Many states have diluted some crucial provisions of the Centre’s Real Estate (Regulation and Development) Act which empowers buyers of residential properties.
From May 1, ending nine years of a long wait, Real Estate (Regulation & Development) Act, 2016 came into force. Though the Act is a central law, it is being implemented through the state governments as real estate is a state subject. Each state and union territory needs to device its own set of rules and regulations to govern the function of the regulator. Accordingly, so far 13 states and and union territories have notified the rules. Only Madhya Pradesh has set up a full-fledged regulator while rest of the states have set up interim regulators. A few state governments have diluted the Act, by waiving the application of the Act for under-construction projects though the Act says it should apply to both new and under-construction projects.
Real estate market
As per the latest industry sources, between 2011 and 2015, around 2,349 to 4,488 real estate projects were launched every year amounting to a total of 17,526 projects with a total investment of `13.70 lakh crore across 27 cities, including 15 state capitals. Around 10 lakh buyers invest every year with the dream of owning a house.
Given the size and number of players in the real estate market, buyers often complain on various issues such as delay in completion of the project, not paying any interest for the amount already paid during delay, forfeiture of the initial amount paid in case of delay in payment by the buyers, post-construction issues, etc.
The Act is likely to bring relief to home buyers. The Act makes it mandatory to deposit 70% of the funds collected from buyers in a separate bank account in case of new projects and 70% of unused funds in case of ongoing projects. This will ensure that developers are not able to invest in numerous new projects with the proceeds of the booking money from one project, thus leading to delay in completion and handover to buyers.
Penal interest, accountability
When the project is delayed, the developer is not affected in any way. As per the current provisions, in case of any delay in project completion, developer is liable to pay the same penal interest of State Bank of India’s marginal cost of lending rate plus 2% to the buyer. At the same time, the allottees are also penalised if they do not pay their dues on time to the builders.
In case of any structural or workmanship defects up to five years after completion, responsibility lies with the developer. The buyer can demand after sales service, within one year, if any deficiency in the project is noticed. If the promoter fails to respond and repair the same, the buyer is entitled to
Any violation of order of appellate tribunals and regulatory authorities by the developer will lead to imprisonment of up to three years and one year in case of agents and buyers. All ongoing projects which have not yet received completion certificate as well as new projects need to get registered with regulatory authorities within three months.
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Pricing based on carpet area
Projects with a plot size of minimum 500 square meters or eight apartments shall be registered with regulatory authorities. Often, developers sell the property on the concept of ‘super built-up’ area which is very vague. Now, this practice will come to an end and developers should quote price based on carpet area, which is clearly defined in law. All developers are mandated to disclose their project details on the regulator’s website, and provide quarterly updates on construction progress. Developers are not permitted to sell the project via pre-launch activities as the Act does not permit the same.
Impact on price
The Act has nothing to do with property prices as price is a function of demand and supply in the market. In fact, this Act will weed out fly-by-night companies from the sector. So, only established players will survive which might probably lead to enhanced activity in the sector, ensuring supply of more housing units into the market.
The writer is associate professor of finance & accounting, IIM Shillong.