An Overview of Real Estate (Regulation and Development) Act (RERA), 2016

, Last updated: 07 February 2025
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Introduction

In today's world, every person purchase immovable property from Real Estate Developers* whether for residential purpose or for commercial purpose. Sometimes allottees* faced challenges such as project delays, hidden charges, lack of information and mismanagement of funds by developers. The absence of a robust regulatory system made the sector prone to malpractices, causing trust deficits between buyers and developers. RERA was introduced to address these gaps and build a more efficient, transparent, reliable and organized real estate environment.

By redefining the relationship between the developers and buyers, RERA has established a level playing field and fostered trust in one of the most vital sectors of the economy.

An Overview of Real Estate (Regulation and Development) Act (RERA), 2016

Why we need RERA Act?

The RERA Act was passed by the Parliament in the year 2016 and came into effect fully from 1st May, 2017 but before 2016 there is no specific act that regulates the real estate sector in India. However, there are various other laws that regulates real estate sector in India.

Other laws that regulated the real estate sector before RERA Act, 2016 are

S. No.	Law Regulates	Explanation
1.	Indian Contract Act,1872	It defines the roles and responsibilities of parties involved in real estate agreements.
2.	Transfer of Property Act, 1882	It Provide and regulate the law related to the transfer of property from one person to another in a legal and orderly manner.
3.	Indian Stamp Act,1899	It mandates the payment of stamp duty on property transactions.
4.	Registration Act, 1908	It mandates the registration of property transactions.
5.	Urban Planning & Development Act	State Specific for Development of Urban Areas in the Respective States.
6.	Indian Succession Act,1925	It regulates the succession of property.
7.	Foreign Exchange Management Act,1999	It regulates foreign investment in real estate sector.
8.	Apartment Act	State Specific related to Law of Apartment ownership, transfer and management.
9.	Rehabilitation and Resettlement Act, 2013	It sets procedures for land acquisition by the government.

Also, before RERA Act the manner by which a builder measure the carpet area wasn't properly defined due to which price charged by builder was not fair price. However, the RERA Act, there is now a standard formula that is used to calculate the carpet area.

*Terms used

Developer - It is also known as builder which construct the apartment or building.
Allottee - Buyer of the property.

Purpose of RERA Act, 2016

The primary purpose of Real Estate Regulation and Development Act, 2016 is to regulate the real estate sector by bringing uniformity to the real estate industry through common guidelines and practices. It also established the clear roles and responsibilities for developers and buyers.

RERA also protects the allottee's interests by ensuring timely delivery of real estate projects from developers and safeguard buyers from fraudulent practices like false advertising, mismanagement of funds. It promote transparency in real estate transactions by mandate developers to disclose essential project details such as approvals, timelines, layout plans, and updates on the respective state RERA portals.

RERA hold developers accountable for adhering to committed project timelines and impose penalties or provide compensation to buyers in case of delays. Another purpose of RERA is to boost confidence in the real estate sector; RERA restores trust between developers and allottees by creating a regulated and fair environment. RERA encourage domestic and international investments in the real estate market by fostering credibility and professionalism.

Role of Escrow Account under RERA Act

The Escrow Account under RERA is a crucial provision designed to regulate the financial practices of real estate developers and ensure the safety of allottees' interest.

An escrow account is a special bank account where developers are required to deposit a certain percentage of the funds collected from allottee for a specific real estate project. The purpose of this account is to ensure that the money is utilized only for the development of the project for which it is collected.

Developers must maintain a separate escrow account for each real estate project. This avoids the mixing of funds from multiple projects and ensures transparency. Developers must deposit 70% of funds collected from allottee into an escrow account. This ensures that the funds are not diverted to other projects or personal use.

The remaining 30% of the funds collected from allottee can be used by the developer at their discretion but only for that project only. This amount is typically utilized for expenses that are not directly related to construction or land acquisition. It provides some flexibility for the developers to manage business operations while ensuring they still have sufficient funds to complete the project.

S. No.	Percentage (%) of funds collected from allottee.	Purpose
1.	70	Strictly utilized for the expenses directly related to construction or acquisition of land for project.
2.	30	Can be utilized for office expenses or indirect expense for the same project like advertisement or marketing expense related to same project.

Developers can withdraw funds from the escrow account only in proportion to the completion of the project. Withdrawal must be certified by a Chartered Accountant, Engineer, and Architect. Furthermore, the state RERA authority monitors the escrow accounts to ensure compliance. Developers are required to submit regular updates on fund utilizations to their respective state RERA Authority for the same.

If developer fails to comply with the provision of escrow account then he shall face penalties under RERA Act, 2016 as follows:-

1. If a developer fails to deposit 70% of the project funds into the escrow account, the state RERA authority can impose a penalty of up to 5% of the estimated project cost. Unauthorized withdrawals or mismanagement of funds can result in additional fines.

2. RERA has the authority to cancel the project's registration if the developer repeatedly violates the escrow account rules. After cancellation, RERA may hand over the project to association of allottees or appoint a new developer to ensure completion of the project.

3. If a developer diverts funds, leading to project delays or failure, affected allottees can claim compensation with interest on their payments.

Penalties for escrow account in tabular form are presented as follows

S. No.	Penalty Type	When applied	Penalty
1.	Financial Penalty	When developer fails to deposit 70% of project funds in escrow account	5% of estimated project cost.
2.	Project Registration Revocation	When developer repeatedly violates the escrow account rules	RERA has authority to cancel the project's registration.
3.	Compensation to Allottee	When a developer diverts funds, leading to project delays or failure	Paid compensation with interest to allottee

When it is mandatory to register project with RERA?

If you think every Real estate project must be registered with RERA then No, every Real Estate project doesn't need to be registered with RERA. There are specific criteria prescribed by the RERA for the mandatory registration. If any project meet that criteria then those project must be registered with their respective state RERA Authority.

If a project fulfill any of the below conditions then the project must be registered with RERA. The conditions are as follows:-

i) If a project has land area exceeding 500 square meters or,

ii) If a project plans to develop more than eight apartments including all phases of the project

So, any project meet the any of the above criteria must be registered with RERA. If the project is not registered with RERA then they are not allowed to any advertising of projects, and restricted to take bookings or sold such units of that project. Advertising, marketing, bookings and units sell of such projects are only allowed after the registration with their respective state RERA Authority.

Registration of Agent in RERA

In most of the cases real estate transaction are been effected through Real Estate Agents. Real Estate Agent are first point of meeting between Allottees and the Builder / Developer. So the Real Estate Agents are also covered under RERA. It is mandatory for a Real Estate Agent to take registration under Rera if he selling apartments in the registered / liable to registered project.

RERA Website for States

There are all work regarding Real Estate sector are done through RERA website whether it is registration of project by the developer or any complain registered by the allottee, all work are done through RERA website in many states. For providing a smooth and better experience to its users, RERA operates different websites for different states

The RERA website provides various services and activities related to the regulation of real estate projects. Generally, the website offers builders and developers to register their real estate projects with proper and mandatory details of project. Provided that allottee can verify the registration status of a project such as information on approved, ongoing, and completed projects is available on website. Allottee can also file complaints against developers for non-compliance through RERA website. RERA provides mechanisms for resolving disputes efficiently.

Furthermore RERA websites also provides compliance and Regulatory filings such as developers must submit progress reports and financial disclosures and RERA ensures projects comply with regulations and deadlines. The website also provides access to RERA Act guidelines and state- specific rules. Buyers and developers can access judgments and legal notices issued by RERA.

Penalties

To enforce compliance, RERA prescribes strict penalties for violations of rules & regulations described in RERA Act, 2016. They apply not only to developers and builders but also to agents and buyers in certain cases.

For Developers

If a developer fails to register a project with their respective state RERA Authority then he/she shall be liable to pay a penalty of up to 10% of the estimated cost of the real estate project. Further, if the promoter fails to comply with this rule and continues to be unregistered, he/she will have to face imprisonment for up to 3 years, and/or remit a fine which could be as high as 20% of the estimated cost of the real estate project.

If a developer provides false information for registration of real-estate project with the authority then he/she shall be liable to pay a penalty of up to 5% of the estimated cost of the real estate project. If a developer fails to comply with authority orders then he/she shall be liable to pay an every day penalty of up to 5% of the estimated cost of the real estate project. If a developer fails to comply with Appellate tribunal orders then he/she shall be liable to pay a penalty every day penalty up to 10% of the estimated cost of the real estate project or 3 years imprisonment or both.

For Real Estate Agent

If a real estate agent fails to register as agent with their respective state RERA Authority or engaged in unfair trade practice then he/she shall be liable to pay a penalty of Rs. 10,000/- per day till the default continues up to the cost of apartment booked through him/ her. Further if the agent does not follow the order of the authority then he/she shall be liable to pay an every day penalty of up to 5% of the estimated cost of the apartment booked through such agent. If an agent fails to comply with Appellate tribunal orders then he/she shall be liable to pay a penalty every day penalty up to 10% of the estimated cost of the apartment booked through such agent or 1 years imprisonment or both.

For Allottee

If a allottee fails to comply with authority orders then he shall be liable to a penalty for the period during which such default continues cumulatively extend up to 5% of the estimated cost of the real estate project. Further if any allottee, who fails to comply with, or contravenes any of the orders or directions of the Appellate Tribunal, as the case may be, he/she shall be punishable with imprisonment for a term which may extend up to one year or with fine for every day during which such default continues, which may cumulatively extend up to 10% of the estimated cost of the real estate project or with both.

Offences by Companies

If a company commit any offence under this act then every person who, at the time, the offence was committed was in charge of, or was responsible to the company for the conduct of, the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Penalties under RERA Act, 2016 in tabular form are presented as follows

S. No.	Parties	Penalty
1.	Developers	If project is not registered with Authority :- up to 10% of estimated cost of real estate project. If continues to fails then liable for up to 20% of estimated cost of real estate project and / or imprisonment for up to 3 years. Provides false information: - up to 5% of estimated cost of real estate project. Fails to comply with authority orders: - every day penalty up to 5% of the estimated cost of the real estate project. Fails to comply with appellate tribunal orders: - everyday penalty up to 10% of the estimated cost of the real estate project and / or 3 years imprisonment or both.
2.	Real Estate Agent	If agent is not registered with Authority or engage in Unfair trade Practice: Rs. 10,000/- per day till the default continues up to the cost of apartment booked through him/ her. Fails to comply with authority orders: Daily penalty for which default continues cumulatively extend up to 5% of the estimated cost of the apartment booked through him. Fails to comply with appellate tribunal orders: Daily penalty for which default continues cumulatively extend up to 10% of the estimated cost of the apartment booked through him / her and / or imprisonment up to 1 year or both.
3.	Allottee	Fails to comply with authority orders: Dealy penalty for which default continues cumulatively extend up to 5% of the estimated cost of the apartment booked by him. Fails to comply with appellate tribunal orders: Daily fine for which default continues cumulatively extend up to 10% of the estimated cost of the apartment and / or imprisonment up to 1 year or both.
4.	Companies	Every person who, at the time, the offence was committed was in charge of, or was responsible to the company for the conduct of, the business of the company, as well as the company

Conclusion

In conclusion, the Real Estate (Regulation and Development) Act, 2016 (RERA) has brought much-needed transparency, accountability, and protection for allottees in the Indian real estate sector. By regulating project registration, defining the roles of developers, agents, and buyers, and enforcing penalties for non-compliance, RERA ensures better practices and timely project delivery. The introduction of escrow accounts safeguards fund utilization, while state-specific RERA websites help consumers verify project details and file complaints. Overall, RERA is fostering a more professional, trustworthy, and consumer-friendly real estate market in India.

Attached File : 144925_53079_an_overview_of_rera_act_2016.pdf