All about RERA Act and how it will impact the Indian Real estate market?
There are no doubts in the fact that the real estate market in India has witnessed a huge transformation in the recent years. There has been a swift infrastructural development in the country along with the banks lowering the interest rates on home loans that have increased a demand for housing and construction projects.
What is the RERA Act?
Recently, the announcement of the Real Estate (Regulation and Development) Act, 2016 (RERA Act)will be yet another changing face of the real estate industry. This bill was passed by Rajya Sabha with the aim to regulate the real estate sector and bring more clarity for both the buyers and developers. This law came into effect on May 1st, 2017 across the country and marks the beginning of the era where the consumer is king.
The main objective of this Act is to protect the rights of the property buyers (consumers), to ensure the fair real estate transactions, and ensure timely delivery of the projects.
The scope of the RERA Act:
- This Act shall cover both the residential as well as commercial real estate projects in India;
- It has now become mandatory for the real estate developer to register their project with the concerned specific RERA office in their state and obtain a valid registration certificate before going ahead with the project. If the project that comes under the purview of RERA fails to obtain the registration certificate, then a penalty of 10% of the project cost shall be levied by the concerned authority;
- The provisions of the RERA Act are applicable on all the ongoing projects as well that have not received certificates of completion and need to register under this Act within three months of the implementation of the Act. Hence, the rights of the under-construction projects are also safeguarded and they can seek protection under this Act.
- The registration obtained by the builder is valid for the specified period mentioned by the builder on the application form. Hence, the builder becomes liable to adhere the timelines, otherwise he faces the risk of losses and penalties;
- All the on-going i.e. under construction projects which still do not have an Occupancy Certificate comes under the purview of the laws of this Act;
- This Act mandatorily requires the registration of projects even if the construction area is 500 sq meters or just eight flats needs to be constructed.
Key features of the RERA Act:
- Real Estate Regulatory Authority: This law formed a new specialized regulatory forum, i.e. “Real Estate Regulatory Authority”. This shall be setup within one year from the date of enforcement of law to protect the rights of the purchaser of real estate units from the developers.Until, these forums are set up, the appropriate government, i.e. the state or central government should designate any other regulatory forum as the Real Estate Regulatory Forum. The developer needs to register their projects under this Authority before taking any bookings, selling or offering any unit for sales.
- Public disclosure of the real estate projects: The real estate developers are mandatorily required to disclose all the details regarding the registered project such as details of promoters, project details, layout plan, developmental work plan, land status, all statutory laws approvals, disclosure of all the agreements, details regarding contractors, architects, structural engineers etc. and the names, address of real estate agents and other relevant information.Any wrong or false disclosure of information or if the developers fails to fulfil the information disclosure requirements, the authority shall levy a penalty and even cancel the project approval.
- Maintenance of Escrow Account: This is one of the major reform by this Act. Now, the builders need to park 70% of the collected project funds should be deposited in an escrow account opened at any scheduled bank. This rule has been introduced since delay in delivering of the projects was one major concern for the investors.The builders generally were using the collection made from one project to purchase another land or expanding their business instead of investing it in the same project for which the money was collected.So, with the introduction of this rule, now these funds can be accessed by the builder only for funding and construction of the on-going project to which the money belongs. The money can be withdrawn from the bank account as per the proportion of the completed work.Also, the request for the withdrawal of the funds needs to be certified by the engineer, architect and chartered accountant in practice to ensure that the claims made by the developer are justifiable.
- Carpet area: The RERA Acts specifically defines the “carpet area” in the law. Carpet area is the net usable area of the unit, including the area covered by the internal walls, kitchen space and toilets, but excludes the common area, balconies, verandahs, areas under the shaft, areas covered by the external walls, open terraces etc.It has become mandatory for the builders to specify the carpet area clearly so that the consumers know exactly what they are paying for. In simpler terms, the carpet area is the area between the external walls of the unit which can be used for residential or commercial purpose by the consumer. Even, if the balconies or terraces are exclusively built for the unit that can also not be added in the carpet area as per the provisions of the Act.
- Builders’ liability: Now, the builder needs to provide five-year warranty for any structural defects in the building after the date of possession. They are liable to pay a penalty that is equal to the rate of interest chargeable in case of default or delays as home buyers.
- Exit clause for the home buyers: The home buyers can request for existing from any real estate project at any stage of the construction and the builder is liable to return the whole money deposited (minus the booking amount) by the buyer so far within 45 days as per the provisions of the law.Also, if the developer fails to give the possession of the flat or complete the construction within stipulated time due to any reasons, the home buyer is free to terminate the contract and the builder needs to refund the whole amount paid within 45 days along with the interest at the rate mentioned in the law.
- Adherence to the project plan: If the builder wishes to make any alterations in the project plan, design and specifications of the building or plot, then the consent to at least two third of the buyers (who have booked the property) should be taken after necessary disclosures;
- Project with multiple phases: If a project has multiple phases, then each phase is considered as a standalone project and need to obtain separate registration under the Act.
- Residents’ welfare association: A resident welfare association needs to be formed within 3 months of selling of all or majority of flats of the project.
- Real estate agents: The real estate agents need to register themselves with the respective State Real Estate Regulatory Authority if they intend to sell any plot or flat of a registered project. Even, the builders are necessarily required to provide all the details of the real estate agents dealing with the project online.
- Real Estate Appellate Tribunal: The state-level real estate appellate tribunal will be set up in all the states that will be responsible for adjudicating the case within 60 days of the application. It will regulate the transaction in respect of residential as well as commercial projects to make sure to complete the project in a timely manner.This tribunal will have the similar rights as that of the civil court and any appeal against the order of this Appellate Tribunal shall be made before the jurisdictional High Court within 60 days of communication of the decision of the Appellate Court.
Guidelines for the home buyers in the RERA Act: The law specifies certain general guidelines for the home buyers as well:
- Home buyers should make timely payments to the real estate developers;
- They should take possession within two months of the issuance of the Occupancy Certificate;
- Consumers should actively participle in the formation of association, cooperative society or any other association of consumers.
Organize the real estate sector in the country:
The real estate market in India is unorganized. Hence, the implementation of the RERA Act is a welcoming step to curb the unprofessional sellers and agents to harass the consumers. Even, the Bangalore real estate market is no different. But, now as the RERA Act is being implemented gradually, the real estate developers and agents are gearing themselves and have started adopting working with fair marketing techniques to deal with the buyers.
Implementation of the RERA Act will definitely help in making real estate market in Bangalore and other cities in the state more transparent and will protect the rights of the home buyers. Now, until the law comes completely into the effect in the state, it is the duty of the buyers to evaluate the project carefully and contact only the genuine builders to find the best housing project in Bangalore.