Impact of RERA on Real Estate Industry

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Impact of RERA on Real Estate Industry October
25, 2017 Real Estate Impact of RERA on
Real Estate Industry, RERA on Real Estate, RERA
on Real Estate Industry 1 Srishti Chandola
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The Indian Government enacted Real Estate
(Regulation and Development) Act 2016 on 26th
March 2016 and its provisions came into effect on
1st May 2017. The developers have been given time
period by end of July 2017 to get their projects
registered under RERA. Similarly, the real estate
agents who fall under its realm are still in
process of registering themselves. Various states
are yet to notify the rules under the act as well
as it is most important for the buyers,
promoters/developers need to register the
projects under RERA. What is Real Estate
Regulatory Act? The Real Estate (Regulation and
Development) Act, 2016 is an Act that seeks to
safeguard the interests of the home buyers along
with boosting the investments in real estate
sector. Under this act, the state and central
governments need to notify their own rules on
basis of model rules that are framed under
central Act. Why RERA? For many years now, the
home buyers have complained about the real estate
transactions that were lopsided as well as
heavily in favor of builders or developers. The
government's model code and RERA aim to create
more equitable as well as a fair transaction
between the buyers and the sellers of properties,
especially in the major market. It is hoped, RERA
will make the real estate purchase pretty easier
by bringing better transparency and
accountability that provided the states do not
dilute provisions and spirit of the central
act. RERA provides the Indian real estate market
its prime regulator. The Real Estate Act makes it
compulsory for all the state and union territory
to form their own regulator as well as frame the
rules that will be governing the functioning of
the regulator.
Impact of RERA on home buyers
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Come of necessary compliance are
Informing the allottee about minor
alteration or addition No advertisement or
launch before registration with RERA Consent
of 2/3rd allottee regarding any other alteration
or addition Sharing information project
plan, government approvals, layout,
sub-contractors, land title status Consent
of 2/3rd allottee for moving popular rights to
the 3rd party An increase in quality
construction owing to defect liability period of
5 years Increased assertion on timely
completion of delivery and projects to
consumers Forming of RWA with specified time
or the 3 months after the majority of the units
have been sold The positive aspect of Act is that
it gives unified legal regime for the purchase of
apartments, flats, etc. as well as seeks to
standardize practice across India. Below are some
key highlights of the Act Establishment of
regulatory authority The absence of proper
regulator such as Securities Exchange Board of
India for capital markets in real estate sector
was felt long. The Act establishes Real Estate
Regulatory Authority in all union territory and
state. It is the functions include protection of
interests of stakeholders, collecting the data at
designated repository as well as creating the
robust grievance redressal systems. To stop time
lags, the authority has been instructed to
dispose of the applications within a maximum
period of over 60 days, as well as similar needs
to be extended only if the reason is recorded for
the delay. Furthermore, Real Estate Appellate
Authority (REAT) shall be a suitable forum for
the appeals. Compulsory registration As per the
central act, all the real estate project where
complete area be developed exceeding 500 square
meters or more than 8 apartments are proposed in
the developed in phase, must be registered with
the respective states RERA. The present projects
where completion certificate or the occupancy
certificated has not been issued, necessarily
have to comply with registration requirements
under this Act. When applying for the
registrations, the promoters, schedule of
completion, approvals, etc. Only when the
registration is finished along with other
approvals related to the construction are in
place, a project can be marketed. Reserve
account One of the major reasons for the delay in
the projects was that the funds that are
collected from one project were invariably
diverted to fund a different and new project,
altogether. To prevent this diversion, the
promoters are required to park over 70 of the
project receivables into a different reserve
account. Proceeds of such account can be used for
land as well as construction expenses only and
will require certification by professionals. Conti
nual disclosures by promoters After the execution
of RERA, the property buyers are able to screen
the progress of their project online as the
builder will require making the periodic offer to
regulator in regard with the progress of
projects. Title representation Now, the promoters
are required to make a positive warranty on the
correct title as well as interest on the land
which certainly can be used afterward against him
by home buyers, if any title defect is
discovered. Also, they need to get the insurance
against title as well as the construction of the
projects proceeds which shall go to allottee upon
the execution of sale agreement. Standardization
of sale agreement
The act recommends that a standard model
agreement of sale is to be entered between
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the home buyers and promoters. Also, the builder
or developer needs to insert disciplinary clauses
against the home buyers which will penalize them
for defaults while alike defaults by the
developer or builder attracts to no penalty or
negligible. All the panel clauses could be well,
a thing of the past as the property buyers can
look ahead to a balanced and sensible agreement
in the future. Penalty To make sure that the
violation of RERA is not taken lightly, a stiff
monetary penalty which in up to 10 of the
complete project cost as well as the imprisonment
has been decided against the violators. Impact of
RERA on the real estate industry Initial
backlog Tight liquidity Increased cost
of project Rise in capital cost
Increase in project launch time
Consolidation Originally, a lot of work is done
for getting existing new project registered.
Details like the status of the entire project
performed in the past 5 years, detailed execution
plans, promoter details, etc. certainly need to
be prepared. With the arrival of RERA, some
specialized forum like State Real Estate
Regulatory Authority as well as Real Estate
Appellate Tribunal will be recognized for
resolution of the disputes that are pertaining to
the home buying and aggrieved party will have no
option to other consumer forums as well as the
civil courts on various matters. RERA certainly
is set for the fast-tracking dispute resolution,
the litmus test for the success will completely
depend on the timely settings of new dispute
resolution bodies as well as how the disputed or
differences will resolve expeditiously with a
degree of finality.
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