Heightening the anticipation of many (for most of the later part of 2016), were the two processes of India’s biggest Tax Reform, GST, and the Demonetization Drive (announced by the Hon. Prime Minister on the 8th of November, 2016). This anticipation has led to a lot of talk about their impact on the Real Estate Sector (a major driver and important contributor to the economic growth of the country). However, another major law that will have a far greater impact, than the two above, on all concerned is the Real Estate (Regulations and Development) Act, 2016 (also called the RERA Act).
This Act, promulgated by the central Government, which all States and UT’s will have to roll-out in the immediate future, envisages setting out clear roles and responsibilities of all players (developers, customers, government, agents etc.) and a mechanism to keep track of real estate projects. It mandates the setting up of a Real Estate Regulatory Authority (RERA), something like TRAI, which will have powers to regulate the sector and improve its functioning from time-to-time as per prevailing conditions.
However, as a home buyer, what does this Act mean for you in specific and the industry in generic? Here are some pointers in a Question Answer format:
Q1. I am planning to purchase an apartment in a project, which is currently under construction and likely to be completed in a year or so. Will my project be covered under this Act, as it was initiated before the Act?
Yes, all ongoing and new projects at the time that the Real Estate Regulatory Authority (RERA) is installed, will need to register with the said Authority RERA and follow all provisions mentioned thereof. This applies to both residential as well as commercial projects.
In case your project has already received its completion certificate (CC) from the local authorities certifying that the constructed project meets the approved plans as submitted with them prior to implementation of the RERA Act by the state/Union territory government where the project is located, no registration is required with the Authority and the project will be out of the purview of the Act. The same also applies if your project has been granted the Occupancy Certificate (OC) prior to the Authority getting set up, as the OC is given only after the CC.
An important point to be considered is that different states may have different conditions with regards to project coverage under RERA, but in general, the state RERA will be expected to, by and large, keep the essence of the central Act. The states of Uttar Pradesh, Madhya Pradesh and Karnataka have already implemented their own RERA, but while the latter two states have by and large, no conflict with this provision of the Central law, the states of Uttar Pradesh and Gujarat (draft version) have sought to exclude certain ongoing projects from the purview of the Act.
Q2. I own an apartment and am looking to give it out on rent. Do I come under the Act?
No, rentals are outside the purview of the Act.
Q3. A developer is offering good incentives to buyers in the Pre-launch and soft launch phases of his project. Should I go in for the same?
As a concept, a “Pre-Launch” of any project offers a Developer a platform to raise needed funds for kick starting a project, helps in cash-flow and also acts as a gauge to the demand for the project enabling more realistic projections in/of the future. Now, a Developer will have to raise funds from other sources, often at a higher cost, in the absence of these funds from Pre-sales.
However, Developers will have to first secure all approvals and register the project with RERA before any kind of launch, thus bringing down the associated risk factor for a home buyer. It’s likely that the higher cost of capital (raising funds) for Developers could reflect on the price buyers pay for their home later.
Q4. The Act mentions that 70% of the amount collected by the developer from home buyers (like me) are to be deposited in an escrow account. What does this mean for me?
While this practice (utilization of an escrow account) has slowly picked up (and most reliable developers are doing this voluntarily now), RERA requires that the developer deposits a sizable amount (70%) of the amount he receives from customers into an escrow account for greater transparency where funds being used for which they are collected, i.e. construction of the project.
Q5. The developer promised me possession by a certain date, but a year on, I am yet to receive it. What does the Act have for me?
Developers will submit project timelines as agreed between the buyers and themselves to RERA and both parties are expected to adhere to their part of the agreement. This means that the Developer needs to compensate the buyer, as per the AOS, in case of delays and at the same time, the buyer will need to pay penalty for delayed payments (as per the agreed Payment Schedule and/or as mentioned in the AOS) from their side too. Hence, this Act ensures transparency and fixes responsibility of both parties in a real estate transaction.
Q6. Can I check the plans, approvals, timelines etc. for my project and get updates on the actual progress of work on site from the developer?
RERA will operate a web-portal, where any viewer can check all details related to a project, including the plans, approvals, timelines, names of contractors, number of units and also disclosure about all areas (including common areas, carpet area and others) etc. Developers will also need to share regular updates on the progress of the project for greater transparency. It is the responsibility of a home buyer to do their due diligence on the project via the portal, so that they are assured of the developer’s credentials and the project’s adherence to quality and time standards.