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RERA: A Boon Or Bane For Real Estate Sector

It is a well-known fact that housing is one of the basic needs of humans. Access to adequate housing can be a precondition for the enjoyment of several human rights, including the rights to work, health, social security, vote, privacy, or education. Safe, secure, and adequate housing is a fundamental need of human beings. Realizing the gravity of the problem of the housing, the right to housing has been recognized under international as well as regional human rights law as it is the basic right of the individual. In the line with the international human rights law, various States have also carved their legal system to encompass the right to housing as the fundamental right of the citizens.

The Indian judiciary has demonstrated commendable interest in the right to housing and interpreted this right under the context of the right to life provided under article 21 of the Constitution. Over some time, it was seen that the demand for housing has been significantly increased. To give its importance and to bring transparency, The Real Estate Regulation Act (RERA) was introduced on 1 May 2016 and implemented on 1 May 2017.

The prime objective of this act is to bring accountability and transparency to make real estate transactions simple as housing is a key input in economic, social, and civic development. Many buyers know that RERA has been implemented to protect the consumer rights. RERA act mainly focuses on the consumer's major issues related to incorrect information of projects by the promoters, maltreatment of funds, and delays in completing real estate projects.

The Real estate Regulation and Development Act, (RERA), 2016 is a revolutionary act of the parliament of India in the history of the Indian real estate sector. On 10th March 2016, Rajya Sabha passed the real estate bill, and on 15th March 2016 by the Lok Sabha. And on 25th March 2016, the bill was passed by the Honorable President. Including that for publishing information our honorable President published the act and was published in the Official Gazette on 26th March 2016.

For regulation and promotion of the real estate sector, an act to establish the real estate regulatory authority to ensure the sale of plot, apartment or building, sale of real estate project, or to protect the interest of the consumer in the real estate sector and to establish an adjudicating mechanism for speedy dispute release in an efficient and translucent manner.

According to RERA, to govern the functioning of regulators, each state and union territory will have its own set of rules and regulators. Including the national capital, the center has drafted the rules for Union territories. Many of the states have notified rules and a regulatory will start functioning, while many states are still behind on schedule for notification of RERA rules.

The notified states till 31st July 2017 are Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, Andhra Pradesh, Bihar, Chattisgarh, Haryana, Karnataka, Kerala, Uttarakhand, Odisha, Punjab, Tamilnadu, and Uttar Pradesh. Land acquisition has become an issue in numerous places. Without the approval of plans, delinquent builders often sell projects to investors with bad quality of construction, and project stuck in litigation, etc. RERA seeks to address issues like delays, price, quality of construction, and other changes. The act aims to improve translucently and motivate fair practices in the sector.

What Is The RERA (Real Estate Regulatory Act)?

The Real Estate (Regulation and Development) Act, 2016 (RERA) is an Act passed by the Indian Parliament. In the real estate sector, the RERA seeks to safeguard the interests of home buyers and also amplify investments. On March 10, 2016, the Rajya Sabha passed the RERA bill, followed by the Lok Sabha on March 15, 2016, and it came into force from May 1, 2016, where 59 of its 92 sections were notified, and from May 1, 2017, the remaining provisions came into force. The central and state governments are necessitating notifying their own rules under the Act, based on the model rules drafted under the central Act.

The key objectives of the Act are:
  • Ensuring Translucency in the real estate sector concerning the sale of flats, apartments, plots, buildings, or any kind of real estate project.
  • Establishing an adjudicating mechanism for speedy dispute redressal.
  • Protecting the interest of buyers/allottees in the real estate sector.
  • Establishing a bridge of trust between buyers and the promoters, using authority as a medium.
With the rise in disputes between buyers and the promoters, the Real Estate Regulatory Act notification by the Government of India has led to some guidelines which the promoters have to fulfill as to legally build a project or sell it.

RERA has brought some milestone changes in the real estate sector of India. The unflinching promise of the government into a private sector like real estate maintaining fair play in the property business has come as a big solace for the buyers. Apart from the buyers, the promoters and the real estate agents who go by the government norms, but suffer from some loss because of some ill practices by some promoters, real estate agents also will feel happy and pleased.

At present only four states have established their permanent regulator they are:
Madhya Pradesh, Maharashtra, Punjab, and Gujarat. The remaining states are working with interim regulators. Only 23 States/UTs have notified the rules under the Act, while six states have drafted the rules but have not yet notified.


The home buyers have grumbled for so long that real estate transactions were skewed and laboriously in the esteem of the developers. RERA and the government's model code, focus to design a more rightful and fair transaction between the seller and the buyer of properties, substantially in the primary market. RERA will make real estate purchase effortless, by bringing in superior accountability and translucency, provided that states do not weaken the provisions and the soul of the central act.

The RERA will bestow the Indian real estate industry its first regulator. For each state and union territory, the Real Estate Act makes it obligatory, to form its regulator and draft the rules that will govern the functioning of the regulator.

Which Projects Come Under RERA?

The projects which shall come under the RERA are likely to be:
  • Commercial and residential projects including plotted development.
  • Projects measuring more than 500 sq. meters or 8 units.
  • Projects without Completion Certificate, before the commencement of the Act.

The project is only for renovation/repair / re-development which does not involve re-allotment and marketing, advertising, selling, or new allotment of any apartments, plot, or building in the real estate project, will not come under RERA.

Reasons For Introducing RERA

Since 2012 Indian real estate sector has been facing collapse due to factors like:
  • Unemployment,
  • Recession,
  • Low rental yield,
  • Inventory pile-up,
  • Unclear taxes and arbitration.
Nevertheless, the property prices have not stabilized accordingly The Indian Express, 2017. As a consequence, the demand for property has reduced further. This reduced demand in the recovery of investment for builders.

For a homebuyer investing his life savings in the property, indeterminate delays, or hinder is a cause for worry. By misleading those about the quality of construction and completion, brokers or property agents took advantage of approaching homebuyers. They mislead homebuyers about concerning resources of the property. They would commit orally about concerning property documents that were often missing or incomplete. Moreover, the agents would conceal the status of properties under litigation from prospective buyers.

Jurisdiction Of RERA

From July 1, 2017, the Real Estate Regulation and Development Act (RERA) came into force in various States. The ambits of the RERA act are not restricted to new projects to be started after the implementation of the RERA Act but also covered projects that were ongoing on the date of commencement of the Act and had not received a completion certificate from the concerned Authority.

A question of law recently arose before the Maharashtra RERA Authority that whether in cases of termination of the agreement before the implementation of RERA Authority, the jurisdiction of the RERA authority is ousted or not?

In the case of Chauthiprasad S. Gupta vs. M/S Nahalchand Laloochand Pvt. Ltd, the buyer had made a substantial payment to the builder, and thereto the builder executed and registered a sale agreement for a unit in NL Aryavarta at Dahisar (East), Mumbai. As per the buyers' version, the builder terminated the agreement of sale unilaterally by way of a termination letter without giving any opportunity of being heard to the buyer. The builder, therefore, prayed before the Authority for directions to the builder to withdraw the termination letter and for awarding of interest and compensation.

The builder disputed the claim of the buyer on the pretext that the termination of the agreement was done before the implementation of RERA therefore the RERA authority lacked the jurisdiction to entertain the present complaint. Further, the builder contended that the termination of the agreement was as per the clauses of the agreement hence needs no interference from the Authority.

Concerning the jurisdiction issue raised by the builder, the Authority took the view that the project in question falls within the definition of an ongoing project and that the project is registered under Section 3 of the RERA Act. The jurisdiction of RERA Authority over such projects continues until the projected is completed and the obligations of the promoter regarding the project get fully discharged. The authority, therefore, decided that the RERA Authority has jurisdiction to entertain such cases.

To conclude, the builders today cannot escape their liability by taking shelter under the non-maintainability of the complaint if the project is registered under the RERA and has not received an Occupational/ Completion certificate yet.

Impact Of RERA On Real Estate Industry

  • Initial backlog.
  • Increased project cost.
  • Tight liquidity.
  • The risein the cost of capital.
  • Consolidation.
  • Increase in project launch time.
Initially, a lot of work is to be done to get the existing and new project registered. Details such as the status of each project executed in the last 5 years, promoter details, detailed execution plans, etc., need to be prepared.

With the advent of RERA, specialized forums such as the State Real Estate Regulatory Authority and the Real Estate Appellate Tribunal will be established for the resolution of disputes about home buying and the aggrieved party will have no recourse to other consumer forums and civil courts, on such matters. While the RERA sets the groundwork for fast-tracking dispute resolution, the litmus test for its success will depend on the time setting up of these new dispute resolution bodies and how these disputes are resolved expeditiously with a degree of finality.
  1. Impact of RERA on the buyer
    RERA has been introduced to protect the rights and interests of property buyers. To increase translucency in project completion status, the developers must disclose the construction status on the official website of the Authority. This has to be done every quarter i.e. in every 3 months after getting the registration number from the authority. In case of any malefaction by the promoter/ builders, the buyer/allottee can file a complaint to the Authority online. The complaints of the buyers/allottees are mandated to be resolved within 120 days. Builders/promoters cannot change anything in the structure of the building without prior assent from all the buyers. All these measures, in addition to those mentioned in the sections of the Real Estate (Regulation and Development) Act 2016, is expected to boost the confidence of the investors.
  2. Impact of RERA on promoter/ builders
    Under RERA the builders must register critical statistics regarding the project. This includes:
    • Layout,
    • Details of the promoter,
    • Status of the land a title should be undisputed,
    • Status of statutory approval from the concerning authorities,
    • Agreements followed by all the schedules mentioned in the RERA act,
    • Details of the brokers,
    • Architects and contractors,
    • Certificates from Engineer and C.A.

In case of failure to register this information, it will lead the promoter/ builders to heavy penalties. The builders are bound by a five-year agreement with the buyer for quality affirmation of the building and these 5 years are calculated from the date of possession. This means that within five years of selling a property if construction quality or any other structural issues arise they (builder/promoter) will have to repair it or compensate for it. They also have to ensure the formation of the Resident's Welfare Association within three months of the project completion. According to section 18 of the RERA act, 2016 buyers can affirm a refund in case of delay or dissatisfaction with property puts developers in a fix.

Apart from disclosing critical information mentioned above to buyers, they also have to state the exact size (carpet area) of the property. They can no longer state super-built up area (i.e. common area, verandah, etc.) as the size of the property. Because of this they can no longer charge buyer the amount for a super built-up area. Developers can start selling only after getting approval from RERA.

RERA also reduced the liquidity of the builders due to the clause of 70% of the project cost received by the builder should be submitted in an escrow account and this 70% amount should be used in the same project. Certificates of CA, Engineer is necessary before sanctioning of money from the escrow account.

3. Impact of RERA on new projects
Any project with over 8 apartments or a size of over 500 sq. Mts. is required to be registered under RERA. The developers have to register each stage of construction independently with the State Authority. Since builders have to register their new projects, they cannot pre-launch a project. Pre-launches used to be the major source for raising capital. There is a cap on the number of deposit builders that can accept from buyers.

Under RERA a builder cannot take more than 10% as an initial deposit. Advertising a project without registering it first is also banned in case of advertising without registering with RERA; RERA can send notice to the builder and can take action against the project under section 59 of the RERA act, 2016.

The Act also addresses two major issues faced by buyers:
  1. Delay in construction and
  2. Quality of construction.
    In both cases, if a builder disdain on the norms of RERA, the builder will be liable to compensate the buyer for the loss. The compensation is decided in the initial agreement signed between the parties. It also specifies the amount of interest payable by the builder in case of construction delays.
  3. Impact of RERA on ongoing projects
    The developers who still have under construction projects may face difficulty due to RERA. As per the Act, all the ongoing projects have to now register first with the regulatory authority before moving further in completing the project. They are also prohibited from advertising or promoting the property before registration. These steps are likely to delay the construction and sale of the existing property greatly. RERA also mandates builders to issue occupation or completion certificate before handing over possession to the buyer. As of today, there are lakhs of flats in all major cities of India like Mumbai and Bangalore who have failed to do so.

    Another concern for these developers is whether they will get the certificates on time or not as this depends on the Municipal Corporation for the projects under the planning area and the non-planning area, it depends on the Gram panchayat. In cases where developers seek an extension, the amount of time granted for project completion would depend upon the authority plus there will be a fine charged by the authority for the delay in the project.
  4. Impact of RERA on Agents and brokers
    Traditionally, the Indian real estate agents have been an unorganized segment of the sector. However, the new legislation makes it mandatory for the brokers to register themselves to facilitate a transaction. According to an estimate, there are 5, 00,000-9, 00,000 agents in India which has an unorganized and unregulated affair in the real estate sector. With RERA in force, brokers cannot promise any amenities or services that are not mentioned in the documents. Moreover, they will have to provide all information and documents to the home buyers, at the time of booking.

    Consequently, RERA is likely to filter out the inexperienced, unprofessional, fly-by-night operators, as brokers not following the guidelines will face hefty penalty or jail or both. Under RERA, brokers will no longer be able to sell properties without registering with the Authority. They can also be penalized in case of wrong information shared with buyers regarding the property. However, the fear among industry players is that many unorganized brokers will find themselves out of work. Agents need to pay a fee to register them. Citing issues of lack of faith in builders and lack of benefits for agents under RERA, many agents will choose to shut their shops.

Advantages Of RERA

  • RERA has brought uniformity in the real estate sector related to carpet area, common areas which will prevent malpractices like changes in layout, area, agreement, specifications, details about the broker, architect, and contractor, etc.
  • Developers need to make timely delivery of the booked office spaces or homes. If not strict compensation and imprisonment can be taken against the developer.
  • The same features promised at the time of registration need to be delivered at the time of handover. If not then the builder can be penalized.
  • Specifying the carpet area and not the built-in area which is more than the former by at least 20 to 30% is mandatory.
  • Completion of clearance from the government departments is compulsory before selling any house or office space.
  • A separate bank account should be opened for each of the projects promoted by a developer.
  • The buyer can approach the developer for any defect in the building within a year of the handover and get it rectified free of charge.

Disadvantages Of RERA

  • The rules and regulations passed in the new bill do not apply to the ongoing projects or projects that are held up due to some clearance issues.
  • Government agency delay in approval and clearance may hinder the timely delivery of products.
  • Small developers with projects less than 1000 sq. m. do not come under the purview of this act and registration with the regulator is not mandatory for these.
  • Without clearance, projects cannot be launched and so the launching of new projects may get delayed.
The advantages are heavier than the disadvantages and this is a good step to help the commoners get the delivery of his dream home on time and be able to buy them at reasonable prices.

Market Situation After One Year Of RERA

  • There have been fewer project launches and the focus has been on execution.
  • Developers have tried to adhere to compliances, to avoid litigation.
  • Relaxed delivery timelines for existing projects has granted developers an escape window.
  • The market is yet to witness any landmark judgment that could set a precedent.
The developers, nevertheless, feel that the RERA has changed the market dynamics, in a short period. Anita Arjundas, managing director, Mahindra Life space, asserts that the RERA is India's first serious attempt, to regulate an industry that has been perceived as less than transparent. A year into the implementation of the Act, we can sum it up as a year of transformation and volatility and at the same time, as one that holds the promise of new opportunities.

  • States should refrain from introducing exceptions to the definition of ongoing projects
    The concoctionof the definition of "ongoing projects" creates a conflict with one of the main objectives of RERA, which is to provide translucency and better conveyance to the home buyers. Central RERA is thoroughly clear on this issue. States should refrain from proposing exceptions and endorse the simple yet very clear definition of "ongoing projects".
  • Make government agencies accountable for the delay in granting approvals
    If there is any kind of delay in granting required government approvals for a real estate project (like ownership certificate, land-use conversion, environmental and pollution no-objection certificates, non-encumbrance, road access, and other related infrastructure-related approvals) can lead to delay projects. For preventing the probability of delay in delivery, every approval process should legally be made time-bound.
  • RERA provisions for punishment of violations, in the form of imprisonment and fine, should be kept intact in all state laws
    For different violations, the states should do away with the compounding options of imprisonment/ penalties in state laws.
    In case of non- compliance for developers, real estate agents and buyers the Central RERA 2016 recommends imprisonment for a term, extendable up to 3 years, or fine which may go up to 10% of the estimated cost of the real estate project, or both. But, except for Kerala all other states and union territories have added a clause of compounding of offense to avoid imprisonment and Goa the draft is silent on this.

    RERA is a quasi-judicial body, and to trusting its judgment to redress the RERA instilling faith in its redressal mechanism will require, to a large extent. So, instead of constituting a replacement of any specific punishment the Central RERA provisions for punishment of violations, in the form of imprisonment and fine should be kept intact in all state Laws � leaving the actual judgment to the regulator itself.
  • Clearly define home buyers in the class of creditors to avoid conflict between IBC and RERA
    In ongoing projects, the recent developments highlight the problem of builders declaring bankruptcy.Being the "unsecured creditors", the rights of home buyers may get violated in such cases. Thoughthe new Bankruptcy Act applies to these projects, an organized approach is required to protecthome buyers' rights.
  • Set up IT infrastructure
    A booming IT infrastructure for RERA � along with effective and efficient monitoring structure andrapid redressal of complaints in case of violations � is mandatory for the long-run success of thislandmark legislation.

The act is a positive change in terms of increasing transparency in the real-estate sector, increasing accountability of the promoters and developers, and establishing efficient forums for grievance redress. This will consequently lead to lower litigation due to stringent rules and regulations in the highly corrupt sector.

The past few decades have seen increasing attention given towards the constructive urbanization process in the context of the rapid transformative process of the country as the nation strives to enhance the capacity to cope up with developmental needs through urbanization. In-country like India, a standardized Real Estate Regulation Act is necessary to have uniform standards throughout the country and to bring transparency in transactions.

The implementation of an act like RERA is a firm step in the right direction to bring awareness in terms of customers, promoters, builders, etc. In the future, in the lines of RERA, modernization of land records, land acquisition, and GST can also be put on priority for the growth of the real estate sector. It is made compulsory for the various stakeholders like builders, promoters, agents, and allottees are to comply with the specification of the projects, project agreements, and regulatory frameworks.

It is also to be noted that the real estate entities must ensure that the properties of allottees are well maintained and that residents are satisfied with the conditions of the properties. The RERA is a significant move in this regard to ensure greater accountability of the real estate builders and agents towards customers as well as the government.

The RERA is committed to the successful and effective implementation of the real estate law of the country and has taken relevant and consistent measures for the progressive development of the sector in the country. To encourage sustainable development of the RERA, along with a customer-friendly environment, various policy measures incorporated under the RERA would certainly bring remarkable changes in the economic and social transformation.

Written By:
  1. Muskan Joshi - Renaissance law college
    Ph no: 7223813170
  2. Sakshee Jaiswal - Renaissance law college
    Ph no: 7693048368

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