite permission of the local authority, it may, by order, direct the promoter of such project to register with the Authority, and the provisions of this Act or the rules and regulations made there under, shall apply to such projects from that stage of registration where the real estate project is to be developed in phases, every such phase shall be considered a stand alone real estate project, and the promoter shall obtain registration under this Act for each phase separately.
Projects exempt from the ambit of the Act The following projects do not require to be registered under the Act:
- Area of land does not exceed 500 Sq. Meters
- of apartments does not exceed 8
- In case of Renovation/ Repair/Re-development
(a)where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight, inclusive of all phases;
(b)where the promoter has received completion certificate for a real estate project prior to commencement of this Act;
for the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.
Application for Registration of real estate projects
Every promoter shall make an application to the Authority for registration of the real estate project in such form, manner, within such time and accompanied by such fee as may be specified by the regulations made by the Authority.
Step 1 – Applicant has to file an application for registration with RERA in prescribed form along with prescribed fees and documents
Step 2 – Application for registration must be either approved or rejected within a period of 30 days from the date of application by the RERA
Step 3 – On successful registration, the promoter of the project will be provided with a registration number, a login id and password for the applicant
The promoter shall enclose the following documents along with the application, namely:—
(a)a brief details of his enterprise including its name, registered address, type of enterprise (proprietorship, societies, partnership, companies, competent authority), and the particulars of registration, and the names and photographs of the promoter;
(b)a brief detail of the projects launched by him, in the past five years, whether already completed or being developed, as the case may be, including the current status of the said projects, any delay in its completion, details of cases pending, details of type of land and payments pending;
(c)an authenticated copy of the approvals and commencement certificate from the competent authority obtained in accordance with the laws as may be applicable for the real estate project mentioned in the application, and where the project is proposed to be developed in phases, an authenticated copy of the approvals and commencement certificate from the competent authority for each of such phases;
(d)the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof, and the whole project as sanctioned by the competent authority;
(e)the plan of development works to be executed in the proposed project and the proposed facilities to be provided thereof including fire fighting facilities, drinking water facilities, emergency evacuation services, use of renewable energy;
(f) the location details of the project, with clear demarcation of land dedicated for the project along with its boundaries including the latitude and longitude of the end points of the project;
(g)proforma of the allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees;
(h)the number, type and the carpet area of apartments for sale in the project along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas apartment with the apartment, if any;
(i) the number and areas of garage for sale in the project;
(j) the names and addresses of his real estate agents, if any, for the proposed project;
(k)the names and addresses of the contractors, architect, structural engineer, if any and other persons concerned with the development of the proposed project;
(l) a declaration, supported by an affidavit, which shall be signed by the promoter or any person authorised by the promoter, stating:—
(A)that he has a legal title to the land on which the development is proposed along with legally valid documents with authentication of such title, if such land is owned by another person;
(B)that the land is free from all encumbrances, or as the case may be details of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details;
(C)the time period within which he undertakes to complete the project or phase thereof, as the case may be;
(D)that seventy per cent. of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose:
The promoter shall withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project. The amounts from the separate account shall be withdrawn by the promoter after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project.
The promoter shall get his accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilised for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.
The promoter shall take all the pending approvals on time, from the competent authorities and furnished such other documents as may be prescribed by the rules or regulations made under.
The Authority shall operationalise a web based online system for submitting applications for registration of projects within a period of one year from the date of its establishment.
