Introduction
The Real Estate Act is an Act to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redressal. This bill aids in effective implementation of projects such as Hosing for All by 2020 and Smart City.
Chronology of events leading to the Real Estate (Regulation and Development) Act, 2016 coming into force:
• The National Conference of Ministers of Housing, Urban Development and Municipal Affairs of States and UTs held on January 20,2009 proposed a law for real estate sector;
• During subsequent consultations by the central government, it was decided to enact a central law for real estate sector. This was endorsed by Competition Commission of India, Tariff Commission, Ministry of Consumer Affairs;
• Ministry of Law & Justice suggested central legislation for Real Estate Sector in July,2011 under specified entries of Concurrent List of the Constitution for regulation of contracts and transfer of property;
• Union Cabinet approved the Real Estate Bill, 2013 on June 4,2013;
• The Real Estate Bill,2013 introduced in Rajya Sabha on August 14,2013;
• Union Cabinet approved Official Amendments based on Standing Committee Report on April 7, 2015;
• Real Estate Bill,2013 and Official Amendments referred to the Select Committee of Rajya Sabha on March 6,2015;
• Union Cabinet approved the Real Estate Bill, 2015 as reported by the Select Committee of Rajya Sabha for further consideration of Parliament on December 9,2015;
• Bill listed in Rajya Sabha for consideration and passing on 22 and 23 December, 2015 but could not be taken up;
• Bill passed by Rajya Sabha on March 10, 2016;
• Lok Sabha passed the Bill on March 15, 2016;
• President of India accorded his assent to the Bill on March 25,2016;
• The Real Estate (Regulation and Development) Act,2016 was published in the Gazette for public information on March 26,2016;
• 69 of 92 Sections of the Real Estate (Regulation and Development) Act, 2016 notified by the Ministry of Housing & Urban Poverty Alleviation on April 27,2016 bringing the Act into force with effect from May 1,2016.
The notification of Real Estate Rules issued on October 31, 2016 by the Ministry of Housing & Urban Poverty Alleviation. As per the provisions of the Real Estate (Regulation and Development) Act, 2016, Real Estate Regulatory Authorities are required to be put in place by April 30, 2017 before full Act is brought into effect, the next day
Salient Features of the Act
Registration of projects and agents
All the residential projects are to be registered under this act. Without registration, the promoters cannot book or sell the projects. However, registration is not required for the projects:
i. Where the area of land does not exceed five hundred square meters or the number of apartments does not exceed eight inclusive of all phases.
ii. Involve renovation/repair/re-development without re-allotment or marketing.
Also, the state governments can prescribe the lower limits for exemption. Real estate agents must also register with a RERA in order to facilitate the sale or purchase of property in registered real estate projects.
Duties of the promoter
• Promoters should make site and layout plans for the project and upload all the relevant details of the project on the website of RERA. They should also update quarterly updates on status of the project.
• In case, if a buyer wishes to withdraw from the project due to loss incurred by him because of a false advertising, then the promoter must return the amount collected with interest to the buyer.
• Promoters must deposit at least 70% of their funds, including land cost, in a separate escrow account to be used for construction purpose only. However, state governments can change this amount below 70%.
• Promoters should not accept more than 10% of the total cost of the property as advance without a written agreement.
• Promoters should help in providing essential services till the association of buyers takes over the maintenance activities.
• Promoters should obtain a completion certificate from the relevant authority.
• In case, if a promoter is unable to give possession of the property, then the money received for the property along with interest has to be returned to the buyer.
• Promoters are responsible for fixing structural defects for five years after transferring the property to a buyer.
Duties of buyer
The buyer has to make the required payments as per the agreement signed with the promoter. If there is a delay in payment, then the buyer will be liable to pay interest for the delayed period. Buyers must also cooperate and participate in the formation of an association/society/cooperative society.
Penalties
If a promoter fails to register the property, he has to pay up to 10% of the estimated cost of the project as a penalty.
Failure to register the property despite orders issued by RERA will attract imprisonment up to 3 years and or an additional fine of 10% of the estimated cost of the project.
If a promoter violates any other provision he has to pay up to 5% of the estimated cost of the project. Real estate agents have to pay a fine of 10,000 for each day for the violation of provisions of the act.
Regulatory authorities
Under this act, it is mandatory for all the states and union territories to establish state level regulatory authorities called Real Estate regulatory authorities (RERAs) within a year of the act coming in to force. It is provided that two or more states can establish a common RERA and each state/UT can also establish more than one RERA.
Each RERA should consist of a chairperson and at least two full time members with experience in sectors such as urban development, real estate, law and commerce.
Functions of a RERA include: ensuring registration of residential projects and ensuring the availability of relevant details on the RERA website; ensuring that all the stakeholders such as buyers, sellers, and agents comply with obligations under the Act and advising the government on matters pertaining to the development of real estate.
Regulatory authorities have to draft regulations within 3 months of establishment. They shall promote a single window system of clearances, grade projects and promoters and ensure digitization of land records.
Unlike other sectors, regulators in real estate sector do not have the necessary powers to approve the projects and powers to determine the price of the projects. They could only advise the government on matters related to real estate sector including the demand for single window clearance.
Appellate tribunals
To hear appeals against the decisions of RERAs, each state/UT has to establish one or more Real Estate Appellate Tribunals. Each Tribunal will consist of a chairperson and two members (one with a judicial background and one with a technical background).
An issue impacting competition may be referred to the Competition Commission by RERA.
Appellate tribunals must adjudicate cases within 60 days and regulatory authorities must dispose of complaints within 60 days.
Central advisory council
Under this bill, a Central Advisory Council is to be constituted to advise the central government on major questions of policy and protection of consumer interests. The council will have representatives from union ministries, state governments, RERAs and representatives of the real estate industry, consumers, and labourers.
The Act also aims to provide faster judgments or relief to home buyers in disputes; 644 district-level consumer courts are proposed for the purpose. The aim of the Act is to safeguard the interest of home buyers in the primary real estate market. Till now, this was restricted to the builder-buyer agreement, which was skewed towards protecting the builder’s interest.
Some changes made in the Draft Rules placed:
Regarding ongoing projects:
In respect of the ongoing projects that have not received completion certificate in specified time, developers will have to make public the original sanctioned plans with specifications and changes made later, total amount collected from allottees, money used, original timeline for completion and the time period within which the developer undertakes to complete the project, duly certified by an Engineer/Architect/practicing Chartered Accountant. Promoter shall also declare size of the apartment based on carpet area even if it was earlier sold on any other basis.
The developer, within three months of applying for registration of a project with the Real Estate Regulatory Authority shall deposit in a separate bank account, 70% of the amount collected and unused for ensuring completion of ongoing projects.
Registration of projects:
For registration of projects with the authorities, developers will be required to submit authenticated copy of PAN Card, annual report comprising audited profit and loss account, balance sheet, cash flow statement and auditors report of the promoter for the immediate three preceding years, authenticated copy of legal title deed, copy of collaboration agreement if the promoter is not the owner of the plot. Promoter also has to declare information regarding the number of open and closed parking areas in the project.
Promoter shall upload on the webpage of the project, within 15 days of expiry of each quarter information regarding number and type of apartments or plots, garages booked, status of the project with photographs floor-wise, status of construction of internal infrastructure and common areas with photos, status of approvals received and expected date of receipt, modifications in sanctioned plans and specifications approved by the competent authority.
The requirement of disclosing Income Tax returns proposed earlier has been withdrawn in the final Rules keeping in view the confidentiality attached with them and as pointed out by legal experts and promoters.
Registration fees:
To incentivize registration of projects and Real Estate Agents with Regulatory Authorities, fee for the same has been reduced by half based on suggestions from promoters for reduction of fee. For registration of projects, the fee has been reduced to Rs.5 per sq.mt for up to 1,000 sq.mt area and Rs.10 per sq.mt beyond this limit subject to a maximum of Rs.5.00 lakh per project. For commercial and mixed development projects, it will be Rs.10 and Rs.15 per sq.mt subject to a maximum of Rs.7.00 lakh. For commercial projects, it will be Rs.20 and Rs.25 subject to a cap of Rs.10 lakh per project. For plotted development, it is Rs.5 per sq.mt with a ceiling of Rs.2.00 lakhs.
Fee for renewing registration of projects with the Regulatory Authorities would be half of the registration fees.
For registration of Real Estate Agents, fee now prescribed is Rs.10,000 for individuals and Rs.50,000 for other entities as against Rs.25,000 and Rs.2,50,000 proposed in the Draft Rules.
Similarly, fee for renewal of registration of projects and agents has also been reduced to Rs.5,000 and Rs.25,000 respectively.
Interest to be paid in case of delay;
Developers will be required to refund or pay compensation to the allottees with an Interest Rate of SBI’s highest Marginal Cost of Lending Rate plus 2%.
Further to an assurance given by the Minister of Housing & Urban Poverty Alleviation to the Parliament during passage of the Real Estate Act, Rules stipulate such payment to the allottee be made within 45 days of it becoming due. This interest applies to payments due to the developers by the allottee which is to be paid within the period to be specified in the Agreement of Sale.
Fee for appeals and complaints:
For every appeal to be made to the Real Estate Appellate Tribunal, fee proposed is Rs.5,000. For every complaint to be made to Regulatory Authorities and Adjudicating Officers, fee proposed is Rs.1,000.
Compounding of punishment:
Rules provide for compounding of punishment with imprisonment for violation of the orders of Real Estate Appellate Tribunal against payment of 10% of project cost in case of developers and 10% of the cost of property purchased in case of allottees and agents. Compliance with reasons for punishment shall be complied within 30 days of compounding.
Under the Rules, Adjudicating Officers, Real Estate Authorities and Appellate Tribunals shall dispose of complaints within 60 days.
UTs with Legislatures are required to notify Rules for application in respective domains.
Major Concerns:
The state has invited objections and suggestions from the public to the draft till December 23. The major concerns pointed out were :
The bill asks the promoter to spend 70% of the project cost on construction activities. In case, if the cost of construction activities is less than 70% and cost of land more than 30%, then some part of the fund collected may remain unutilized while some financing from other sources may be required to cover the land cost. This could raise the project cost. It should also be noted that each state has its own rules on valuation of land further leading to ambiguity.
It is silent on disclosure of ongoing and past legal cases against the developer.
For existing projects, the draft rules only require disclosure of utilization of 70% money collected from consumers, instead of complete accountability of all consumers' receivables. Accountability of consumers' receivables could have helped them in seeking required funds from the developer for completion of a project in case it is delayed.
Lakhs of rehab tenants and society members, whose buildings are redeveloped, will not benefit under RERA. The draft rules provide exemption from registration if the builder constructs a separate building for rehab of tenants/society members. The original RERA Act covers the rehab component of redevelopment projects.
It is quiet on projects where possession is already offered, or occupation certificates have been received prior to the Act being passed. This limits the retrospective coverage for such projects.
Way forward
All states, barring Gujarat, have missed the deadline to operationalize the Real Estate (Regulation and Development) Act which seeks to protect homebuyers’ interests. State governments had time till October 31to notify rules under the Real Estate (Regulation and Development) Act and operationalize it. Gujarat notified the rules a day in advance but others didn’t.
The Ministry of Housing and Urban Poverty Alleviation (HUPA), which had to notify rules for the union territories Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu and Lakshadweep, completed the formality on Monday evening. But the urban development ministry, which was responsible for Delhi, missed the deadline. According to government sources, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu have
finalized the rules, but have not notified them. Haryana, a BJP-ruled state, has designated the chief secretary as an interim real estate regulatory authority for addressing disputes but has not notified the Act. “This is a futile exercise as the rules have not been notified,” said an official.
The HUPA secretary has written at least three letters to chief secretaries of state governments to push the notification of rules. The ministry has now sought time from the Committee on Subordinate Legislature of Rajya Sabha for notifying the rules. The ministry’s rules would serve as a guide for state governments now.
This new legislation is definitely a step in the right direction and is expected to remove the chronic Issue of late delivery of projects, eliminating not so senior players from the business. This will also attract investments in the sector and restore the confidence of the buyers and others stakeholders in the sector. However, approval from the states still seems to be a challenge. One is yet to see the how the provision of the new act impact the developers and sector at large. It is important to understand that this should not become another tool for increasing red tapism in the process of obtaining. The compliance of this act should not become one more layer of approvals to be obtained, but to ease out the entire approval process. The act should also consider the impact of transition issues and make it more pragmatic for the developers to comply at the end given the importance and contribution of real estate once feel that the current way of reforms should continue.
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