The real estate sector, according to government estimates, accounts for 7% of country’s GDP, grew to $120 billion at the end of 2016 and is expected to go up to $180 billion by 2020. It is one of the prime movers of economy but it had been grappling with the problems of accountability and transparency for decades.
At this juncture, when the much awaited Real Estate (Regulation and Development) Act 2016 (RERA) was notified (May 2016) and the process of making necessary operational rules are on (Rules for the State of Delhi notified recently), apprehensions with reference to creation of institutional infrastructure for protecting interests of consumers, promoting the growth of real estate sector in an environment of trust, confidence, credible transactions, efficient and time bound execution of projects are pretty natural.
The Act intends to establish a Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, or sale of real estate project, in an efficient and transparent manner. To protect the interests of consumers in the real estate sector, this law provides for an adjudication mechanism for speedy dispute redress along with an appellate tribunal to hear appeals from the decisions, directions or orders of the Authority.
Projects more than 500 sq m with more than eight apartments (inclusive of all phases), or where the promoter/developer has not obtained the completion certificate for existing projects, have to be compulsorily registered with the Authority.
Details of the project, the promoter’s past five-year record, approval details etc, have to be mentioned and 70% of amount realised from the project should be kept in an escrow account and must be utilised only for that project.
In case of any false or misleading representation (including advertisements), the Authority has powers to revoke the registration of the promoter. Likewise, real estate agents should compulsorily register themselves with the authorities and without this, they can’t facilitate the sale or purchase of plots or apartments etc. Punishment up to three years or fine or 10% of the estimated cost of the project can be imposed by the regulatory authorities for non-registration of a real estate project.
The Act seeks to curtail unapproved land layouts to a maximum extent possible. The entire undivided share of land including share in common areas should be conveyed to the allottees/buyers. Moreover, a promoter can sell only the carpet area of an apartment and not the super built up area. There is no standard method of determining super built up area which includes carpet area plus common area plus wall thickness. This provision may force escalation of apartment costs. However, in the GST regime, prices of building raw materials will come down by 3% and hence the net increase will be around 17%.
The Act establishes state-level authorities called Real Estate Regulatory Authorities which will regulate transactions related to both residential and commercial projects. The state-level authority will grade the projects helping customers to make better decisions. It enjoins upon all developers and builders a financial discipline so that they cannot transfer funds meant for one project to another. This has been secured by making a provision for keeping 70% of the money taken from buyers in a separate bank account.
Appellate tribunals
Mandating the builder to disclose accurate information like project layout, approval, land status, contractors, schedule and completion of project to the customers as well as the regulator strive to infuse the element of transparency. The penal interest in case of delay in completion of project shows customer-friendly regime. More importantly, it outlines the duties of promoters, buyers and real estate agents.
The Act also establishes state level appellate tribunals called Real Estate Appellate Tribunals and the decisions of state authorities can be challenged before these tribunals. It further mandates to set-up an allottees’ association within three months of the allotment of major units/properties so that the residents can manage common facilities like a library and a common hall.
Also, if the buyer finds any structural deficiency in the property, then he/she can contact the developer for after-sales service within one year of possession. The promoters or developers cannot make any changes to the plan without the consent of the buyer as per the new act. Thus it provides a contour of compliance regime to make this sector more business friendly.
The sanctioning authorities such as electricity board, water supply and fire safety authorities have been left out from the purview of the Act and there is no mention of project delays due to delays in obtaining necessary certificates from these agencies.
A strong resentment prevails among builders and developers as the new law does not provide a single-window system for getting mandatory clearances from the various central and state authorities.
Excluding the on-going projects from the purview of the Act is another contention raised against the new legal regime. Rules are being drafted by states to favour errant builders by diluting the ethos of law. It is silent on disclosure of ongoing and past legal cases against the developer.
Apprehensions are raised on the lack of transparency and flat buyers will continue to remain in the dark as the draft gives developers a loophole not to disclose crucial aspects of projects.
The operation of the Act is expected face a lot of early impediment, but will make the sector more organised in future. It is poised to boost governance in this sector.
At the same time, authorities under central and state governments must ensure necessary infrastructure like roads, water and electricity supply as well as local transport system in a time bound manner so that quality of urbanisation improves with modern outlook. Since the infrastructure development is the key to the success of real estate sector, one wishes to see a paradigm change on the ground.
(Panigrahi is Advocate, Supreme Court; Singh is Associate Professor of Law, National Law University, Odisha)