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An Insight into the Real Estate Regulatory Authority (RERA) Act, 2016

Updated: Dec 1, 2020

Riddhi Goyal [1]


 

Abstract

In India, the second largest industry known to provide employment opportunities is the Real Estate sector. Even though the real estate industry makes a significant influence on the GDP of the nation, this industry remains unregulated. The governments of the states mostly handle it. The real estate industry is notorious for the malpractices that plague the industry. There are plenty of loopholes which have led to the sector being nicknamed “a mafia”. The Real Estate Regulatory Authority Act, 2016, also known as the RERA Act, 2016, is unique legislation made by the Central Government of India. The Act came into force on May 1, 2016. Out of 92 sections, only 52 were notified, and the remaining provisions came into force precisely a year later, i.e., May 1, 2017.


The principal purpose and the aim of the RERA Act are to reduce the mental and financial distress that the buyers have suffered from the fraudulent builders and Real Estate lobby. The RERA Act was brought to ensure transparency & efficiency in the real estate sector regarding the sale of plots, apartments, buildings or any real estate projects. It aims to protect the interest of the buyers in the sector. It has established an adjudicating mechanism for speedy dispute redressal. It has also established an Appellate Tribunal to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority.


Before the RERA Act, there was no clarity on carpet area (which is the area enclosed within the walls of your flat), was a sort of the monopoly of builders regarding modes of payments, rates, possession and everything else which came into the real estate industry. The industry had so many cases of fraud where no clear picture of the project was obtained, and the possession was given to the customers leading to many pending cases in the courts. This paper provides an overview of the Real Estate Regulatory Authority (RERA) Act, 2016, and explains its impact on the real estate industry.


Introduction

Every country aims to strengthen its economy for which it lays down new rules, regulations, policies, etc. All this is done to achieve maximum social and economic welfare. As mentioned above, the real estate sector has remained unregulated even today, which is why the Government of India laid down the RERA Act, 2016 to regulate this sector. The real estate industry is one of the most valuable industries in terms of revenue and employment. Hence, the government needed to take some steps for the relation of this industry.


The RERA Act, 2016, received the assent of the President on March 25, 2016, and came into force on May 1, 2016. Every state will have to abide by the rules and regulations laid down by the RERA meaning, the actions of the state governments must be in compliance with the RERA Act, 2016. The Act aims to protect the home purchasers and encourage real estate investments by making them more aware of their rights and providing them with adequate knowledge about the same.


It is well known that the real estate industry is plagued with many unethical and illegal practices. The delay in possession of the properties by the builders is one of the major concerns of this industry. Such a delay can have an adverse effect on the performance, time and cost of a project. The house-buyers are sometimes compensated for the failure of meeting the required conditions by the builder and mostly not.


The RERA Act, 2016 aims to resolve all these issues so that the interest of both the buyers and the builders rise towards the real estate sector.


Objectives of RERA Act, 2016:

● There are plenty of causes for delay in possession or the construction of projects, and one of the major objectives of RERA is to identify them and curb the unnecessary delays in the projects.

● Another objective of RERA is to replenish the faith of the buyers in the sector and bring transparency in all the transactions.

● 70% of the deposits made by purchasers are required to be deposited in an escrow account by the builder. This amount can be used by him/her for the same project as against a minimum of 50% suggested earlier. This was done to reduce the illegal approaches and gain the faith of the homebuyers.

● RERA aims to protect the interests of the buyers, sellers, investors, etc. and tries to promote more of real estate transactions. Further, it aims to establish the authenticity of promoters, real estate agents, etc.

● It has set up the appellate system for grievance redressal for the speedy disposal of cases related to the real estate sector.

● It has laid down the rules and regulations which are to be taken into consideration when taking up the real estate projects and it has also prescribed the penalties, and punishments for the defaulters.


Application of the RERA Act, 2016:

The Act applies to the transaction of sale of any kind of property (irrespective of it being freehold or leasehold) like apartments, buildings or plots. It is only concerned with residential and commercial projects. It is not applicable to any property which a person gives or takes on rent. It isn’t applicable to any project started or completed before the act came into force. It also doesn’t apply to projects due for clearance before the act. Is not applicable to projects less than 500 sq. mts.


With respect to the applicability of RERA Act, 2016 both the Haryana Authorities in Sanju Jain vs. TDI Infrastructure Ltd. and Simmi Sikka vs. Emaar MGF Land Limited placed more emphasis on the absence of certain terms and conditions than on the specific provisions of RERA as they exist today. While the HARERA Gurugram stated that the ventures listed under Section 3(2) were not removed from the RERA requirements, the Authority did not include any justification for such a view. It is respectfully claimed that the absence of a consistent understanding of RERA’s requirements will contribute only to greater uncertainty as to the applicability of this law.


Scope of RERA Act, 2016:

In the Real estate sector, RERA has a wide scope. It deals with all kinds of properties in the residential and commercial sector. It is mainly for all the ongoing projects. It covers all the parties included in a real estate project like the homebuyers, the promoters, the brokers and agents etc. The act also takes the real estate brokers and agents which were ignored otherwise under its ambit, making it applicable to all the people involved in the project.

It has been laid down that all the builders are required to get their project registered under Section 3 of the RERA Act, 2016 before the initiation of the project, i.e., they can begin the project only after the approval and the registration under the RERA Act. This is because at the time of the registration, it is mandatory for the builders to provide all the details of the project like the carpet area (which is the area enclosed within the walls of your flat), plan, outline, the deadline of completion of the project, and the date of possession. So, this makes it incumbent upon the builders to adhere to the rules and regulations. In case, the builder cannot give the possession on time, then he/she is under an obligation to compensate the purchaser.


Most Important Provisions of RERA:

Prior to RERA, the builders used to take undue advantage of the industry being unregulated and diverted deposits of the buyers to other projects which lead to the delay in possession. But now, the builders are required to deposit a minimum 70% of their earnings in a separate account under Section 4(2)(I)D) that they can use only in the construction of that project.

The regulators of every state have to compulsorily register their real estate projects and agents who are working under RERA to avoid frauds later. The developers who have not registered their projects under RERA Act cannot invite, sell, book or advertise about it meaning, they can only advertise and promote after the registration of the project is completed. A real-estate agent requires registration before the commencement of duties. If a real estate agent fails to register, he/she will be imposed with a penalty of Rs 10,000 for each day of default. It may cumulatively extend up to 5% of the cost of the plot, apartment or buildings of the real-estate project.


The builder or the investing company gets a registration number on completion of the registration where they are required to provide every tiny detail about the project and then the detailed project is accessible to the buyers in the market.

RERA has limited the advance payment to 10%, so the seller cannot ask for more than 10% of the total amount as an advance payment.

RERA has mandated the builders or the developing industry to mention the carpet area in the details, i.e., the actual usable area. This was done in order to maintain transparency and making clear demarcations between all the areas so that the buyer knows all the details about the area that they will pay for.

Many states have established regulatory authority under the RERA wherein the mechanism for speedy dispute redressal has been established. Appellate Authority has also been notified wherein the Appellate Tribunal has been established to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority and the adjudicating officer and for matters connected in addition to that or incidental to it.


Impact of RERA:

The real estate industry needed a regulatory body and the concept of RERA Certified Property came into existence. The biggest success of the reform is that it has revived the confidence of home-buyers.

As we all know the malpractices that existed in this industry were beyond anyone’ control, with the coming of RERA Act, 2016, they have been reduced to a great extent. RERA has done good in most of the states like Maharashtra but on the other hand, it has also not been implemented up to the mark in some states. The main reason for RERA failing in some states is the lack of awareness amongst the homebuyers regarding their rights and duties.

1. On the Real estate industry: RERA is undeniably one of the most needed reforms in the real estate sector. For an industry such as real estate that has been traditionally unorganized and fragmented, this transformation becomes even more overwhelming. The impact of RERA has differed from state to state. It aimed to bring transparency amongst the homebuyers and the builders and has successfully done that. It was created to encourage the interest and trust of the buyers in the industry and to regulate the unorganized sector. When any fresh change occurs in any sector or industry, it surely brings some problems with it and the same goes for RERA. Initially, it created some problems, but with time; it made the functioning of the industry very smooth and has tried to reduce the unethical practices going on in the industry. Now that the industry has transparency between the buyers and the builders, it will attract more investors too.

2. On buyers: RERA has gained the confidence of the buyers. It has encouraged the buyers to buy more property as now the frauds have been reduced and the homebuyers have been given more privileges. If the builder or the developing company cannot give the possession on time, then it is bound to compensate the buyer and the advance payment has been limited to a maximum of 10%, which has attracted more homebuyers.

3. On Developers (Builders): While RERA has a good impact on the buyers, it impacts the developers too. It has made the developers gain the trust of the buyers as the registration of the project is crucial and without getting the project registered, no developer can promote it. RERA has made it compulsory for the developers to deposit the 70% of their earning from the project to a separate account which can be used in that project only from time to time. This has helped the builders complete the project on time and has solved the problem of delay in possessions effectively.

4. On brokers and agents in the real estate sector: A real estate broker, commonly known as the Realtor, works as a mediator between the buyers and the developers. The Realtor plays a key role in the marketing strategies and functioning of any project in the industry. As per RERA, it is imperative for a developer to get his brokers and agents registered to avoid frauds in his/her name. The brokers and the agents are entrusted with more responsibilities, like maintaining the records and documents of the real estate project.

Lacunae in the RERA Act, 2016:

1. It is mandatory for every potential project to be registered under Section 3 of the RERA Act, 2016. It also bars pre-launches in the absence of authorization by the concerned agency. The challenge occurs as several phases include the construction of a real estate project and then approval is to be obtained for each project. The project’s progress will face hindrance due to the lack of a single-window clearance and be delayed.

2. Even though in most states, full implementation of RERA began back in 2017, still there are many states where RERA has not been fully implemented or even if it has, there are plenty of the loopholes.

3. RERA has described the carpet area well, but it still has not given the full description of the actual usable area, which is the net functional area.

4. There are insufficient recovery powers with RERA which tend to be a big lacuna that fails to comply with all the orders issued in favor of homebuyers by the RERA authorities of their respective states.

Conclusion:

It is needless to say that RERA was much needed for the industry. The malpractices going on in the industry were known to everyone, which led to the fall in interest of both buyers and investors. RERA has brought transparency in the industry and has also laid down the penalties and punishments for the defaulters, making everyone accountable for their actions. RERA promises to transform the Real Estate industry into an organized, transparent and profitable sector. As we know, it takes time to bring reforms in any industry, RERA, in the long term, will prove one of the most beneficial reforms to the industry. Even though it has still not been implemented the way it should have been, the functioning will get better, resulting in efficiency gains to the real estate sector in due course of time.


 

[1] Riddhi Goyal is an undergraduate from Amity Law School, Noida. For any discussion related to the article, she can be contacted via mail: goyalriddhi1999@gmail.com.

Preferred Citation – Riddhi Goyal, An Insight into the Real Estate Regulatory Authority (RERA) Act, 2016", Syin & Sern Law Review, Published on 30th November, 2020.


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