Analysis of RERA

Introduction

In present time real estate and construction plays an important role in the development process especially infrastructure. As in India agriculture is one main employment sector but after that real estate is one of the largest employment sectors. In spite of being such an important sector of the economy, the real estate sector has been un- regulated and controlled by the local government with certain set of rules and regulations for real estate development. Even various state level regulatory authorities were established to regulate the real estate sector of their respective states.

It is a well-known fact that the housing sector is one of the top contributors to the country’s GDP and employment creation. Even access to fair housing can be a prerequisite for the enjoyment of several human rights which also includes the right to work, health, social security, privacy or education. Housing rights are the fundamental need to remain safe and secure. Realizing the depth of the problem of housing, the right to housing has been recognized under both international as well as regional level in human rights, as it is the basic right of the human being.

The Indian judiciary has demonstrated the commendable interest towards right to housing and interpreted this right under the context of right to life provided under Article 21 of the constitution. Real estate may be defined as space set forth by man, in relation to fixed geography, which is intended to contain an activity for a specific period of time. Residential houses, existing houses for resale, Commercial shopping centers, industries, offices, manufacturing buildings and property etc., all are classification of Real estate. In simple words we can say that a person who is having any of the stated property which comes under preview of real estate will be stated as Real estate owner.

As the demand for housing has been significantly increased over a period of time. To give importance to it and to bring transparency. Rajya Sabha and Lok Sabha passed the bill in March 2016 and after passing of bill ‘The Real Estate Regulation Act (RERA)’ was introduced on May 1, 2016 and implemented on 1 may, 2017[1]. It includes four parts under it namely, Retail, Housing Commercial, Hospitality. This act was introduced by the parliament of India in order to protect buyers as well as to boost the economy and income in real estate. As per the guidelines of RERA, each state and union territory have its own regulatory body and rules which govern the operations and functioning of that body.

The key objective of this act is to bring accountability and transparency so as to make real estate simple as housing is a key input in economic, social, and civic development. RERA has been implemented to protect the ‘Consumer Rights’, as it focuses on the consumer’s major issues related to incorrect information of projects by the promoters, maltreatment of funds and delays in completing real estate projects. It is the duty of each state regulator under RERA to register the real estate project and agent operating in their state. The details of all projects which are registered are put on a website of public access. Without registration developers can’t invite, advertise, sell, offer or book any plot apartment, housing building. Further, after registration, all the advertisements made which are inviting investment for some project or development will bear the RERA registration number which is provided to them without which they cannot even advertise.[2]

Evolution of RERA

The act provides for the establishment of the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of properties, as the case may be, in a manner as stated under it which is both effective and transparent. Even the act provides to protect the interest of consumers in the real estate sector by providing the Real Estate Appellate Tribunal which are made to hear appeals and give directions to pass orders regarding it.

This act took Nine years after it was first mooted even M Venkaiah Naidu  stated that “ It was a long wait but now its reality as wait is over”. The Government of India has implemented the Real Estate Regulation and Development Act in 2016, (RERA) and the sections of the act came into force on May 1 2017.

As we know RERA took nine years so here is a timeline of the act:

May 2008: Ministry of HUPA (Ministry of Housing and Urban Poverty Alleviation) prepares a concept paper on regulation of the real estate sector and a model law for legislation by States/Union Territories.

July 2011: Conference of Ministers of Housing in 2011 suggests a central law for the regulation of the real estate sector even in the same year the Ministry of Law and Justice suggests central legislation for regulation.

August 2013: The Standing Committee heard the briefing of the Ministry of Housing and Urban Poverty Alleviation.

November 2013: The Standing Committee heard the views of some of the NGOs working in the field of Real Estate.

February 2014: The Standing Committee prepared its Report after Public opinion and laid on the Tables of both Houses of Parliament. After that Attorney General makes the validity of central law for regulation of the Real Estate sector.

April 2015: Union Cabinet approves the amendments on recommendations of the Standing Committee.

May 2015: Matter referred to the select committee of 21 members Rajya Sabha.

July 2015: Report of Select Committee submitted in Rajya Sabha.

December 2015: Real Estate Bill, 2015 in which new modifications were made and was based on Select Committee report along with stakeholder consultations, which was approved by the Union Cabinet. Even the Cabinet accepted twenty odd major Amendments to the bills.

March 10 2016: Rajya Sabha passes bill on 2016.

March 15, 2016: Lok Sabha passes the Bill and bill then goes for approval from President.

March 25, 2016: President gives approval to the Bill and formation of bill to an act took place.

April 26, 2016: Out of ninety-one sections of the act fifty nine were notified, which were made effective from May 1, 2016, allowing preparation of Real Estate Rules, setting up of Regulatory Authorities and other infrastructure. Remaining thirty-two sections of the act were notified later, and were made effective from May1, 2017.

May 1, 2017: New era came into force as The Real Estate Regulatory and Development Act (RERA) came into force. It also resulted in the development of the real estate sector in an atmosphere of investor confidence.[3]

This is the evolution of RERA act, but before passing of this act there was no clarity on the part of construction and investments made on the built-up area, every builder used to have their own calculations regarding real estate which were uneven and heavily in bias towards the investors. Even before passing of this act builders were used to have certain monopoly regarding the areas, rates, interest and modes of payments. There was no clarity of rates, possession, contract validity even legality of those contracts which leads to fraud, misrepresentation, coercion and even causes confusions to clients.

About RERA Act:

RERA is being followed in every state of India and it is applicable on both residential and commercial properties. With passing of this act many things changed as the past practices of builders, promoters were changed as now no promoter is allowed to advertise, book, sell, offer, market, or making any invitation to offer for purchase in any manner in respect of any building or any real estate project or part of it without registering the project with RERA. Even the prospectus issued by the promoter shall mention the website address and RERA registration number of the authority and other things stated under the act. When any person sustains any damage or loss by the reason of any false, incorrect statement he shall be compensated by the promoter. The entire investment along with interests and compensation will be awarded and returned if any such things take place.

The promoter under this act shall have to make an application to the authority in respect for registration of the project within three months from the date of commencement of this act for ongoing projects whose completion certificate has not been issued. The sale of property will be based on carpet area as previously it was used to be on the basis of super built- up area, even comprehensive records from conceptualization to completion of every project are to be maintained to ensure consumer in respect of his investment made by him. The act also requires the developers to deposit 70% of the total amount received from the buyer in a separate bank account earmarked for each project. If any change developer proposes in the layout or plans it must be approved by two-third buyers in that project.[4]

This act also provides provisions relating to penalize both developer and promoter with similar interest rates for missed payments and delayed constructions. Even in case of any violation, the developer risks imposition of heavy penalties and also loses their developer registration. Even developers have to disclose their project details including financial statement, legal title deed as per the act. Builders also have submitted the original approved plans for their project and both buyer and developer has to pay 2% above SBI’s MCLR in case of any delay.

No registration of the real estate project required where the area or part of land which is going to be developed by the builder does not exceed 500 square meters or if the apartment is going to be developed the number of apartments proposed in the prospectus does not exceed eight inclusive of all phases. Even if the promoter has received completion certificate prior to the commencement of this act no registration is required for it, also for the purpose of any repair or selling or new allotment of any apartment or building no registration is provided, a specific list has been provided under the act regarding it.

The main responsibility of RERA is to make certain disclosures regarding real estate projects by the promoters/developers and making registration of these projects along with real estate agents. Even the authorities appointed by the state government it is necessary to counsel and suggest the government regarding matters related to development and promotion of real estate sector. The registration fee for an individual applicant under RERA is Rs.10, 000. Whereas, if the applicant is a body corporate registered under the Companies act, 2013, then the amount for registration is Rs. 25 lakhs. RERA is applicable on ongoing projects which started even before passing of this act. The application of renewal of registration by the agent should be made at least 60 days prior to the expiry of registration and after renewal such registration is valid for 5 years.

The Real Estate Appellate Tribunal is a quasi-judicial body, which has been established under section 43 of RERA Act. Tribunal is empowered to function as an appellate tribunal under this act and to hear appeals from the Judgements/orders/decisions of the Regulatory authority in the case accordingly. Tribunal comprises a minimum of two members and others shall be a technical or administrative member.

Even there are different punishments and penalties under RERA few discussed are;

On Promoters (section 59 to 64):

  1. Non- registration of a project: – 10% of the estimated cost of a real project.
  2. Violation of law: – imprisonment upto 3 years with or without fine for 10% of the estimated cost of the project.
  3. Providing false information: – 5% of the estimated cost of the project.
  4. Other contraventions: – 5% of the estimated cost of the project.

On Agents (section 62 to 66):

  1. Non- registration of a project: – Rs.10, 000 per day of default which may extend up to 5% of the cost of property.
  2. Failure to comply with Authority: – Penalty on a daily basis which may extend up to 5% of the estimated cost of plot.
  3. Failure to comply with Tribunal: – Imprisonment for up to 1 year with or without fine of 10% of the estimated cost of the project.

On Homebuyers (Section67 to 68):

  1. Failure to comply with Authority: – Penalty on a daily basis which may extend up to 5% of the estimated cost of apartment.
  2. Failure to comply with Tribunal: – Imprisonment for up to 1 year with or without fine of 10% of the estimated cost of the apartment.

In the last state authorities have imposed penalties and every state which is regulating real estate under RERA they are empowered to appoint authority as well as implement penalties.[5]

Advantages and Limitation of RERA in context to Customer and Builder

RERA has played a crucial role in bringing uniformity in the real estate sector related to carpet area, common areas which will prevent malpractices like changes in layout, area, agreement, specifications, details about the broker, architect and contractor etc.

Advantages are as follows:-

  1. Transparency:

It brings clarity in favour of customers, promoters, dealers, agents, builders it provides accurate disclosures, registration number on the website also on the advertisement along with allotment letters, payment modes and amount which to be paid through electronic medium.

  • Mandatory registration:

Builders as per this act with housing regulatory projects must register and submit all the details of the project to the state government authority. Any detail regarding any development of apartment or building can be judged through the mentioned detail in future.

  • Money Handling:

As per the provisions of this act builders have to deposit 70% of the buyer’s amount in an escrow A/c to avoid diversion of money.

  • Warranty:

RERA will provide 5 year warranty for any defect such as electric fittings, tap leakage etc., in simple terms structural defects. It also reduces the ambiguity from the buyers to pay extra expenses on such issues.

  • Any misleading claims:

As per this act the written affidavit should be given mentioning the time of the projects to be delivered. In case of delay in possession, return of amount and compensation, no deposit in advance any such obligation took care by this act.

Limitations as follows:

  1. Hike in property price:

Due to various factors in the real estate sector it leads to lack of cash, builders which have to look for other sources for money thus leading to rise in the price of the property, such kind of variation affects the demand and supply of this sector.

  • Stagnant growth:

Due to 70% investment in escrow accounts there will be cash flow hindrances which will be leading to delay in projects. This step is taken to stop the developer from diverting their mind repeatedly to new projects and complete the running one.

  • Supply-Demand imbalance:

Compliance to all the aspects will delay the project and as there won’t be pre-selling of the property. Big builders can develop two to three projects within 2 years. It will lack economic imbalance due to the project duration and small builders cannot be able to earn money with lack of techniques and resources.

  • Strong penalty:

According to this act builder if he fails to fulfil any provision, he will be liable for imprisonment up to 3 years or 10% of the total cost of the project. This situation puts the buyer in trouble and keeps them away from their houses till the matter gets solved.

  • No cover on rental:

RERA doesn’t include any rental agreements; it totally depends upon the buyer to maintain the rental agreement which denotes the agreed and disagreed part clearly to save the property and make a proper use of it.

Land Acquisition and Resettlement Cases decided under RERA:

  1. Real Estate Regulation Authority, Punjab Vs. Barnala Builder and Property Consultants:[6]

Brief Facts- The complaint was filed by Punjab RERA Authority against the respondent and the action was a ‘Suo Moto’ by Punjab RERA Authority. Punjab RERA stated that the respondent advertisement of their projects in media, were being used by them without displaying the registration number issued by the authority for projects, which is a violation of Section 11(2) of the RERA Act,2016.

Held- So, in this case the Punjab RERA authority imposed the penalty on respondent of Rs.50,000/- on the default part of the promoter and also directed to deposit the amount in the designated bank account operated by the Punjab RERA within 10 days of passing of order.

  1. Mukti Gupta v. S.V.S Builder Pvt. Ltd:[7]

Brief Facts- The present complaint was filed stating that the builder delayed the possession by 4 years and 9 months. The complainant is seeking relief from authority by  withdrawing him from the project along with 14% of the interest on the amount paid and rent paid because of delayed possession. The authority also questioned the complainant regarding the same matter with other authorities. In respect of which the complainant clarified that she has not filed any other case regarding the same matter.

Held- The authority decided that in the present case that a case has already been filed in a civil court and hence she cannot seek the same remedy twice.

  1. Jayesh Kumar Jain v. M/s Nirmal Lifestyle Private Limited:[8]

Brief Facts- In this case the plaintiff has alleged that the defendant has violated the provisions of section 19 of the RERA act 2016, by not uploading documents regarding permissions, details and pending litigation before DRT. Hence, the complainant was seeking relief from the authority by refund of the amount paid along with the interest and compensation paid by him to the builder. But the respondent has denied the claim of the complainant by stating that he has obtained all the relevant permissions and approval. Even there is no cause of action for the complainant under Section 18 of the act.

Held- The authority has stated that as per Section 18 of the act there is no violation of it and the complainant is not entitled to seek any relief under this section. Further the respondent has disclosed all the required information as per section of this Act. So, no claim stated by the complainant can be claimed.

Conclusion

In the past few decades there has been increasing attention towards the construction urbanization process and the nation has also strive to enhance the capacity to cope with development needs through transformation, urbanization and this act has played a crucial role in it. Although the act is very new and it has been accepted easily by both buyer and seller.

In India after agriculture, the second largest economic sector is of real estate and establishing of RERA Act, 2017 is a big step towards a more institutionalized way of regulating the real estate market in India. A very positive impact has been expected in future from this act, even though amendments are still going on in it, implementation of this act is the firm step in the right direction to bring awareness in terms of promoters, consumers etc. Even in future the modernization of land records, land acquisition and GST can also be put on priority for growth of the real estate sector.

RERA is the significant great move to ensure great accountability in respect of real estate builders and agents towards customers as well as government. Until now 15 states have implemented the RERA and 6 states are still going online too. But there is a need to fasten the process so that the real estate sector may benefit in the long term. States in which it is applicable it made compulsory to various stakeholders like builders, promoters, agents to follow it and work as per its provisions.

RERA is committed towards the successful and effective implementation of real estate law of the country and has taken relevant and consistent measures for its progressive implementation in the country, but regarding the land acquisition issues the darkness still prevails in the matters of government.

RERA is the future of real estate in India and its applicability in all states of  India looks to give bright benefits to the real estate sector.

Questions
  1. Why is registration in RERA not applicable on land proposed to be developed that does not exceed 500 square meters or apartments proposed does not exceed eight inclusive of all phases?
  2. Why are small-scale projects not included in it as they are more prone to Frauds?
  3. What is the method of area calculation which is being followed in RERA?
  4. Is there any penalty if the builder delays in giving possession?
  5. Why is it still not applicable in other states?

References

  1. Reddy, S. (2017) Real Estate Regulations & Development Act (RERA) | Key points & Review, ReLakhs. Available at: https://www.relakhs.com/real-estate-act-key-points-review/.
  2. Sapam, B. (2017) „RERA may put most brokers out of work‟, Live Mint, 29 May. Available at: http://www.livemint.com/Companies/inodSsmgGWal3mlLYW9pAO/may-put-most-brokers-out-of-work.html.
  3. . Sharma, A. (2017) „What RERA means for real estate agents, under-construction projects
  4. Singh, V. (2017) How will RERA impact real estate agents? |Housing News, Housing.com.
  5. Sinha, P. (2016) Builder will pay you 10.9% interest if he delays delivery of your new home, Economic Times.
  6. https://blog.ipleaders.in/issues-lens-rera-2017/#_ftn10
  7. https://www.centrik.in/rera-case-laws/no-claim-u/s18-if-the-date-of-possession-is-not-lapsed

[1] Ashok Madhavi Ar, Praganti Aparna (Immediate Impact of RERA on Construction Industry, Volume no-7, Issue no-1, )

[2] Rera-implementation-immediate and long term impact (2017, 5 August)

[3] apnarera.com <accessed on 04/01/019>

[4] Cernea Michael M.(1999), Why Economic Analysis Of Resettlement Issue Is Necessary- A Sociologist’s View, Economic and Political Weekly, Vol. 34, No. 3, pp. 2149-2158

[5] Section of RERA, 2017

[6] 2018/PUN/Centrik/6/RERA

[7] 2018/MP/Centrik/12/MPRERA

[8] 2018/MH/Centrik/38/MAHARERA

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