11 May 2018, 09:42 — 8 min read
RERA, the Real Estate (Regulation and Development) Act - 2016, came into force on May 1, 2016. It aims to protect the interest of buyers and bring transparency to the real estate sector. The new act will have a significant effect on home buyers, builders, and estate agents. Under this act, a builder cannot escape registration of a project, irrespective of the nature of project. The process is exceedingly transparent; such that the builder is required to provide extensive details related to the project on RERA’s website. This is extremely beneficial for the consumer because unlike before, now they get to see every bit of information related to the project much before the booking amount is paid, which wasn't possible before the act was implemented.
As per latest statistics, 27 states and union territories have notified rules under RERA (Real Estate Regulatory Authority) so far and 16 states and union territories have a fully operational websites for enabling online registration of real estate projects and agents.
One wouldn’t be going too far in saying that RERA will change the landscape of the real estate industry in India. The overall effect that it will have on the Indian economy is yet to be seen, but so far, it has been positive. However, that isn’t all, the salient features and benefits of the act are as follows:
No selling allowed without registering
As per the act, until and unless a builder, developer or promoter has registered under RERA, they aren’t allowed to sell the property. This puts an end to the operation of real estate as a free, unregulated sector. This is definitely going to work in favour of home buyers who are wary of investing and in fear of being duped. This also applies for ongoing projects i.e. those projects, which haven’t yet received an occupation certificate.
Mandatory to show all property details on the RERA website
This is one of the key steps in ensuring transparency. Builders and developers are required to publish each and every detail of the project on the RERA website if they want a registration. The registration is rendered null and void if the project hasn’t been listed on the website in full detail. The project details shall name of the promoter/developer/builder, address of the promoter/developer/builder, previous experience, proposed date of completion, stage of completion, progress of completion, registration number and certificate etc .The website also provides extensive information such as a copy of the layout that has been approved, affidavit for sale, proforma of the allotment letter and sale agreement etc.
Storage of funds in a separate account
Builders are supposed to now store their funds in a separate account. This is done to prevent misuse of these funds. Promoters/builders/developers have to sign an affidavit assuring that 70% of the funds received shall be stored in a separate account opened in a scheduled bank wherein all these funds shall only to be used for completion of the project. The withdrawal of funds from these accounts would require three certificates from different professionals as detailed below and the builder has to create an account for each and every project separately. All of this helps the consumer and the authorities keep an eye on the money and ensures that the money is being utilised for completing the project that has been invested in.
Three important certifications before withdrawal from separate account
Under RERA, there are three very important certificates which the developer needs to furnish before withdrawing any monies from the separate project account. The first one certifies the stage of completion of the project by the architect. The second one will be the accreditation of the actual cost by the engineer and the third one shall certify the construction cost and land cost incurred by a registered and qualified chartered accountant. Without these certificates, withdrawal of funds by the promoter won’t be possible until the project has been completed and an occupation certificate obtained. Once the project has been completed, the promoter can withdraw whatever amount is remaining in the separate account. These certifications also further the cause of transparency and hold the builders and developers answerable for unaccounted withdrawal of funds.
Registration of estate agents - Understanding that agents play one of the most crucial role in influencing the sale of the project, under the new act, not just builders and developers but also real estate agents are supposed to register. This step has been taken in order to ensure fair and transparent transactions. Any website or individual needs to acquire a valid registration number before selling any property personally or through a builder. This definitely weeds out those agents who earn money by constantly duping people and hence, improvises the standard of working for real estate agents. This safeguards the people against builders as well as agents. After all, one spends hard earned money, saved over the years, when buying any kind of property.
Ensure on-time delivery or face penalties - The rules of RERA are such that there is little possibility that the builders will be able to delay project delivery. A lot of times, there is a delay due to land disputes, however, the act requires an affidavit stating details of land ownership and authorisation for development on said land. The penalty for delay is Simple interest at 2% + prevailing MCLR (Marginal cost of funds based lending rate) of the State Bank of India from the date sums are received till the time possession is given.
Emphasis on improvement in quality of construction - Responsibility for first 5 years - Since nearly every rupee will have to be accounted for and all stages of the project certified, the builder/engineer won't have any chances of cost cutting. It will also ensure that there is no compromise anywhere and hence, the overall quality of the final construction will improve. More importantly, builders are required to give a 5 year warranty against structural flaws.
Grievances and penalties - Repeated offences can lead to imprisonment
A consumer may file a complaint against the promoter, the builder and/or the real estate agent. Any person can file a case under RERA wherein he or she shall receive the necessary details. Similarly, he or she can also file a case for any relief funds sought. The act clearly states the rights and duties of the builder/developer/seller and any failure to comply with them will definitely result in imprisonment. In fact, the punishment to the developer for not complying to the RERA regulation is very severe and can be as high as a jail term of 3 years or a fine of 10% of the total cost.
With more than 27,000 real estate projects and approximately 17,000 real estate agents have been registered under RERA so far, clearly showing that the real estate industry is finally coming to terms with the act and with each passing day, more and more developers, promoters and agents are embracing the new era of RERA. In the years to come, RERA shall change the way Indians buy and sell property. Since it’s implementation, RERA has already raised transparency levels and brought about accountability. The stringent protection of consumer interests and the new regime of transparency in the real estate transactions via this act shall definitely result in attracting more investment from domestic as well as foreign investors.
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Posted byVirendra Adhikari
Asset India is a London-based company that helps NRIs and PIOs buy and sell Indian real estate. And helps them grow their wealth in the process. we are currently serving NRIs/PIOs...
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