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This article discusses the reason why RERA was enacted -the problems in the earlier laws and how RERA was able to address those errors. It also throws light on how the new regulations have impacted the rights of the flat-buyers, developers, and agents.
The RERA was implemented to settle the position of law and regulation in the real estate sector in India.
The legislation aims at decreasing the exploitation of flat buyers and real estate consumers.
The definitions in the act cover the description of the flat, real estate project, the promoter/ developer and real estate agents as well.
The two-tier adjudicating mechanism includes Adjudicating officer and the Real Estate Appellate Tribunal; the Central Advisory Council is responsible for policy making.
Application of RERA varies from state to state.
Table of Contents:
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RERA: Reason for the inception
The real estate sector in India has always had a very high level of information asymmetry, with the buyers always being on the receiving end of this asymmetry.
The buyers in real estate projects, who are consumers in the traditional sense, were often deceived and defrauded in real estate transactions due to the inequality of bargaining power. This was because the real estate sector was largely unregulated, excepting state-level legislation such as the Maharashtra Housing Act, 2012.
However, this position was changed in 2016 with the passing of the Real Estate (Regulation and Development) Act, 2016 (“RERA”).
Objectives of the Act and the Standing Committee report
The RERA is significant legislation which regulates contractual transactions between buyers and promoters of real estate projects.
In its report on the Real Estate (Regulation and Development) Bill, 2013, the Standing Committee on Urban Development noted that the RERA was being brought to bring about accountability in the real estate sector.
It emphasized on the information asymmetry and the rampant exploitation of consumers in the sector. It also admitted that although the Consumer Protection Act, 1986 provides some amount of relief, it is largely inadequate.
Currently, flat-owners have also claimed as creditors under the Insolvency and Bankruptcy Code, leading to an uncertain legal situation. In this backdrop, the RERA forwards legitimate social welfare goals and is, thus, social welfare legislation.
According to its statement and objects, RERA adopts three major objectives—
The orderly regulation and promotion of the real estate sector
Protection of the consumers in the sector
Establishing an effective redressal mechanism for disputes in the sector
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Salient Features and Mechanism of the Act
Rights and Obligations under the Act
The study of this act is necessary to understand the mechanism of the Act to get an idea about how it is implemented. According to the definitions clause, ‘carpet area’ means “the net usable floor area of an apartment”, but excludes the area covered by external walls, excluding the balcony, etc.
An apartment has also been defined in a fairly broad manner and is characterized as a “separate and self-contained part of any immovable property” which is to be used for any residential or commercial use, irrespective of whether it is called a block, chamber, dwelling unit, etc.
This broad definition ensures that a large number of consumers are covered under its scope, and no one is excluded due to the clever drafting of real estate contracts. It also defines a promoter, a real estate agent, and a real estate project for the purposes of the Act.
Registration and requirements for Promoters
One of the most notable aspects of RERA is the requirement of prior registration of a real estate project with the Real Estate Regulation Authority.
Promoters are prohibited from advertising, marketing, booking or offering for sale any plot or apartment before the registration. No registration is required for projects where the proposed area of land is below five hundred square meters or the number of apartments is below 8.
The RERA requires the promoter to furnish a wide range of information to the authorities, including details of the enterprise, previous projects, authenticated copies of necessary approvals, etc. This will significantly bridge the information asymmetry and bring about more transparency and confidence in the sector.
The approvals would ideally be granted within 30 days of applying. Promoters are also made subject to certain professional and ethical duties under the RERA. He is prohibited from accepting more than 10% of the cost of the apartment as an advance and required to make full disclosure.
Any alteration to the plans or specifications of the buildings cannot be made without the written consent of at least two-thirds of the buyers. Any changes to a building, which is agreed to be bought, cannot be made without the consent of the buyer.
Accountability of Agents
The RERA also imposes a number of obligations on real estate agents. Real estate agents are people who negotiate a real estate transaction on someone’s behalf and charge a commission for the same. Real estate agents must necessarily register themselves with the Authority before facilitating any real estate transaction.
The real estate agents cannot facilitate a transaction in a project which is not registered and must maintain books of records, etc. He is also prohibited from indulging in any unfair trade practice. Real estate agents have often capitalized on the lack of information available to the consumers and exploited them. However, the RERA seeks to regulate their conduct and make them more accountable. The promoters and agents are also liable to penalties in cases of non-compliance.
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Authorities under the Act
The Real Estate Regulatory Authorities are authorities under the RERA established by State governments, even two or more State governments may establish a single authority. Their purpose of the Authority is to “facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector” and can make appropriate recommendations to the Government in this regard.
The Authorities have wide-ranging powers, including the power to institute suo moto actions.
Real Estate Appellate Tribunals
In addition to the authorities, the Act also establishes Real Estate Appellate Tribunals, which are state-level adjudicatory bodies. The Appellate Tribunal will be responsible for hearing appeals from persons aggrieved by orders or decisions of the Authority or adjudicating officer.
This elaborate adjudicatory mechanism ensures that consumers in this sector can get their disputes addressed speedily and in a cost-effective manner. As the RERA is social welfare legislation, the adjudicatory mechanism is going to be inclined towards the welfare of the buyers.
Central Advisory Council
In the Central level, the RERA provides for the formation of a Central Advisory Council which will be headed by the Minister of the Ministry of Housing and will consist of representatives from the Ministries of Finance, Industry, and Commerce, Urban Development, etc. The function of the Council is advisory in nature and will mostly focus on major policy questions and questions of consumer interest.
Thus, the Real Estate Regulatory Authority in the States play the most proactive role in regulating the sector from a ground level. It undertakes registrations of projects and real estate agents and ensures the compliance of the mandates of the Act. In addition, it serves as the primary forum for adjudication of disputes in the sector.
The Appellate Tribunals are primarily adjudicatory bodies to dispense off any appeals from the orders or directions of the Authority. The Central Advisory Council is primarily a policy-oriented body with a limited and indirect role in the actual functioning of the Act. These bodies must work in tandem with the objective of fostering consumer interest and the orderly growth of the Sector.
How does RERA actually impact the sector?
From a quick look at the legislation itself, it can be seen that RERA was brought in with a good intent to promote the sector. It provides for certain specific rights which will benefit the flat buyers and regulates the conduct of the players in the real estate business to even the playing field.
It is certainly a forward-looking and much-needed legislation. However, it has been criticized for bringing about drastic changes in the sector, some of which involve too heavy obligations.
For example, the RERA requires that 70% of the amount received from the buyers be deposited in a separate escrow account and only such amount may be withdrawn which is in proportion to the percentage of work completed. The amount may only be withdrawn after certification by an engineer, an architect, and a chartered accountant.
This is an onerous obligation; however, the engineers, architect or the CA may be dispensed in favour of the builders and might favour them. This provision also overlooks commercial realities where advance payments may be necessary. It also overlooks the fact that many real estate developers are in dire financial situations.
This can be ascertained by the fact that many real estate promoters have had run-ins under the Insolvency and Bankruptcy Code.
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RERA in Action: Loopholes and Implementation
The RERA also completely ignores the possibility of delays due to governmental inaction in providing approvals, etc. The strict language of the RERA suggests that the promoters be penalised nonetheless. These watershed changes are commendable, but on closer inspection might not work as intended.
Implementation by the States
It is too early to actually understand the real implications of RERA. Till date, only 28 states and Union Territories have notified the Act, and six north-eastern states have either not notified the Act or are yet to frame rules under it. Only 13 states have permanent authorities and the rest 14 were interim authorities. Only seven regular tribunals exist and rest 13 are interim in nature.
The Maharashtra Real Estate Regulatory Authority has seemingly been very proactive. It has provided revealing statistics on its website. According to the statistics, 18303 promoters and 17159 real estate agents have been registered in Maharashtra and 79 promoters and 2 agents in Daman and Diu. 4625 complaints have been received by the Authority in which 2864 orders have been passed and 1442 are being heard.
So far only 528 appeals have been received and 88 orders have been passed. At such an early stage, these statistics show a healthy functioning of the RERA and should provide a road map for authorities in other states.
Good News for the Buyers?
The impact of RERA on homebuyers will undoubtedly be positive on almost every front. However, authors have argued that the obligations, which RERA imposes on promoters and agents, will necessarily drive the costs of the project up. It may be convincingly argued that this would be a fair price to pay for a more transparent and equitable real estate sector.
A unified and consumer-oriented sector will also attract more buyers and reduce apprehensions in their minds.
Due to a large number of changes stipulated in RERA, there is supposed to be an initial phase of backlogs for compliance. As noted above, projects costs are also supposed to be increased.
The onerous obligations put by RERA should also go on to ensure that only ethical promoters and agents remain in the sector and the unethical ones are weeded out eventually or asked to mend their ways.
It will also ensure that the projects are completed well in time and according to the given specifications. Due to the establishment of the authorities, consumers can easily approach with a complaint. This will make the promoters hesitant to commit any misconduct or cut corners.
However, in spite of RERA’s laudatory objectives, not all Real Estate Regulatory Authorities are functioning equally well. Recently, the Uttar Pradesh RERA issued a notice to 12 builders and continues scrutinizing real estate projects closely. On the other hand, according to reports, the Karnataka RERA has not made much progress on complaints filed about 8 months ago.
Some officials have lamented that RERA is understaffed for resolving the complaints efficiently.
On a global level, a slight improvement was observed when India moved up a rank in the Global Real Estate Transparency Index from 36 in 2016 to 35 in 2018. The ranking is based on transparency and accountability in the real estate market. It is expected that with time there shall be more transparency in this sector.
Although the law is still in its nascent stage and although it will be some time before the authorities under the Act are fully functional, the efforts are certainly commendable. It is undoubtedly true that the law evens out the playing field in the sector.
It is also imperative that flat buyers are aware of all their rights well before buying their flats. They are necessarily going to get much more information than was available before the advent of this Act. Flat-buyers or owners who are aggrieved by any action of the promoters or agents can easily approach the real estate authorities for easy and effective redressal of their dispute. It is expected that these issues would be ironed out gradually.
As the RERA is fairly new legislation, it is important that you understand the wide variety of rights that you can specifically assert. It is also imperative that you connect with the best lawyers in the field to assist you in asserting your rights under the RERA. My Advo can help you out in this regard.
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Written by: Agnish Aditya
National Law University Odisha, Cuttack (5th Year)