In recent times, the real estate market in India has witnessed a resurgence in pre-launch activities that should give any potential investor pause for thought. These practices have raised significant concerns about their legality, transparency, and the risks they pose to unsuspecting investors.
In this article, we shed light on some of the dubious practices and delve into how the Real Estate Regulation and Development (RERA) Act is designed to safeguard investors.
The Murky World of Pre-Launch Real Estate
Opaque Deals: One of the most alarming trends is the practice of soliciting non-bankable cheques without providing essential details about the project, such as rates, size, area, total land, number of floors, FAR (Floor Area Ratio), location, and specifications. This lack of transparency makes it difficult for investors to make informed decisions.
Priority Numbers for Cheques: Some developers claim to allot priority numbers to those who provide advance cheques, creating an atmosphere of urgency and FOMO (Fear of Missing Out) among investors.
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Return on Investment Promises: Promises of attractive returns on investment, often spanning multiple installments, raise questions about the financial viability of these projects and whether they are sustainable or part of a Ponzi scheme.
Unapproved Projects: It is also disconcerting that some developers are marketing projects that have not yet received regulatory approval. This practice not only violates RERA guidelines but also puts investors at significant risk.
RERA: Safeguarding Investor Interests
The Real Estate Regulation and Development (RERA) Act, enacted in 2016, was a game-changer for the Indian real estate sector. Here’s how it aims to protect investors:
Security: RERA mandates that a minimum of 70% of buyers’ and investors’ money must be kept in a separate account. This money can only be used for construction and land-related expenses, ensuring it is not diverted elsewhere.
Transparency: Builders are required to submit original project documents, and any changes to project plans must have the consent of buyers, promoting transparency in project execution.
Fairness: RERA promotes fairness by mandating that builders sell properties based on carpet area rather than super built-up area. In case of project delays, buyers are entitled to a full refund or can choose to remain invested and receive monthly returns.
Quality Assurance: Builders must address any issues faced by buyers within five years of purchase, with a requirement to rectify them within 30 days of complaint submission.
Mandatory Registration: Developers cannot advertise, sell, or build projects without registering with the regulator. All advertisements must include a unique project-wise registration number provided by RERA.
Taking Action Against Violations
RERA has stringent penalties for non-registration and non-compliance. Developers can face penalties of up to 10% of the project’s projected cost if they fail to register. Real estate agents, too, are prohibited from engaging in transactions related to unregistered projects, with penalties of up to Rs 10,000 per day of default, potentially reaching 5% of the total project cost.
A Call to Action
To protect the interests of investors and maintain the integrity of the real estate market, it is imperative that authorities track and investigate fraudulent practices. Developers and agents must be held accountable for their actions, and investors should exercise caution, insisting on transparency and adherence to RERA guidelines.
In conclusion, while the pre-launch real estate market in India may be booming, potential investors should tread cautiously, making informed decisions and ensuring that any investments align with the protective measures offered by the RERA Act. By staying vigilant and promoting transparency, we can ensure the sustainability and growth of the real estate market in the country while safeguarding the interests of all stakeholders.
(By Pradeep Mishra, Founder, Homents Pvt Ltd. Views are personal)