RERA or Real Estate Regulatory Act provides a legal solution to 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 NRIs.
Prior to 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.
There were some key concerns for the Home Buyers BEFORE RERA was implemented –
- Real estate developers sold properties based on super built up area resulting in home owners spending more for a lesser useful space
- The home owners were forced to pay a down payment and later pay in installments or 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 developers and their reliability, making the home buyers’ investment very risky
- Absence of a redressal mechanism for delays in possession or substandard quality of construction
6 key benefits for Home Buyers AFTER RERA –
- 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 prior to 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.
- Carpet Area – Sale of property based on Super Built up 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, that includes 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.
- 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 monies 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”.
- 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 of wrong information shared with the buyer through advertisements, brochures or prospectus of the property in question.
- States Responsibility – This is the singular drawback of the RERA act. RERA is a law passed by the Central govt., 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 is applicable for both, under construction as well as new projects. However, different states have approached the RERA act through different perspectives at varying levels of compliance. This challenges the very claim of transparency that RERA so aims to achieve.
- 5 Years Warranty – The developer is liable to fix any structural defects in the building caused in 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
- Website – The developers now have a mandatory requirement to build and maintain an up-to-date website with details of their RERA registration, quarterly updates on the development progress (e.g. number/type of apartments or plots booked, current status of the project etc.). This provides a documented evidence to the home buyers and improves transparency.
Important things to note –
- RERA is applicable to all Real estate builders and developers except where –
- Land proposed to be developed does not exceed 500 sq. mts.
- Apartments to be developed does not exceed 8
- Promoter has received completion certificate before introduction of RERA
- Developer is undertaking renovation, repair or re-development, which does not involve marketing, advertising or selling of new property
- RERA is not applicable on 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 of provisions of RERA by the developers can result in a penalty and/or imprisonment up to a maximum of three years.
- Real estate agents and brokers are also required to be registered under RERA.