The advent of The Real Estate (Regulation and Development) Act, 2016, commonly known as the RERA act on 1st may 2016 which came into full force on 1st may 2017 has made a mark on the real estate sector of the country, which contributes as the second largest sector to the economy of India. The RERA Act seeks to protect the interest of the homebuyers and also elevate the investment in this sector.
The proposition of real estate sector to have a guardian act was raised by various legislators. It was pioneered by Indian National Congress but was taken up by the present government to bring it into force. Initially there was a debate on issue of power of the parliament to legislate on the matter of Real Estate stating it to be a legislative overreach by the Centre in the States’ domain. However, the same controversy was settled by virtue of Entries 6 and 7 in List III( Concurrent List) which gives the Centre the power to legislate on the matters of contracts and transfer of property.
A man spends his lifetime working and earning to realise his biggest dream and yet a fundamental right, a right to have a safe shelter to live under. But in spite of all the money they spend they do not get what is promised to them. Both builders and the customers are an integral part of the real estate sector. But ill-treatment of the consumers at the hands of the unscrupulous builders is what has made this Act a need of the hour and hence this enactment is hailed as a landmark judgement in the history of Indian Legislations.
As the preamble to the Act provides, the central design of The Real Estate (Regulation and Development) Act, 2016 is to establish a Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to cater to the interest of the consumer by ensuring an efficient and transparent sale of the building or plot. It also provides for establishment of an adjudicating body to separately deal with the disputes for matters connected therewith and incidental thereto.
Real estate projects above 500 sq. metres or 8 apartments are covered under RERA. It applies to both the residential and commercial projects. The builders undertaking the projects take the down payments but fail to fulfil the promise of timely allotment of the apartments and allotment of what was promised. The consumer is thus faced with the problem of delayed possessions and inequitable contracts.
In contemplation to these risks to which the consumer is exposed, the Act imposes on the builder, a liability to pay an interest of 12% to the allottee, who is the consumer, on account of failure to timely handover the apartment or plot, as the case may be. It also makes it mandatory for the builders to reveal to its buyers the apartment size as per the carpet area and the buyer doesn’t pay for the built up area. These provisions seeks to protect the right of the buyers to know what they are paying for.
The draft also mandates every builder to register its project with the State Regulatory Authority. It also includes within its ambit all the ongoing projects which haven’t been issued the completion certificate or the occupancy certificate, till the date of commencement of this Act. Penalty of 10% of the estimated cost of the project and an imprisonment for a term of 3 years can also be imposed in case of non- compliance with the registration requirement.
RERA also keeps a check on the diversions, by mandating 70% of the amount realised from the Real Estate Projects to be deposited in a separate bank account. Such proceeds can only be used towards land and construction costs.
These provision aims at throwing the unorganised, unscrupulous traders in the sector out of the economy and maintain a pious status of the sector in serving the customer needs. It aims at building the confidence of the customers in the builders as to ensure the safety of their investments in the projects. This will not only strengthen their relationship but will also keep a check on the unprecedented fall in the growth of the sector. By creating such regulations, entry of regular players will increase as the playing field will get levelled.
RERA has been detested on being more buyer-centric, ignoring the interests of the builders. But there exists a provision for penalty of an equal amount of interest on any kind of folly on part of the buyer as that is imposed on the builder. It has also been attacked on the fact that the implementation of its provisions will lead to a rise in the project prices, making the sector more ill-favouring to the consumers. With stricter rules in action, there will be heightened requirement of institutional financing to cope up with the cost and to cover up this cost, it will ultimately be passed along to the home-buyers.
High prices chase low demand. But when there will be legit, ethical builders providing for a security with the apartments, the consumers will be more willing to take a share in that. There will be increase in demand and will consequently balance the cost of the estates to attain the equilibrium. With the presence of a fiduciary relationship between the parties, which will be backed by a statutory enforcement, the consumers will see an agreeable interest in the projects and find their investments safe. It will also attract foreign capital leading to growth of the nation’s economy.
Thus, The Real Estate (Regulation and Development) Act, 2016 will sub serve handover of greater powers in the hands of home buyers and help in organizing real estate across the country. The businesses of fly by night developers will be restricted while promoting transparency, quick project completion and ethical practices. It will also promote buyers’ sentiments