The real estate sector is one of the major pillars of the Indian economy, due to the significant contribution to its growth. But despite its major importance, it has always been plagued with inefficiency, lack of transparency and corruption. This has diminished stakeholder confidence in real estate. To address this, the Indian government has introduced Real Estate Regulation Act (RERA). The specialised regulator will bring uniformity and transparency in the relevant laws governing this sector.
What is RERA and How Did the Act Come About?
The real estate sector in India is recognised globally for its size and growth potential. It is the second largest employer in the country after agriculture and it is expected to grow at 30% over the next ten years. By the year 2020, the Indian real estate market is set to touch USD 180 billion.
Yet, there have been few regulations in this area for a long time.
Over the years, the image of the sector had been tarnished due to the fraudulent practices of a few individuals and companies. In addition, home buyers faced a lot of issues with developers and agents regarding construction quality, delays in delivery and other problems. However, there was no effective forum for the house-buyer to voice out his/her complaints.
Recognising such issues, the Central government tried hard to make this sector adhere to certain rules and guidelines.
RERA is the result of this effort. Now, each state and Union Territory (UT) will have its own Regulatory Authority (RA). Each RA shall frame its rules and regulations as per the guidelines provided by the Act. Under RERA, property buyers, sellers and agents should be aware of numerous provisions:
Important Provisions of RERA
- As per the new law, developers are not allowed to make any changes to the construction plan without the written consent of 2/3rd customers of a project. This is to ensure that the buyers are completely aware of the changes proposed by the developer. In addition, the law forbids the developer to increase the cost of projects.
- The developer has to give a declaration that is supported by a written affidavit that states the period within which the project or a specific phase of the project shall be completed.
- In the case of defaults or delays in possession, the buyer can withdraw from the project and claim refund of the amount paid along with the interest. But if the buyer doesn’t want to withdraw and doesn’t want a refund, the developer must pay interest for every month of delay until the property is handed over for possession.
- Each phase of an apartment will now be considered as a standalone real estate project under RERA. It is necessary to obtain separate registrations for each and every project.
- Developers can’t invite, advertise, sell, offer, market or book any plot, apartment, house, building, investment in projects, without first registering it with the RA. Furthermore, after registration, all the advertisement inviting investment will have to bear the unique RERA registration number. The registration number will be provided project-wise by the regulatory authority.
- Developers must register each and every property. Non-registration will attract a penalty of 10% of the total project cost. In the case of a repeated violation, the developer could land in jail.
- In case a developer violates an order of the appellate tribunal of the RERA, he/she could face a maximum jail term of three years with or without fine.
Benefits of RERA to Home Buyers
Under the new law of RERA, there are certain benefits that buyers are entitled to:
- Escrow Account:
As per the law, the developer has to transfer 70% of the money paid by the buyer to an escrow account. This is to ensure that developers use the funds do not misuse the money paid by the buyer.
- Carpet Area:
A developer must sell the property to buyers based on carpet area only and not on the super built-up area. Super built-up area is equal to the carpet area and the thickness of the outer walls and common areas such as lobby, lift and stairs. It is illegal to sell property based on super built-up area.
- Five-year Warranty
A provision under RERA ensures that in the first five years, the builder has to take care of all structural defects in the building.
- Redressal System
The introduction of the RERA means home buyers can now approach their State Real Estate Regulatory Authority in the case of any grievances.
How RERA Affects to Real Estate Agents and Developers
The RERA directly impacts real estate developers and agents. Gone are the days where builders had the freedom to use funds as per their requirements. The new provisions ensure much stricter control of funds and their management. Developers have to deliver projects in a timely manner or they could risk high penalties.
As for real estate agents, it is mandatory for them to be registered with the Regulatory Authority as well as the developer.
Once they are registered, it becomes very difficult for agents to mislead buyers.
To sum it up
Regulation in the real estate sector has been long due. The introduction of RERA is hailed as an important move. While the Act has been implemented, it is important for each state to create awareness and empower home buyers.
Additional Read: Did 2017-18 budget hold promise for real estate sector