The Real Estate (Regulations and Development) Act, popularly referred as the RERA Act, which came into force across the country in May (2016) this year, is said to bring about a sense of clarity and order to the Indian Real Estate sector. While some agree that such an Act will play a pivotal role in creating a positive, transparent atmosphere around the real estate transactions, others have expressed concerns over the likely increase in cost of capital and compliance. The Act has defined a set of stringent norms for the real estate developer, the intermediary as well as the consumer, to encourage healthy and just relationships between the parties involved; it brings both residential as well as commercial projects under the same umbrella, thereby simplifying the process for mixed -use developments. The Bill was drafted in the year 2013 and has undergone a series of changes since then. The Amendments to the Bill were approved in April 2015. After much delay the Bill was passed by the Rajya Sabha and Lok Sabha on 10th March 2016 and 15th March 2016 respectively. It received the Presidential nod on March 25th, 2016. Listed below are the highlights of the Real Estate Act.
- The Act mandates the establishment of State Regulatory Authorities (RERA – Real Estate Regulatory Authority), which will serve as the government bodies to be approached by the stakeholders for queries, lodging complaints and also furthering a transaction. The real estate developers are required to register themselves with their respective state authorities by furnishing the required details of the company as well as the projects.The advertisement or prospectus issued or published by the developer shall mention prominently the website address of the Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority.
- Projects which are developed on a land area of more than 500 sq meter or which have more than 8 units with all phases combined will come under the radar of the RERA.
- A real estate developer is required to set aside 70% of the funds received for a particular project, in a dedicated escrow (bank) account, whose details will be made available to the State regulatory authority. This will ensure that the timeline of a project is well monitored and chances of delay will be minimised.
- Defining the carpet area instead of the ambiguous super built up area is mandatory; this will give an account of the actual usable area and will not include common areas.
- If the real estate developer violates the registration procedures prescribed by the Act, he will be required to pay up to 10% of the total estimated cost of the project in question. If found continuing the offence, the real estate developer will be punishable either with imprisonment (up to 3 years) or a fine which may extend up to a further 10% of the above project cost.
- The Act makes it tougher for the intermediaries to conduct business in an unprofessional manner and in a way prompts them to adopt ethical means of dealing with consumers. An intermediary is required to be registered with the RERA and possess a valid registration number before facilitating a sale or purchase of a project or acting on behalf of any real estate developer for the same. He is also required to maintain and preserve books of account, records and documents as prescribed by the Act. He shall also facilitate the possession of all information to the consumer, at the time of booking and provide any other assistance as prescribed.
- Amount of sales concluded, progress of projects, receipt of pending approvals and other such declarations which are key to project delivery and other information is to be shared with the consumers from the date of the enactment of the act.
- The consumers can claim possession of the unit and the association of consumers can collectively claim possession of the common areas as declared by the real estate developer. If the real estate developer fails to meet the timeline or does not deliver what was promised, the consumer has a right to claim refund of amount paid along with prescribed interest and compensation for the same.
With the points above and much more in store for the parties involved in a real estate transaction, the Real Estate Act or the RERA Act is all set to organise one of the most disorganised sectors of India. Will this solve the inherent issues? Only time will tell.
This is just a short snippet of the some of the most important features of the Act