Both 2016 and 2017 would be remembered as watershed years for the Indian real estate sector primarily because of the significant policies rolled out by the Central and state governments in a bid to bring about the much needed method and iron out the deficiencies that have been plaguing the sector, particularly in the residential space.
The major initiatives during this period include the introduction of demonetisation, which curtailed the rampant use of “cash” in real estate transactions; according infrastructure status for affordable housing space in the last Union Budget; passing the Benami Transactions (Prohibition) Amended Act, 2016; introduction of GST; and the passing of RERA (Real Estate Regulatory Authority) Act, 2016.
RERA, a game changer: The RERA Act has been introduced to bring accountability, transparency and a time-bound dispute redressal mechanism to the real estate sector. The legislation not only protects the interests of buyers, but also empowers them through several provisions enshrined in the act that would prevent misselling, delay in project completion, over commitment and under-delivery, fund diversion and other fraudulent activities prevalent in the residential real estate sector.
Buyers, be aware for your own benefit: While the provisions of RERA might sound technical in nature and one may seek professional help/advice to understand the nuances of the act, buyers need to be aware of some of the key provisions, which would help them make an informed decision before buying a home.
All ongoing projects included: All projects (residential and commercial, with land area more than 500 square metres or more than eight units), which are ongoing with effect from the date of commencement of the act and for which completion certificate has not been issued, come under the ambit of RERA.
The following projects would not be covered under RERA:
* Smaller projects with land area less than 500 square metres and have less than eight units.
* Projects that have received completion certificate before the commencement of the act.
* Projects consisting of renovation/repair/redevelopment, which does not consist of new allotment of any apartment/plot.
The information available in public domain for above-mentioned projects may not be as much as that would be available under RERA registered ones. Hence a buyer/existing allottee should do proper research/diligence either on his own or with professional help before buying a unit. The buyers/existing allottees in such projects need to ensure that the agreement between them and the developer is clear, unambiguous and iron-clad, which help avoid disputes at a later date.
Use all information available: Registration of the project with the regulatory authority is compulsory under RERA and all project-related information should be submitted to the authority. The project cannot be advertised/sold before registration. A project promoted in phases would be considered as a standalone one for each phase requiring separate RERA registration.
The project’s layout, development plan, related approvals, name of contractors, structural engineers, real estate agents, draft of builder-buyer agreement and other relevant details should be submitted at the time of registration and be made available on the website, which needs to be updated regularly by the developer. Buyers should be mindful of this information, which is freely available.
Make most of the developers’ credentials available online: The credentials of the builder, including profile, track record, and litigations and law suits are available on the RERA website.
The buyer needs to go through these details carefully, which will help him know his developer better. This is particularly helpful in identifying projects of reputed builders.
Deal only with RERA-registered brokers: RERA mandates all real estate agents (both individual and corporate) to register with the authority and their details would be available online.
The buyer needs to use this information at the outset, which will help him avoid falling prey to the lure of fake/unprofessional brokers/entities.
Pay only as per carpet area and for covered parking: RERA clearly mandates that the developer can sell the units only as per the carpet area (defined as net usable floor area of the unit and excludes lifts, shafts, exclusive terrace/balcony/verandah and external walls). Also, open parking, which is included in the “common area” definition, cannot be sold.
The buyer need not pay any excess amount to the developer for any additional area which is not part of the carpet area, or pay for parking slot which is part of “common area”.
70 per cent of the money collected to be kept in a separate account: The act mandates that 70 per cent of the money collected from the ongoing project be deposited in a separate account by the developer.
This eliminates fund diversion and ensures that the money collected from the allottees is used only for construction activities of that project.
Don’t pay more than 10 per cent “advance” payment: The act clearly states that the developer cannot accept more than 10 per cent of the apartment cost before entering into sale agreement.
The buyer must be aware of this limit on receipt of advance payment and must demand an agreement of sale with the developer before he demands further payment.
Developer is responsible for structural defects within five years: The developer is liable for the quality of construction and any structural defect for a period of five years from the date of handing over the possession to the buyer.
The developer needs to rectify the defect at his cost or, where not possible, compensate the buyer.
Restriction in modification to the sanctioned plan: The developer cannot modify the sanctioned plan without the written consent of at least two-thirds of the allottees.
This provision eliminates the possibility of getting altered/modified unit/building and ensures what is committed, is delivered.
Stringent provisions for the “good” of buyers: The act mandates stringent provisions in the form of fine in the range of 5-10 per cent of the project cost and/or imprisonment up to three years to the developer for violation of RERA-notified rules in any form. In case of project delays, the developer is required to pay penal interest to the buyer at SBI’s MCLR (marginal cost of fund-based lending rate) plus 2 per cent.
The buyers are well protected by the RERA provisions in case a developer flouts the rules as defined in the Act. The buyers can claim what is rightfully theirs from the developer and can even file a complaint against the developer in case of any grievance. This gives more teeth to the buyers and helps protect their interest at all times thereby safeguarding them from any possible incidents of fraud/duping/getting cheated.
Interests of sellers protected as well: The developer (in this case, seller) of the project, too, can invoke RERA provisions in case of complaint against the buyer and can approach the regulatory authority for redressal of grievances pertaining to registered RERA projects. In case of default of payment by the customer, the developer is eligible to get the penalty amount as dues (penal interest pegged similar at SBI’s MCLR plus 2 per cent). Continued default post notice issuance gives the developer the right to terminate the allotment of unit and refund excess amount after deducting interest.
Short-term pain, long-term gain
There might be continued sluggishness in sales for the next two or three quarters as builders/developers come to terms with RERA guidelines. New launches might get delayed and ongoing projects might take some time to comply with the provisions. Cost of funds might go up temporarily for developers and this may impact small time developers who have limited access to funding from banks and financial institutions. For buyers, cost of apartments might increase to an extent as developers are likely to pass on a part of their increased expenses to them.
The sector, however, is likely to get institutionalised and the non-serious/unorganised players will either get out or merge with larger ones. Funding in the sector will be formalised, with banks and financial institutions playing a greater role as there is greater transparency and accountability at the project level and developer level.
Buyers would be the ultimate beneficiaries as there is a lot more transparency and accountability in the sector, which, albeit, comes at a slight cost, but is worthwhile as the largest investment in the life of an average individual gets safeguarded by the buyer-friendly guidelines.
The author is MD & CEO, Aspire Home Finance Corporation Ltd.