So with RERA finally into play what does it really mean for you as a home buyer? How will it impact you? This article covers detailed aspects of what RERA is, what is the current status of notification of this new Indian Act, ground impact created by RERA and the road ahead for Indian real estate with RERA in place. The article is constantly updated with new developments in RERA. We all are truly aware of the main motive of the introduction of the RERA Act, 2016 is to protect the homebuyers, infuse transparency into the real estate sector and provide speedy dispute redressal for the consumer grievances.
However, there can be some more reasons to invest in the RERA Registered projects which are described below:
Now, with the introduction of the RERA Act, 2016 which has specifically defined the carpet area and its calculation, the manipulations can be avoided.
We all are truly aware of the main motive of the introduction of the RERA Act, 2016 is to protect the homebuyers, infuse transparency into the real estate sector and provide speedy dispute redressal for the consumer grievances.
What is RERA?
RERA or Real Estate (Regulation and Development) Act was passed by the Rajya Sabha on 10 March 2016 and by the Lok Sabha on 15 March 2016. The Act came into force on 1 May 2016 to regulate the still largely unregulated real estate sector. There has been a huge demand for such an Act thereby bringing in accountability and transparency into the real estate sector. With real estate being a state subject, many States have now framed rules and regulations for the smooth implementation of RERA.
A few key factors from the Act would be as follows thereby benefiting a home buyer:
1. Definition of ‘Carpet Area’
The Act brings out a clear definition of “carpet area” which means, “The net usable floor area of an apartment, excluding 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”.
This means that only the area within the 4 walls of the apartment will be considered as carpet area. This brings clarity to the definition which was clearly lacking earlier. Also now buyers are only eligible to pay for the carpet area and not super built area as was the case earlier.
2. Registrations of Projects
Any new project to be launched by a builder/developer has to be registered under the State real estate regulatory authority. Any residential/commercial project with more than 8 units or more than 500 sq m has to registered. Thus any launch or advertisement of a new real estate project cannot be made unless such project is registered under RERA.
Section 4 of the RERA Act, 2016 makes it compulsory for the promoter to attach documents like Land Approval, Allotment letter, which defines the proforma of allotment letter, agreement for sale and the conveyance deed to be signed with the allottees, which naturally bind the
developer to provide all these to the homebuyer. A provision in the law makes it more valuable to provide it with the same.
In order to provide reliability of the developer involved, information like, brief details of the projects launched by the developer in the past 5 years, whether already completed or being developed, its completion and pending cases against him have also been asked by the developer while submitting the registration application as per Section 4 of the RERA Act, 2016.
3. Redressal Mechanism
A common grievance in the real estate sector is the delay or even non completion of projects. Buyers previously therefore did not have any redressal mechanism apart from the regular legal framework. But RERA seeks to change this by imposing strict regulations on the developer to ensure projects are completed well within the stipulated time as promised to the buyer through their prospectus/ advertisements. The developer shall be liable to pay a total of 10% of the project cost as penalty and can face up to three years imprisonment in case of a delay in delivering the project.
At the same time even the builder has an option of approaching the regulatory authority in case of any issue with the buyer or due to default in payment by the buyer.
States like Maharashtra have even gone a step ahead and introduced a Conciliatory forum for allottees and promoters, thereby allowing matters to be settled expeditiously and hassle free. In a recent development, on 13th March 2018, the conciliation panel set up by MahaRERA settled 6 disputes between builders and warring buyers. The members of this panel consist of developers and social activists. The aim of this panel is to help settle disputes, before they even reach the real estate regulatory authority, thus saving time, money and effort of all parties at stake.
With the RERA courts already in motion, a look at the court’s approach towards erring builders has been more than satisfactory and brings in the much needed assurance. In certain cases, the courts have even ordered the refund of the initial deposit to the buyer and in some cases the courts have come up strongly on the builders thereby ensuring the grievances of the buyers are met.
One order from the Karnataka RERA court dated January 18, 2018 is noteworthy wherein the builder “Paranjape Windfields” had to reimburse the entire loan amount payable with interest to the complainant due to a breach as the carpet area was less than what was promised. The erring builder owed a total of 52 lakhs along with 18 lakhs as interest and tax amount.
4. Corpus Fund
Another grey area that RERA seeks to address is the common excuse put forward by developers to delay projects as lack of funds or in certain cases where the builder may divert funds from one project to another also leading to lack of funds. This issue has been addressed as RERA now mandates that developers put 70% of the money collected from potential buyers as per Section 4 (2)(I)(D) of the RERA Act, 2016 into a separate bank account thereby ensuring construction costs and land costs are met and projects are delivered as per schedule. This account shall serve as an escrow account and the amount to be withdrawn shall be in proportion to the completion of the project after being duly certified by an architect, chartered accountant and engineer to the same.
5. Quality of Construction
RERA has also ensured maintaining standards in quality of construction as the developer is now responsible for repairing structural defects in a project up to a time frame of 5 years and his obligation does not merely end with delivery of a said project.
6. Transparency
The regulatory authorities set up under the RERA Act shall now furnish all information pertaining to the developer, his financials, litigations if any, prospectus/advertisement of the projects along with complete details of the apartments/ flats etc thereby ensuring transparency for the buyer which was sadly lacking in the pre- RERA days.
Is RERA really proving to be beneficial for home buyers?
Originally implemented to ensure transparency in the real estate industry, RERA is yet to prove itself as an efficient body that prevents malpractices.
What Does RERA Mean for You as a Home Buyer?
A critical analysis of the Act shows it tilting in favor of homebuyers who have been long in the dock. It allows the home buyer to make an informed decision while investing in a particular project.
Disclosures
A home buyer can now get accessible information pertaining to any new project that he may want to invest in. Details related to not only the project shall be available to a potential buyer but even information such previous track record of the developers, information pertaining to their financials shall have to be disclosed on the website once the developers get registered. With clear definitions of ‘promoter’, ‘carpet area’ etc and also with the mandatory registration of real estate agents, potential buyers can be more confident in investing their hard-earned money in any new project.
Checks and Balances
The real estate sector had been plagued with certain malpractices and their remedies have been well addressed by the Act. Non completion of projects on time, announcement and advertisement of projects without taking proper approvals, subsequent changes in plans or specifications other than what was promised to the buyer are issues that have been taken care of in the Act. Proper checks and balances have been put in place by the Act thereby boosting consumer confidence.
Renewed confidence.
A potential home buyer could now with greater confidence and surety invest in under- construction projects as opposed to be ready to move in projects. The reason most buyers preferred the earlier was to avoid legal hassles and litigation costs in case of any delays in deliverance of a project or in extreme cases even non-completion. With RERA ensuring timely delivery of projects and with a sound dispute redressal mechanism including penalties for delays in place, buyers can be at ease in investing in their dream projects.
Credibility of developers
At the same time developers are also cautious in ensuring that they are obedient with the Act. Since the Act requires that the proceedings of the sale be deposited in a separate bank account to ensure timely completion of projects such a move shall boost the credibility of the developers in the long run. Developers are also taking reasonable care in uploading the documents pertaining to the project as once uploaded on the regulatory websites, such documents cannot be deleted or taken down though additional documents may be
uploaded for the benefit of the buyers.
However since the Act brings within its ambit only projects with more than 8 units or more than 500 sqm, projects less than 8 units need not be RERA compliant nor do they have to make any disclosures. This is a small loophole which could well be exploited in the future as small time developers would prefer to opt for projects with less than 8 units without being scrutinized under RERA. In such cases potential buyers should proceed with caution and ensure a thorough background check is done.
Conclusion
RERA though still being in the early stage, has been found to have far reaching consequences for the real estate sector in a short span of time. The trend started by builders to commence multiple projects simultaneously has been on the decline thereby promoters now focus on a single project and ensure timely delivery of the same. Many new launches have also been put on hold and the aim now is the completion of undergoing projects. One can safely say that a RERA like Act has been long overdue to reign in the real estate sector to ensure transparency and boost confidence among end users. With numerous examples of project delays, plan violations, lack of necessary approvals in commencement of a project, the Act comes as a breather for many current or future home buyers.
Another major aim of the Act also includes to eliminate promoters of low repute that seek to build shoddy projects without being accountable to anyone but are only interested in the cash inflow and who do not accept responsibility of any post construction defect. Such promoters shall find it hard to sustain themselves in the RERA regime.
The onus now lies on the respective State governments and also to an extent on the Central government to ensure citizens are made aware of their rights and responsibilities under the Act and the Act does not become a mere paper tiger. A larger awareness has to be created so that the benefits of RERA reach the targeted audience. With National Real Estate Development Council’s (NARDECO) focus on affordable housing and RERA, the future of Indian real estate looks promising.