Will RERA Be The Answer To Home Buyers' Woes In India?


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Will RERA be the answer to Home Buyers’ problems in India?

The much-awaited Real Estate (Regulation and Development) Act 2016 has become a reality as it came into force on 1st May’2017. After Demonetisation in November ’16, RERA is the next big milestone for Real estate sector in India. For years India’s real estate sector worked without much regulations and legal framework which exposed home buyers to considerable risk, particularly those who invested in under construction properties. Builders would lure buyers, make false promises and then delay deliveries. This left buyers in a bad financial mess as well as shelter-less. There have been various instances where builders diverted funds of one project into another. In all such eventualities, buyers did not have a solid legal recourse except get into long courtroom battles. This is why RERA was needed and introduced by the government.

Following are some of the risks that people face through developers:

  • Selling of flats multiple times to different parties.
  • Delay in giving possession to the buyer which happens due to various reasons and malpractices such as funding crisis, demanding additional charges in the name of facilities, reducing carpet area, changing the plans of the societies etc.
  • The contracts made are one-sided in the favour of the developer, for example, a penalty of a massive 21% if one delay’s the payment even by a day.

 Objectives of RERA

The main objectives of RERA are:

  • To protect interest of consumer in real estate sector
  • To establish a process for speedy dispute redressal
  • To ensure sale of plot, building or apartment, or real estate project, in an efficient and transparent manner
  • To establish a tribunal to hear appeals from decisions, directions or orders of Real Estate Regulatory Authority and adjudicating officer

 Key Provisions

Greater transparency- All new projects to be registered with regulator

Clear Title: The builder will have to provide affidavit declaring that the land has clear title and is free from any encumbrances.

Veracity of Advertisement- Developers have to ensure that all facts mentioned in the advertisements are true

Clarity on basis of payments- All Projects sold on carpet area basis only.

Dealing with delays: Builders will have to give a written affidavit containing the time period within which the project would be completed. The agreement of sale will further specify the date on which buyer would be given the possession of the house and rate of interest that would be charged on builder if he defaults on such date.

Diversion of Funds: Under this Act, account of every project is to be maintained separately. 70% of the amount taken from buyer shall be deposited with a scheduled bank and used for meeting cost of construction including land purchase.

Penalties and Punishments: This Act aims to punish defaulting builders by levying penalties including cancellation of registration and imposing imprisonment of up to three years.

Regulatory body: It will be created by each state and all complaints shall be reported thereto. The adjudicating officer will award penalties and punishment to the defaulting builder.

Post Construction defects: The Act covers construction defects that arise within 5 years of delivery too and holds builder liable for the same.

Rights of buyer: In case of defaults, the buyer would be entitled to claim refund along with interest. In case buyer does not want to withdraw from the project then he would still be entitled to default interest every month. The consumer can directly complaint to the regulator instead of going to court. The consumer complaints will be resolved in 60 days

As far as the coverage and intent of the Act goes, it seems to be quite apt for the current scenario. However, we will now discuss various features, loopholes and points that may render this Act toothless particularly in case of existing and ongoing projects.

What might make it a blunt Sword?

As mentioned earlier, the Act in its spirit seems very effective but its execution is what will actually make it a formidable force. The following factors are bound to play an important role in ensuring that this Act achieves its goals in totality:

Strong lobby of Builders: Everyone knows that builders in India have strong nexus with politician. Over years, the rich and powerful builders have created strong groups that can influence the politicians and hence the rules and regulations.

Central Act, State Execution: Every State has been given autonomy to take care of smaller details and execution of this Act. This is where dilution of the rules and regulations begin. States are already modifying the provisions and interpretation of the Act in their notifications.

Existing Projects: In many states, it is being said that the Act might not cover existing and ongoing projects even though the Act clearly covers all under construction projects. If there are aggrieved buyers then they will still have no recourse to the provisions of this act.

Rate of Interest: Again this is a figure that every state will fix and if it is fixed too low, then it will be as good as not there at all.

Teething issues: Rules, laws and Acts are just like new complicated machinery. It is only after a time period that it will actually begin to be truly effective. The loopholes and issues would be identified and plugged over a couple of years. Till then, teething issues are definitely expected.

Delays: As of now only a handful of states like Gujarat, Maharashtra, Tamil Nadu, West Bengal, Odisha and some other Union Territories have framed their rules that are at different stage of finalization. Rest are still to catch up.

Post Construction defects: The definition, coverage and inclusion of post construction defects that arise within 5 years are still unclear in most of the states.

These were widely the reasons why RERA might not be as effective as buyers expect it to be. However, it is a good start and with time the wrinkles should be ironed out through revisions and clarifications. Now that we have covered RERA, let us give you a snap shot of Indian Real Estate Industry.