I am proud to be a part of an era where the Transformation of Real Estate Sector is being witnessed by Country at large. Real Estate has always been struggling to attract young dynamic talent though being the highest paying sector, the reasons for same could be lack of Professionalism, Centralized Power, Lack of Customer Centricity etc. It wasn’t given Industry status by Govt. of India in spite of creating the maximum employability in india. Now we are also going to witness amalgamation of many developers into few in Numbers and why? Lets understand this.
The Real Estate (Regulation and Development) Act, 2016 (RERA) has finally given India’s real estate sector its first regulator from Monday, May 1, 2017. RERA has brought to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on errant builders or Channel Partners(Brokers).
So what is RERA? Here is a look at the real estate regulator and how it will impact the real estate market.
Real Estate Regulatory Authority
- Under the Bill, instead of a regular forum of consumers, the purchasers of real estate units from a developer would have a specialised forum called the “Real Estate Regulatory Authority” which will be set up within one year from the date of coming into force of the Act. In the interim, the appropriate Government (i.e., the Central or State Government) shall designate any other regulatory authority or any officer preferably the Secretary of the department dealing with Housing, as the Regulatory Authority. (Currently its being headed by Mr. Gautam Chatterji (http://www.tkbsen.in/2016/12/maha-govt-appoints-gautam-chaterjee-as-housing-regulator/)
Registration with the Regulatory Authority
- The promoter has to register their project (residential as well as commercial) with the Regulatory Authority before booking, selling or offering apartments for sale in such projects. In case a project is to be promoted in phases, then each phase shall be considered as a standalone project, and the promoter shall obtain registration for each phase.
- Further, in case of ongoing projects on the date of commencement of the Act which have not received a completion certificate, the promoter of such project shall make an application to the Regulatory Authority for registration of their project within a period of three months of the commencement of the Act.
- The following types of projects shall not be required to be registered before the Regulatory Authority:
- Where the area of land proposed to be promoter does not exceed 500 square meters or the number of apartments to be constructed in the project does not exceed eight apartments. However, the appropriate Government (Central and State Government) may, if it considers appropriate, reduce the threshold limit below 500 square meters or eight apartments;
- Projects where the completion certificate has been received prior to the commencement of the Act;
- Projects for the purpose of renovation or repair or re-development which does not involve marketing, advertising, selling and new allotment of any apartment plot or building.
- The application for registration must disclose the following information:
- Details of the promoter (such as its registered address, type of enterprise such proprietorship, societies, partnership, companies, competent authority);
- A brief detail of the projects launched by the promoter, in the past five years, whether already completed or being developed, as the case may be, including the current status of the projects, any delay in its completion, details of cases pending, details of type of land and payments pending;
- An authenticated copy of the approval and commencement certificate received from the competent authority and where the project is proposed to be developed in phases, an authenticated copy of the approval and commencement certificate of each of such phases;
- The sanctioned plan, layout plan and specifications of the project, plan of development works to be executed in the proposed project and the proposed facilities to be provided thereof and the locational details of the project;
- Agreement for sale and conveyance deed proposed to be signed with the buyer.
- Number, type and carpet area of the apartments and the number and areas of garages for sale in the project;
- The names and addresses of the promoter’s real estate agents, if any, and contractors, architects, structural engineers affiliated with the project; and
- A declaration by the promoter supported by an affidavit stating that:
- he has a legal title to the land, free from all encumbrances, and in case there is an encumbrance, then details of such encumbrances on the land including any right, title, interest or name of any party in or over such land along with the details;
- the time period within which he undertakes to complete the project or the phase; and
- 70% of the amounts realised for the real estate project from the buyer, 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.
Definition of Carpet Area
Under the Bill, developers can sell units only on carpet area, which means the net usable floor area of an apartment. This excludes the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment.
70% of realisation(Agreement Value) from buyers in a separate bank escrow bank account.
- The Act mandates that a promoter shall deposit 70% of the amount collected from the buyer, in a separate rera account. This is intended to cover the cost of construction and the land cost and the amount deposited shall be used only for the concerned project i.e., project construction related payments.
- The promoter shall be entitled to withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project. However, such withdrawal can only be made after it is certified by an engineer, an architect and chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project.
- The promoter is also required to get his accounts audited within six months after the end of every financial year by a practicing chartered accountant. , Further, he is required to produce a statement of accounts duly certified and signed by such chartered accountant, and it shall be verified during the audit that (i) the amounts collected for a particular project have been utilised for the project; and (ii) the withdrawal has been in compliance with the proportion to the percentage of completion of the project.
Advertisement or prospectus issued by the promoter
- The advertisement or prospectus issued or published by the promoter should prominently mention the website address of the Regulatory Authority, where all details of the registered project have been entered and include the registration number obtained from the Regulatory Authority and other similar details.
- Where any person makes an advance or a deposit on the basis of the information contained in the notice, advertisement or prospectus and sustains any loss or damage because of any incorrect, false statement included in these, he shall be compensated by the promoter in the manner as provided under the Act. Also, if the person affected by such incorrect, false statement contained in the notice, advertisement or prospectus, intends to withdraw from the proposed project, his entire investment (along with interest at such rate as may be prescribed and compensation in the manner provided under the Act), will be returned to him.
RERA controls the Payment Plan in Under-construction Property
A promoter shall not accept a sum more than 10% percent of the cost of the apartment, plot, or building, as the case may be, as an advance payment or an application fee, from a person without first entering into a written agreement of sale(RERA Model Agreement) with such person and register the said agreement of sale, under any law for the time being in force.
Restriction on plans Change
In past the issue of efficiency planning (reduction of wastage of common areas, i.e., other than non FSI) caused many iterations in the planning. Hence in RERA, The promoter cannot make any addition or alteration in the approved and sanctioned plans, structural designs, specifications, amenities of the apartment or the common areas of the building or plot without the previous consent of the 2/3rd buyer.
Construction Quality & Structural defect
In case any structural defect or any other defect in the workmanship, quality or provision of services or any other obligations of the promoters is brought to the notice of the promoter within a period of five years by the buyer from the date of handing over possession, the promoter shall rectify such defect without any further charge, within thirty days. If the promoter fails to rectify such defect within such time, the aggrieved allottee shall be entitled to receive appropriate compensation in the manner as provided in the Act.
Fund Restriction towards Mortgaged of Property
The promoter shall not transfer or assign his majority rights and liabilities in respect of a project to NBFC or any third-party without obtaining prior written consent from two-thirds of the buyer, except the promoter, and without the prior written approval of the Regulatory Authority.
Refund of amount in case of delay in handing over possession
In case the promoter is unable to hand over possession of the apartment, plot or building to the allottee in given time as per Agreement and details on RERA website, then the promoter shall be liable, on demand being made by the allottee, to return the amount received by him from the allottee with interest and compensation at the MCLR rate plus 2% under the Act. This relief will be available without prejudice to any other remedy available to the allottee.
However, where an allottee does not intend to withdraw from the project, he shall be paid interest by the promoter for every month of delay, till the handing over of the possession, at a prescribed rate.
Submission in essence, the Bill intends to bring paradigm shift in real estate sector by increasing transparency and accountability. IT will also boost up the sentiments of buyer and provide safer net in their sale purchase mechanism. More of FDI in real estate. Overall an upward Trajectory can be seen showing long-term capital growth in the market and reduce overhang Inventory.
Disclaimer : This is sole view of the author and based on his interpretation and understanding. Support of Many refrence material has been taken to define the same. This is not the guiding information for any practice.