The arrest of real estate company Unitech’s managing directors, Ajay and Sanjay Chandra, should bring the spotlight back on the states’ delay in notifying their respective Real Estate Regulatory Authority (RERA). The Chandras are accused of fraud—allegedly siphoning off the money buyers had paid for houses in the company’s Gurugram and Greater Noida projects while the latter are yet to get possession that was supposed to happen as far back as 2012. To ameliorate the pain the delays in handover have caused buyers—they, of course, have to pay interests on their home loans—the Supreme Court had ordered the company in August and October last year to compensate buyers for the delay in the Greater Noida project and refund those of the Gurugram project, respectively.
But how little such orders serve buyers is clear from the fact that Unitech posited that it could do neither because it didn’t have the money. On the other hand, had the Real Estate (Regulation and Development) Act been in force at the time these projects were announced, things might have turned out differently for home-buyers. The Act has provisions that would make it impossible for a real estate developer to push delivery deadlines as widely as in the Unitech instance.
The Act requires developers to register each forthcoming project—and those projects that were underway at the time of the notification of the Act in March last year but hadn’t received the completion certificate—with the state RERA before inviting buyers. It also requires the developer to submit various other documents, including clearances and approvals from the relevant local authorities at the time of registration which should make it nearly impossible for the developer to claim that approval delays are holding up the project. Proforma of the agreements and deeds that the developer would sign with prospective buyers also need to be submitted alongwith.
One of the key protections afforded to home-buyers is that 70% of all realisations from a project are to be deposited in an escrow account, to be utilised for covering the land and construction costs of that particular project. Further, all withdrawals from this account have to be in proportion to the stage of completion of the project, certified by an engineer, an architect and a chartered accountant. This could effectively eliminate the developers’ practice of investing the realisations from one project in buying up land for future projects which has led to a cascading of delays across projects. The Act also provides for stringent penalties, including project deregistration, for violations, including fraudulent advertising and misinforming the buyer.
The Act, thus, moves the balance of power in the real estate sector towards the home-buyer. To be sure, the states have to notify their own rules, and may perhaps choose to shift away from the spirit of the Act. But as the Maharashtra instance shows—it had to roll back many of the rules that were seen as skewed in the favour of the developer—it is difficult to entirely shed the home-buyer focus. Which is why, the fact that only a handful of states—Uttar Pradesh, Delhi, Gujarat, Maharashtra and Karnataka—have notified their RERA rules, should be worrying, especially with the May 1 deadline for notification just three weeks away.