RERA Decoded - Benefits For Real Estate Developers In India & Home Buyers

Introduction

RERA, or the Real Estate Regulatory Act, provides a legal solution for Homebuyers against the tyrannical regime of unethical real estate developers in India. The act was officially implemented on May 1, 2017, and has provided a welcome relief to home buyers, not only from the domestic markets but also to NRIs.

Before RERA, the real estate market was largely unorganized and unregulated. Now, with the implementation of this act, the Government aims to bring transparency to the industry and hedge the interests of the homebuyer against inordinate project delays or poor-quality construction.

Key Takeaways

• Mandatory Registration: Developers must register projects before selling, ensuring all necessary clearances are obtained

• Carpet Area Calculation: Properties must be sold based on carpet area, not super built-up area, protecting buyers from inflated pricing

• Financial Protection: 70% of buyer funds held in escrow accounts prevent misuse and builder insolvency

• Legal Accountability: Developers face penalties and up to 3 years imprisonment for non-compliance

• 5-Year Warranty: Structural defects must be fixed within 30 days, with liability extending 5 years post-possession

 

There were some key concerns for the Home Buyers BEFORE RERA was implemented : 

• Real estate developers sold properties based on super-built-up areas, resulting in homeowners spending more for a less useful space.
• The homeowners were forced to pay a down payment and later pay in installments or a lump sum, an amount without any trace of where the money was spent/invested by the developers.
• No single point of contact for queries or concerns.
• There was no standard agency rating the real estate developers in India and their reliability, making the home buyers' investment very risky.
• Absence of a redressal mechanism for delays in possession or substandard quality of construction.

7 Key Benefits for Home Buyers AFTER RERA

1. Clearance Before Selling

Developers selling over 8 units of apartments are required to get themselves registered with the regulator. All the apartments to be sold have to be registered before the launch. This hedges the risk of selling a property to a buyer before getting the necessary clearances. In order to get themselves registered, the developer is required to make all the mandatory disclosures with respect to the project, bringing greater clarity and unambiguity.

2. Carpet Area

The sale of property based on a Super Built area is prohibited under RERA. The developer is required to sell property based on carpet area only. Carpet area is defined as the net usable floor area of an apartment, which includes the area covered by the internal walls and excludes the area covered by the external walls, areas under service shafts, exclusive balconies, verandahs, or open terrace areas. This ensures the buyers that they're paying only for the usable space and not any other overhead charges.

3. Mandatory Escrow Account to Reduce the Risk of Builder Insolvency

Real estate developers will be required to open an escrow account to deposit 70% of the money received from investors. As per Narendra Kumar, Advocate on Record, Supreme Court, at a recent conference on 'Real Estate Sector Post Remonetisation & RERA,' organized by the PHDCCI, "This money will be withdrawn as per the stages of construction, approved by engineers and chartered accountants of builders. This will prevent developers from using the money raised from one project for any other project".

4. Property Payments

Without a written agreement of sale, the developer is prohibited from taking more than 10% advance from buyers. The developer is also liable to pay compensation to the home buyer in case wrong information is shared with the buyer through advertisements, brochures, or a prospectus of the property in question.

If you're planning your first home purchase and want to avoid common risks, this guide offers practical insights on choosing a trustworthy developer and making confident decisions.

5. States' Responsibility

This is the singular drawback of the RERA Act. RERA is a law passed by the Central government, but its implementation rests in the hands of the state. The law mandates that no edits can be made to the provisions made by the central govt., but the state is free to add more provisions. The act also stated that RERA applies to both under-construction as well as new projects. However, different states have approached the RERA Act from different perspectives at varying levels of compliance. This challenges the very claim of transparency that RERA so aims to achieve.

6. 5 Years Warranty

The developer is liable to fix any structural defects in the building caused within the 5 years post allotment of property to the buyer. The act also requires the developer to accomplish the repair work within 30 days of receipt of the complaint.

If construction quality is a key concern for you, this guide explains why build quality matters and what to look for before investing.

7. Website

The developers now have a mandatory requirement to build and maintain an up-to-date website with details of their RERA registration, and quarterly updates on the development progress (e.g., number/type of apartments or plots booked, the current status of the project, etc.). This provides documented evidence to the home buyers and improves transparency.

Important Things to Note

• RERA applies to all Real estate builders and developers except where:

1. The land proposed to be developed does not exceed 500 sq. mts.
2. Apartments to be developed do not exceed 8.
3. The promoter received a completion certificate before the introduction of RERA.
4. The developer is undertaking renovation, repair, or redevelopment, which does not involve marketing, advertising, or selling of new property.

• RERA does not apply to Property Rentals.
• RERA covers all real estate investments in residential and commercial markets. This includes homes, apartments, shops, warehouses, offices, and buildings.
• Any non-compliance with provisions of RERA by real estate developers in India can result in a penalty and/or imprisonment of up to a maximum of three years.
• Real estate agents and brokers are also required to be registered under RERA.

To further ensure a secure investment, here’s how you can assess the reputation and credibility of a real estate developer before buying.

Conclusion

The Real Estate Regulatory Act (RERA) has transformed the Indian real estate landscape by introducing transparency, accountability, and legal protection for homebuyers. With provisions like carpet area calculations, escrow accounts, and 5-year warranties, RERA ensures real estate developers in India operate ethically. Understanding RERA provisions is essential for making informed and secure property investment decisions.

FAQs

H3: What is RERA, and when was it implemented?

RERA (Real Estate Regulatory Act) is a central law implemented on May 1, 2017, to regulate the real estate sector and protect homebuyers from unethical practices by developers.

What is the difference between carpet area and super built-up area?

Carpet area is the actual usable floor space, excluding external walls and common areas. Under RERA, properties must be sold based on carpet area, ensuring buyers pay only for usable space.

What happens if a developer doesn't comply with RERA?

Non-compliance with RERA can result in penalties and imprisonment of up to three years. Developers must also compensate buyers for misinformation or delays.

Does RERA apply to all real estate projects?

RERA applies to projects with land over 500 sq. mts. or more than 8 apartments. It excludes completed projects (with completion certificates before RERA) and property rentals.

How does the escrow account protect homebuyers?

Developers must deposit 70% of buyer payments into an escrow account, which can only be withdrawn based on construction stages. This prevents fund diversion and reduces insolvency risks.

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