“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”
– Franklin D. Roosevelt
The real estate sector is the backbone of the Indian economy, as it largely contributes to its growth. But despite its major influence, it has always been disorganised, inefficient and lacked transparency, which has to a degree diminished stakeholder confidence in real estate. To address this, change in legislation as well as implementation of a specialised regulator was critical to bring uniformity and transparency in the relevant laws governing this sector.
The Government of India enacted the Real Estate (Regulation and Development) Act, 2016 (Act) on May 1, 2016, inter alia, to address any shortcomings and overcome the difficulties surrounding this sector. It aims to ensure transparency, accountability, standardisation and consistency by regulating the sale of real estate and timely completion of projects.
Primarily the Act regulates promoters, defined to include owners, builders, developers, developmental authorities, etc. It further introduces a system of checks and balances by mandating registration of both residential and commercial projects exceeding 500 square meters and/or 8 units with the Real Estate Regulatory Authority (RERA). This includes complete disclosure of critical information by the promoter such as brief details of the promoter’s past five projects, promoter’s title to property, encumbrances, construction approvals/permissions, timelines for completion of project(s), etc. The same then determines the time period within which the projects’ registration stand valid. Such information disclosed by the promoter shall be published on the website to be maintained by RERA.
The Act stipulates that the promoter is required to deposit 70% of sale proceeds, obtained from unit buyers, in a separate account maintained with a scheduled bank. This shall be utilised by the promoter only for meeting construction and land costs. Further, the promoter is restricted from accepting amounts which exceed 10% of the sale proceeds without executing a registered agreement for sale.
One of the major concerns faced by unit buyers prior to the Act was the constant amendment/modification/addition to sanctioned plans by the promoters, leading to a delay in handing over possession of the unit(s). The Act has attempted to address this issue by restricting the promoter from modifying, altering or adding to the plans for the project(s), specifications, etc. of the buildings, apartments, plots, and so on, without previously obtaining the consent of at least two-thirds of the total unit buyers in a project. Additionally, the Act provides that the promoter shall be liable to rectify any structural defects for a period of 5 (five) years from the date of handing over possession of the unit to the buyer. Further, the Act also provides for mandatory registration of real estate agents and simultaneously restricting them to deal in unit(s) of unregistered projects.
If a promoter acts in contravention of the provisions as stipulated under the Act or is involved in any kind of unfair practices or irregularities (including falsely representing to the RERA or the unit buyers), RERA is empowered to revoke the previously granted registration which shall, inter alia, debar the promoter from accessing its website. It will also include the promoter’s name in the list of defaulters and freeze the project bank account maintained by the promoter.
There is also a provision under the Act to establish RERA in every State for speedy redressal of disputes with strict timelines for adjudication. In addition, the Act establishes a Real Estate Appellate Tribunal (REAT) to hear appeals from the decisions, directions or orders of RERA.
There are stringent penalties contemplated under the Act, such as fines extending up to 10% (ten percent) of the estimated cost of the project(s) and imprisonment for promoters, real estate agents and allottees who contravene the provisions of the Act and/or orders passed by RERA/REAT as the case may be.
The Act is a good initiative for the real estate sector, as it aims at more transparency and compliance by focusing on creating a balance between the interests of the promoter (owner/developer) on the one hand and the consumer on the other.