RERA Act: Importance and Related Issues

Introduction:

Access to food, cloth and adequate housing are the basic needs of human life. The right of housing is also interpreted by the Indian judiciary and infringed this right within the ambit of Article 21 of our Indian Constitution [it was held in the landmark Judgement of Olga Tellis & Ors vs Bombay Municipal Corporation (1986 AIR 180)]. But before 2016 we don’t have any regulating authority or provisions who specifically deals in real estate or property laws which leads to a rise in property frauds and unfair advantage of property builders over the buyers. To hinder this gap and to make all these more transparent the Real Estate (Regulation and Development) Act 2016 was passed by the Indian Government. It is important to note here that the above-mentioned act was implemented nationwide on 1st May 2017. The real estate act makes it mandatory for each state and union territories to form its own regulator and frame the rules that will govern the functioning of the regulator. For example – Delhi has its own RERA guidelines which are different from the RERA of Uttar Pradesh.

Background History

• Bill was passed by Rajya Sabha on 10^th March 2016.

• Lok Sabha passed the bill on 15^th March 2016.

• President of India gave his assent to the bill on 25^th March 2016.

• From 1^st May 2016, only 69 sections out of 92 sections came into an effective force.

• Formations of rules by 31^st October 2016.Establishment of Real Estate Regulatory Authority and Real Estate Appellate Tribunal by April 2017.  

Objective of RERA:

The main issue faced by the world is the lack of transparency. The system until recently was filled with confusion regarding price, construction delay, construction quality, ownership and litigation. Of these, the most important issue is the delay in the delivery of property to buyers. During the last 20 years, the amount of under-construction properties rose to an all-time high. Especially within the major cities, many builders have violated the norms by failing to stay up with the project deadlines. Property agents or brokers took advantage of prospective buyers by misguiding them about the quality of the property. They might provide assurances orally regarding property documents which were often missing or incomplete. So the objective of RERA is to hinder the problems faced by the home buyers and provide them legal assistance to Seek Justice.

Scope and Ambit of RERA:

So the act of RERA is basically classified into 10 chapters which concern different segments of real estate and the extent of RERA Act is given under section 1 according to which it is applicable to the whole part of India except Jammu and Kashmir [according to section 1(2)]. But as we all know that since article 370 was revoked in 2018 and according to the latest update centre may pass a notification of RERA in Jammu and Kashmir in November 2020.

If we talk about applicability of the act it is applicable on Plots, even on-going projects too (any building which is not having occupancy certificate will be termed as on-going projects), commercial real estate projects as well as residential real estates projects and made it compulsory to register under RERA to have transparency and accountability but according to Section 3(2) of RERA, there are some properties which are exempted from the registration under RERA –

• If the proposed land for development has an area below 500 square metres.

• If the proposed number of apartments for development doesn’t cross beyond eight.

• In case of renovation, repair, or re-development of a property that doesn’t require fresh allotment of a plot/ building or marketing, advertising etc.

Forums under RERA 2016

Basically there is a hierarchy of 4 courts under RERA which are mentioned undersigned–

• The adjudicating authority will be RERA.

• Then the court of appeal lies to appellate authority.

• Then to the High Court

• And then to the supreme Court.

Importance and Need of RERA 2016

It is pertinent to note that RERA is equally important for both builders as well as home buyers. Both the parties are bound by it. The main aim of this act is to ensure transparency and accountability between both the buyer and seller. The ultimate purpose of the act is to protect the interests of household buyers and increase investment in the real estate sector. Before the commencement of this act property frauds were on a peak to control all those malpractices, fake promise of possession, money laundering etc centre government passed this act. Following are the important factors of the act –

1. Transparency – The primary and foremost importance of this act is that now the builder isn’t alleged to hide anything. There’ll be a transparent relationship between both the parties as this act mandates the builder to update all the first details associated with the project, possession on RERA site and the purchaser can simply go through that site. If the builder is performing some wrong associated with estate then provisions of this act punish him both with fine and imprisonment. With the purview of this act, even the developer has to take permission for the advertisement too.

2. Accountability – Before the commencement of this act there’s no accountability of builders after selling the property to its buyer but now builders are more accountable to any grievances by the customer on the property till 5 years of the sale of that property.

3. Registration – Now any project over 500 sq. metres or above 8 flat apartments are compulsory to be registered under the RERA Act. Chapter 2 (Section 3 to 10) deals with the supply of registration. The most advantage of registration is to bound the property builder with the guarantees or details of projects he had mentioned on the RERA website. Non-compliance with the guarantees proposed causes the penalty.

4. Carpet Area Defined – Many cases are still pending in consumer courts against the customer on this issue. Earlier for the greed of extra money builders sold their flats on the idea of Built-up area not with reference to Carpet Area. But this act resolved this issue by giving a proper definition of Carpet Area [defined under section 2(k)] and made it mandatory for the builder to sell his flat on the idea of Carpet area only. No more extra costs are going to be charged for lift lobby, living room, balcony etc. The purchaser will only charge the worth of property which falls under the walls of his flat (kitchen, Drawing room, toilets etc).

5. Redressal Mechanism – consistent with the Section 20 of this act it’s the duty of each state to line an autonomous authority (Real Estate Regulatory Authority) within the amount of 1 year from the date of enactment this act which specifically deals within the matter of land and help the buyer redress their grievances.

6. Check and Balance – As per the new law, the developer will need to place 70% of the cash collected from a buyer during a separate escrow account to satisfy the development cost of the project. This may keep a check on developers who divert the buyer’s money to start out a replacement project, rather than finishing the one that money was collected & also make sure that the respective project is completed in time.

7. Penalty Provisions – Chapter 8 (From Section 59 to 68) embedded by the provisions of punishments and penalty if the builder didn’t follow the provisions of RERA 2016. The utmost punishments prescribed under this act is imprisonment of three years with or without fine if the developer violates the order given by the appellate tribunal RERA.

Challenges of RERA 2016

Even though there are many advantages of the act, there are certain limitations which are as follows:

1.  Due to various factors, the builders are faced with lack of cash, as a result, they increase the price of the property to meet their needs, which leads to change in demand and supply conditions in the sector.
2. Even now there are many states and union territories which haven’t launched the website of RERA.
3. Slow trials by the regulatory authority and the time limit of adjudication is nowhere defined in the act which will cause trouble to both buyer and seller.
4. Compliance with all aspects will slow the project and as the property is not going to be pre-selling. Large builders will be able to develop two to three projects within two years due to the length of the venture, and small builders will be unable to earn money due to lack of techniques and resources.
5. After 3 years of commencement, many states are not following these guidelines and haven’t set up any redressal mechanism with respect to real estate.
6. It has been observed that many of the frauds or cheating in the sale of property are done by local builders but this act is not applicable to the property less than 500 Sq. metres or below 8 apartment flat systems.
7.  If the developer fails to fulfil any clause, he shall be liable for imprisonment up to 3 years or 10% of the total project value. This condition puts the customer in trouble and holds them until the matter is resolved. It creates stress in their lives and they face financial crises.

Present Scenario:

From the past 4 years, RERA has been passed and implemented in various states across the Nation. The present situation is far better than the previous one as now there is accountability and transparency in the matter related to real estates but it is not good as it was to be expected. The main reason for not having expected good result is implementation. As many states still have not set up regulatory authority and the builder of that particular state has taken full advantage of it. But in the states where it has been implemented tends to have a good result. For example- RERA Haryana penalized a developer with the penalty of Rs. 10 Lakh as he had slipped to register his project under RERA and Similarly the Maharashtra RERA penalized a well-known developer as he had done advertisement without registering it in RERA. In the second year of RERA Regulatory Authority with the help of Supreme Court compelling states to register under RERA. But in 2020, during this time of pandemic government released various guidelines regard to the extension of loans, possession etc. which will benefit both developers and home buyers.

Conclusion

While RERA promises to rework the important Estate Industry into an organized, transparent and a profitable Sector, one has got to wait and watch to actually understand, the impact it’ll have within the end of the day. The initial hiccups within the implementation of RERA are unavoidable but the holistic impact of this revolutionary Act will certainly be positive and beneficial for the homebuyer’s community. The contribution to national GDP by the real estate sector is 13%. The real estate sector accounts to the second-largest employer in the country and has a direct influence on 250 allied industries. Therefore, it becomes very important that the government should make relaxation on certain regulations to help the builders to fulfil their responsibilities and obligations during the times of COVID 19 too.