January 23, 2022

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RERA: a threat to builders and developers or not

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This article has been written by Shalini Singh, pursuing a Certificate course in Real Estate Laws from LawSikho.

Table of Contents

The Real Estate (Regulation and development)  Act (“The Act”) has definitely been a boon for the customers/buyers/prospective buyers. RERA has stringent regulations which builders were mandated to follow. Mandatory registration of all real estate projects with RERA was one such requirement. RERA also sought to put an end to builders changing building plans after taking the booking amount from buyers with the provision that changes in plans must have the consent of the buyer. The practice of levying extra costs and hidden charges was also curbed by RERA. There has always been a gap between the developer and the buyer. Whenever the real estate sector has seen a recession, the major reason behind this has been trust. Buyers have always been in the fear that the developer will not give possession on time or he will not provide the required documents or he will not deliver the promised quality of the property. 

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The RERA is deemed as the Court of Original Jurisdiction in all matters that are exclusively or substantially the subject of the Act. It has been modelled to function only as a monitor ensuring timely completion of projects. RERA maintains comprehensive records for every project across the entire chain, from the conceptualization of the project to its completion. 

The key change brought about by RERA was imposition of monetary penalty on builders in case of project delays. The Act also clearly defined “carpet area” to ensure there was no confusion in calculating the area that the builder can show and charge for.

Mentioned below are the restrictions which are imposed on promoters and agents:

  1. There is a prohibition on creation of any charge or encumbrance on any apartment/property etc. after the execution of an agreement for the same.
  2. There is a prohibition on altering any plans, structural designs and specifications of the apartment, building or land without prior permission of the 2/3rd of the allottees.
  3. Real Estate agents are required to facilitate access of all the information related to the project to the respective buyers at the time of booking.
  4. Real Estate agents are to refrain themselves from making false statements, misleading representation and indulging in unfair trade practices. Prohibition of real estate agents from facilitating any sale or purchase of plots/apartments in projects without obtaining registration with the RERA. 
  5. 70% of the amount collected for the projects must be used only for construction of that project and must be kept in a separate bank account. Also, the deposit of 70% is for both construction cost and land cost, and if the land cost has already been incurred, the promoter can withdraw to the extent. This provision has been provided to ensure that project funds are not diverted and projects are completed on time.
  6. The promoter shall, upon receiving his login Id and password from the authority, upload the details of the project online.
  7. Promoter shall be responsible for making available to the buyer, site and layout plans of the project, the schedule of completion of the project and other documents enumerated in the law.
  8. The project should be developed and completed by the promoter in line with all the approved plans and structural designs and specifications by the competent authorities. A promoter shall not accept a sum of not more than 10 % of the cost of the apartment, plot, or building, as the case may be as an advance payment or an application fee, from a person without first entering into a written agreement for sale with such person. 
  9. If a buyer incurs loss due to false advertising and withdraws from the project, the promoter must return the amount collected, with interest.

Before buying a property, a prospective buyer must do a thorough research on the building.  As a buyer or a prospective buyer there are innumerable things one must keep in mind and do a thorough check and research in order to make a smart choice. Other than that, one must also be aware of the laws in favor of the builder and also the one in favor of prospective buyers so that they understand all their rights and duties. 

Real estate companies, perceived to be a non-transparent lot, would have to submit a slew of details to a proposed regulator. Violations are likely to attract stringent penalties, which are scaring company owners and even prompting directors on their boards to quit.

From small property dealers to board directors of realty firms — all can face punishments under the provisions of RERA. Players in the sector feel threats are manifold. Smaller builders said they fear some clauses in the Act threaten to wipe out their very existence. There are also fears of cost escalation as clearances could take longer than usual. The company has been taken to court by buyers for alleged non-delivery of flats. Working on multiple projects would also be a challenge as the proposed regulator would seek details of previous projects before sanctioning new ones, according to the Act. With the number of non-delivered apartments piling up, companies would need to clear the backlog before launching new projects. Developers were also worried about details they would have to submit to the regulator.

Apart from the details of the promoters of the companies, they would have to provide details of current and previous projects, and their status, with reasons if they were pending. Details of pending legal cases would also have to be shared with the authority. Builders fear all this would escalate costs.One of the biggest hurdles will be that builders have to put 70 percent of sales receipts from customers in an escrow account, in the backdrop of many developers diverting funds as they are unable to complete projects.

However, what is getting them most jittery are the strict norms that would make surviving difficult.  Builders can sell only the carpet area, but stamp duty has to be paid on saleable areas. Smaller players, who work with 500 sqm or a little more space, would have a hard time clearing all the clauses of the Act, experts said. They believe many might have to shut shop. Property dealers or brokers, who in most cases just show properties, have to be cautious, too. Brokers can only market projects for which they are registered and will have to refrain from over-promising on behalf of the builder, according to the rulebook. Online realty players might also be brought under the ambit of RERA, experts said.

There was, however, a silver lining on the horizon. With stringent rules, RERA had brought the focus back on deliveries. Developers were now focusing only on completing projects and selling units. Also, all the projects without completion certificate on the date the legislation became active in a state would have to register with RERA. Hence, developers were in a hurry to complete delayed projects, trying to avoid being brought under the ambit of the Act.

Before buying a property, a prospective buyer must do a thorough research on the building.  As a buyer or a prospective buyer there are innumerable things one must keep in mind and do a thorough check and research in order to make a smart choice. Other than that, one must also be aware of the laws in favor of the builder and also the one in favor of prospective buyers so that they understand all their rights and duties. 

  1. The buyer must thoroughly go through the copy of the agreement. It is important to verify all the details provided to the original document of the property. It is important to note that the title of the seller should not only be clear but also marketable. The buyer should thoroughly examine the title report of the property (if available). 
  2. The buyer must cross check whether the builder has obtained necessary nonagricultural permissions from the collector for the desired land.
  3. The buyer must also check for the copy of clearance under the Urban Land Ceiling Act
  4. The buyer must check for the building plans that are sanctioned by the competent authority. 
  5.  The buyer should also check for CC granted by Corporation/Nagar Palika.
  6. The buyer should also check for all the building bye-laws and also verify any pertaining issues with the setbacks etc. 
  7. He must confirm with the seller the transfer fees, stamp duty and registration charges to be paid on purchase of the property as well as outgoings to be paid for the property.
  8. The sale agreement must be scrutinized in detail for municipal corporation approved plan of the flat, carpet area with area of the balconies shown separately, price of the property including the proportionate price of common areas and facilities shown separately and intervals at which installments may be paid.
  9. The buyer should verify that proper stamp duty has been paid on the property.
  10. It is the onus of the buyers to physically check the place before signing the purchase agreement. 
  11.  It is important to keep in mind that a buyer can only claim damages, if what was shown to the buyer is different or of low quality from what they were sold.
  12. It is advisable to employ a consultant.
  13. Please note that any dispute at a later stage can be taken to the real estate tribunal, but it will be a fair play out there. If the builder can prove that you have delayed payments or have not fulfilled his side of the commitment, the tribunal can punish the buyer as well.
  14. Please note that it is of utmost importance to do a background check on the builder and the project details to see if all necessary permission is in place and if paperwork is in order.

Conclusion

These restrictions are for safeguarding the interest of promoters and the consumer as well. But the builders are resisting to change to the new management concepts being imposed by the RERA. However, without a tough housing regulator, it is difficult to differentiate a good builder from a bad one. RERA is bad news only for the unscrupulous ones. These regulations ensure that fly by night operators and land grabbers/ speculators are sieved out. Timely completion of projects also means that there would be a steady increase in supply of homes.

All these will eventually bring down home prices and increase demand. All these measures are good for the overall economy too as the housing sector has strong backward and forward linkages with other industries.

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Even though the Act is inclined towards the buyer, it is balanced in most ways. For example- Apartment Buyers get monetary compensation for delay in projects: Now, under the Act both the consumer and developer will have to pay the same interest rate for any delay on their part.  These guidelines mean timely completion of projects also means there would be a steady increase in supply of homes. Builders get away with delayed handing over of possession. But with RERA coming into force the accountability of the builders have increased a lot more. So, it is right to say that RERA is bad news only for the fraud and deceitful builders.

The scope of this Act should be modified as it can become more business friendly to the players in the real estate sector. RERA has brought more transparency to the transactions and has brought about greater accountability to the developer as they have to deliver projects on time and with the said quality and size of the unit. 

  1. Anant Mills Co. Limited v State of Gujarat and Others [1975] 2 SCC 17
  2. Ahmedabad Municipal Corporation v GTL Infrastructure Limited and others etc – 2016-TIOL-230-SC-MISC
  3. https://economictimes.indiatimes.com/
  4. notification no.6/2019 by central government
  5. Circular No. 101/20/2019-GST
  6. the Central Government by Notification No. 4/2019 Central Tax 
  7. the Central Government by Notification No. 4/2019 Central Tax 
  8. Notification No. 3/2019- CTR dated 29.03.2019
  9. Shri Aman Agrawal (M/s Bilaspur Infrastructure Pvt Ltd)[2020-VIL-58-AAR] www.cbic.gov.in
  10.  www.almtlegal.com/
  11. https://mohua.gov.in/cms/real-estate-regulatory-authorities-of-states–uts-under  rera.php?url=real-estate-regulatory-authorities-of-states–uts-under-rera

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