The Real Estate (Regulation and Development) Act, 2016 (‘Act’) which has received the President assent has given a long way to the Real Estate Industry to grow. The Act has given standardization norms for buyers as well as for developers which in return will be able to create a governed business practices in the Real estate Industry.

Need for Establishment of the Act:

The Act has been formed to establish a Regulator in the form Real Estate Regulatory Authority (RERA) which can keep an eye and regulate all the norms that shall be applicable on the Real Estate Industry. Further, the authority shall 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 also to protect the interest of the consumers in real estate sector. The Act also lay emphasis on establishing adjudicating mechanism for speedy dispute redressal and also to establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the RERA and the adjudicating officer and for matters connected therewith or incidental thereto.

The basic aim of the Act is to protect the buyers by providing a framework for reducing conflict with developers by RERA keeping a watch as the Real Estate Sector was unorganized and unregulated thus to rectify the alleged problem, a new set of norms, registrations, regulations and clearances are being created.

Brief Overview of the Act

The Act overall covers various provisions in order to address the weak areas of the Real Estate Industry in India, principally by establishing a disclosure framework and setting strict liabilities for developers and promoters irregularities.

“Real Estate (Regulation and Development) Act, 2016 established to regulate and keep an eye on all the norms applicable on real estate industry – setting up of RERA and real estate appellate tribunals.”

The Act lays down the setting up of RERA and real estate appellate tribunals in all states and Union Territories (except Jammu & Kashmir) within one year of its notification.

The Act provides for the mandatory registration of real estate projects with RERA where the total area of land proposed to be developed exceeds 500 square meters or more than eight apartments are proposed to be developed inclusive of all phases (where phase-wise development is proposed). It also mandates the registration of every phase of the project separately as a Standalone project and the projects cannot be advertised, booked or sold in any form prior to registration and obtaining necessary construction approvals. The RERA have to either grant or reject the registration applications within 30 days of the receiving of the application.

“Act to provide mandatory registration of real estate projects with RERA where the total area of land proposed to be developed exceeds 500 square meters or more than eight apartments are proposed to be developed inclusive of all phases.

Project disclosures to be made, defining of terms apartment, carpet area and rate of interest.

promoters are mandated to park 70% of all project receivables in a separate account”

Further, the promoters/developers of the ongoing project for which the completion certificate is not yet issued shall make an application to the RERA for registration of the said project within three months from the date of the commencement of the Act.

Under the Act it is being mandated to provide the publicly accessible disclosures of the project and promoter details, alongwith a self-declared timeline within which the promoter is required to complete the project. Quarterly project related disclosures also required and all the disclosures are required to be made online available.

The Act clearly defines certain terms such as ‘apartment’, ‘carpet area’ and ‘rate of interest’ which will help in standardizing sector practices. Also to further streamline the fund position, the promoters are mandated to park 70% of all project receivables in a separate account. Drawdown from such account is permitted for land and construction costs only, in line with the percentage of project completion (as certified by an architect, an engineer and a chartered accountant). The Act also provides that the promoter can accept only upto 10% of the apartment cost prior to entering into a written agreement for sale with the consumer.

The Act also mandates that the promoter shall declare that it has legal title to the project land or authenticate validity of title, if such land is owned by another person. The promoter is also required to take insurance for title and buildings along with construction insurance.

In furtherance to the restrictions imposed on promoter in the Act, the promoter is not permitted to alter the plans, structural designs and specifications of the land, apartment or building without prior consent of two-third of the allottees. Also the promoter is not allowed to transfer or assign majority of its rights and liabilities in a project without such consent, along with RERA’s written approval.

In order to ease out the understanding for the consumers/buyers, the Act provides for the specified form of agreement for sale between promoters and consumers as may be prescribed, which shall prevent inclusion of biased provisions in it. The consumers have also been granted the right to seek relief for unilateral termination of such agreements by promoters without cause. The promoter shall be held responsible for such defects or other deficiencies for a period of 5 years from the date of delivery of possession.

The Act also ensures the registration of Real Estate Agents with RERA and makes prohibition for agents from facilitating any sale or purchase of plots/apartments in projects without obtaining registration with RERA. The agents are required to facilitate access of project information to consumers at the time of booking and refrain from making false statements, misleading representations and indulging in unfair trade practices.

Legal recourse is also clearly provided in the Act for the consumers. The Act provides for the time bound steadfastness of complaints and disputes by the RERA’s and the Real Estate Appellate Tribunals. It is evidently cited in the Act for refund of amounts paid by the consumers (alongwith the interest and compensation) for promoter’s failure to give possession of the apartment in accordance with the agreement for sale, or any breach of such agreement.     

For the existing projects which have not yet received the completion certificate as on the date of commencement of this Act, will be required to obtain registration with RERA within three months of such commencement.

The Act imposes monetary penalties on the promoter of up to 5% of the ‘estimated cost of the project’ (as determined by RERA) for disclosure related defaults, and up to 10% for other defaults, along with a maximum imprisonment of 3 years. The Consumers are also liable to a fine of up to 10% of the apartment cost or imprisonment up to 1 year for non-compliance with orders of the real estate appellate tribunal.

All the existing laws are being repealed and the Real Estate (Regulation and Development) Act, 2016 will have overriding effect on the conflicting State Laws.

Limitations of the Act

Though the Act has tried to stream line the various loopholes of the Real estate industry but the Act still shows certain deficiencies which will directly indirectly affect both the consumer and promoter. It is likely that the regulatory burden will be enhanced and increase in cost of capital and compliance.

“limitations barring the act – no single window clearance approval, prior approval for project launch, does not establishes a definite title system for land.

Act lays down the strict penalties, including imprisonment, for developers if they slip up, there is no such provision in the Act to make government authorities, entrusted to oversee and enforce regulations, more accountable.”

The Act provides for prior approval for project launch, instead of certain specific approvals as previously required, which may delay the project initiation and will restrict the supply of new properties. There is no concept of single window clearance approval system, which could further delay the projects and the act does not assign liability of project delays attributable to state agencies.

Apart from the above mentioned limitation, the Act does not establishes a definite title system for land. The Act is a standard-setting instrument for the real estate sector and performs the critical task of identifying and allocating risks associated with construction and development projects. The current approach of the Act is to uniformly regulate different types and sizes of projects and its implementation will require significant capacity building at the state-level. The Act disrupts existing sector practices to raise efficiency of the real estate market and is likely to benefit all stakeholders by imposing financial and operational discipline, accountability and diligence. As the Act lays down the strict penalties, including imprisonment, for developers if they slip up, there is no such provision in the Act to make government authorities, entrusted to oversee and enforce regulations, more accountable.