Individuals who put in their lifetime savings to buy their dream house will now find a safety net in the Real Estate (Regulation and Development) Act, which was notified on March 26. It will improve buyers’ confidence in real estate as developers will have to complete projects as per schedule and buyers can be safeguarded against pre-launch schemes, which had substantial risks.
While the Act has been notified by the Centre, it will not have much teeth unless each state sets up a regulator. This is where the catch is because
the actual impact of the Act on the buyers will now depend on how
many clauses and provisions are adopted by the states.
Under the Act, all real estate projects with plot area of over 500 square metres or eight apartments will have to be registered with the regulator and even ongoing projects will have to be registered within a period of three months from the implementation of the Act.
The developer will have to make disclosure of all registered projects, including details of promoters, project implementation schedule, carpet area, layout plan, land status and approvals, the architect and structural engineers. Projects can be launched only after the developer has secured all the statutory clearances from relevant authorities. In case the builder wants to do alteration in the plan or structural design, he will have to take the consent of two-thirds of buyers.
The Act mandates that the developers clearly specify the carpet area of the flats. It is the actual usable floor area in a residential/commercial unit and does not include the area covered by walls or common areas such as lobby, lift shaft or stairs.
In order to ensure that developers do not divert funds from one project to another one, they will now have to deposit 70% of the amount realised from the buyers in an escrow account to cover land and construction costs. The Act protects buyers against project delays as developers will have to refund the entire amount paid along with interest in case of a delay.
The rate of interest chargeable from an allottee by the promoter will be equal to the rate of interest which the promoter will be liable to pay the allottee in case of default. Promoters will not accept more than 10% of the cost of the apartments, or plot as an advance payment from the buyer without first entering into a written agreement for sale.
Analysts say the Act will lay the foundation for sustainable long-term growth in the industry. Developers, who attract buyers at discounted price by doing pre-launch bookings, have no commitment to quality and execution will be weaved out. A report by J M
Financial points out that transitionary phase will impact all developers as they face extended commitment liabilities and stretched working capital. In the medium term, organised players will benefit from improving sector dynamics like higher transparency and lower competition.
In case of any structural defects brought to the notice of the promoter within five years from the date of handing over possession, the builder will have to rectify it without any charges within 30 days. The Act mandates formation of residents’ association within three months of allotment of the project.
The Act will lead to the establishment of the Real Estate Appellate Tribunal to ensure faster resolution of disputes. The tribunals will be required to adjudicate cases in 60 days as against the earlier provision of 90 days, while regulatory authorities will have to clear complaints in 60 days. While civil courts are prohibited from taking up matters defined under the Act, the consumer court has been allowed to hear such cases.
Any person aggrieved by any decision or order of the Appellate Tribunal can file an appeal to the high court, within a period of 60 days from the date of communication of the decision or order of the tribunal. If the promoter does not comply with the orders of the tribunal, he can be imprisoned for up to three years.
Incorrect or incomplete disclosures will attract a penalty of up to 5% of the project cost, if the project is not registered, then the penalty will be 10% of the project cost. Moreover, if the real estate agent fails to comply with the regulations, he will have to pay a penalty of R10,000 per day, or up to 5% of cost of the apartment.
The regulatory authorities will promote a single-window system of clearances for all real estate projects. The regulatory authorities can grade projects along with grading of promoters, besides ensuring digitisation of land all records across all states.
Moreover, they will be required to make regulations within three months of the formation of the regulator.
Act-ing tough
Under the Act, all projects with a plot area of over 500 sq m or eight apartments will have to be registered with the regulator.
Even ongoing projects will have to be registered within a period of three months from the implementation
of the Act.
The Act mandates that the developers clearly specify the carpet area of the flats.
In order to ensure that developers do not divert funds from one project to another one, they will now have to deposit 70% of the amount realised from the buyers in an escrow account.
In case of any structural defects brought to the notice of the promoter within five years from the date of handling over possession, the builder will have to rectify it without any charges within 30 days.
