The Real Estate (Regulation and Development) Act, 2016 (the Act, from hereon) is a Government of India initiative to bring about the much needed transparency and order to the real estate related transactions by creating a systematic and a uniform regulatory environment and paves the way for setting up of RERA for regulation and promotion of real estate sector. This was done to protect the consumer interest and to make developers accountable for timely completion of projects.
Draft rules under RERA were issued in June, 2016, which did not cover the on-going projects. Final rules for it got notified in October, this year, by the ministry of Housing and Urban population.
Central Govt’s rules are applicable to all UTs, but in case of States, it will serve as a model template and could be tweaked to meet specific local demands.
Below is an insight into the Center’s version of it.
For Ongoing Projects:
All promoters of all ongoing projects which have not received completion certificate will have to register with the state-level regulatory authority and provide complete disclosure of project details.
Developers will have to deposit 70% of the amount collected from homebuyers in a separate bank (escrow) account within 3 months of registering a project with RERA. An escrow account is under the purview of a third party essentially a bank or a recognized lender. This provision thereby results in further oversight of the bank account and signing authority is with the escrow account manager say a trustee or a bank or a lender. The funds from an escrow account can only be withdrawn on the request of an engineer, architect and a chartered accountant, by a real estate developer solely for the purpose of construction of the project to which the account belongs and that too in proportion to the stage of work.
Registration of project with RERA
For registration of projects with the authorities, developers will be required to submit details, such as:
Sale on Carpet area and not super build up area
Consumer must know what exactly is he paying for, and hence, the promoter shall be required to declare the size of the apartment based on carpet area (net usable area of the unit and does not include common areas, balconies, verandahs etc) instead of the super build up area.
The law makes it mandatory for developers to post all information on issues such as project plan, layout, government approvals, land title status, sub contractors to the project, schedule for completion with the State Real Estate Regulatory Authority (RERA) and then in effect pass this information on to the consumers.
The promoter will also have to upload details regarding number and type of apartments or plots, status of the project with photographs floor-wise, status of construction of internal infrastructure and common areas with photos, status of approvals received and expected date of receipt, within 15 days of expiry of each quarter on the project website.
Consumer must make timely payments as per the agreement for sale to the real estate developer and against his share of registration charges, taxes, maintenance charges etc or pay interest at a prescribed rate, in case of delay. Possession must be taken within 2 months after the occupancy certificate is issued. Consumer must play an active role towards registration of conveyance deed of the unit, formation of an association of consumers etc.
The Act mandates setting up of an Appellate tribunal by the appropriate government within one year of the Act coming into force. So, State RERA is the first body to approach in case of disputes and as per set of rules this body can establish the nature of violation and prescribe the penalty/ punishment. Any person aggrieved by the decisions of the RERA or an adjudicating officer can appeal to the Appellate Tribunal. This set up will fast track the process of dispute settlement since it minimizes the involvement of the existing judicial system.
Discrimination in sale of properties on any grounds will also not be entertained under the new rules. Adjudicating Officers, Real Estate Authorities and Appellate Tribunals shall dispose of complaints within 60 days
A person can appeal in High Court if he is aggrieved by decision of the Appellate Tribunal however this isn’t allowed in cases where the decision was reached after consent of the disputing parties. The person has to approach High Court within 60 days of receiving the decision.
If an intermediary violates the rules prescribed by the RERA, he will be liable to a penalty for every day of the violation caused and the sum could increase up to 5% of the total estimated cost of the unit in question.
In case of delays, developers will be required to pay compensation to the allottees with an Interest Rate of SBI’s highest Marginal Cost of Lending Rate plus 2%. This effectively means a developer will have to pay interest rates of 11 to 12 % in case of a delay in project delivery.
The rules also contain clauses providing for compounding of punishment with imprisonment for violation of the orders of Real Estate Appellate Tribunal against payment of 10% of project cost in case of developers and 10% of the cost of property purchased in case of allottees and agents.
In a departure from the draft rules, the requirement of disclosing Income Tax returns has been withdrawn in the final rules keeping in view the confidentiality attached with them and as pointed out by legal experts and promoters.