All You Need To Know About The Real Estate Law

Union Urban Development Minister M Venkaiah Naidu on March 10 tabled the Real Estate (Regulation and Development) Bill, 2016, in the Rajya Sabha, which passed it by a majority voice vote. The objective of the Bill is “to protect the interests of the large number of aspiring house buyers, while at the same time enhancing the credibility of the construction industry by promoting transparency, accountability and efficiency in execution of projects”.

The move has got a thumbs-up from all stakeholders – while buyers are feeling relieved, investors' confidence in India's real estate is expected to get a boost; developers are at peace, too. The markets reacted positively to the development, with the BSE realty index surging in early trade on March 11, and shares of all major property developers witnessing an upward trend.

PropGuide takes a look at key features of the law, which will pave the way for the government's ambitious plans, such as 'Housing for All by 2022' and the 'Smart City Mission'.

• Mandatory registration with the Authority: All real estate projects bigger than 500 sq mt in size and with more than eight units will have to mandatorily register with the regulator. A penalty of 10 per cent of the total project cost will be charged from the developer in case of non-compliance. Real estate advisors are also required to register themselves with the authority.

Significance: The criteria for registration is wide enough to cover a majority of the real estate projects currently undertaken by developers. Registration of projects will also ensure that anything that reaches the buyer is first passes through the lens of the regulator.

• Strict penal provisions: In case of any non-compliance of the appellate tribunal order, there is a provision for imprisonment of up to three years for developers, and of one year for buyers and advisors. The defaulting party may face imprisonment or monetary penalties or both.

Significance: The fear of imprisonment will mean that developers will comply with the tribunal's order, and not dilly-dally.

• No diversion of funds: The legislation makes it mandatory for developers to deposit a minimum of 70 per cent of the funds collected from buyers into a separate escrow account. This amount will have to be used exclusively to cover land costs and project constructions. This provision eliminates the use of unaccounted money in the sector and also stops developers from diverting funds raised for one project into another.

Significance: Earlier, some developers speculated and kept diverting funds raised from one project to another, and so on. This resulted in delays in completion of the less profitable projects to the detriment of the buyer. That will not happen now.

• Regulation of the sector: State-level units of the Real Estate Regulatory Authority (RERA) will be able to regulate both residential and commercial real estate projects. This authority will also appoint adjudicating officers to settle disputes.

Significance: As land is a 'state subject' under our Constitution, state-level RERA will be able to effectively regulate the sector.

• Time-bound adjudication: The Real Estate Regulatory Authority and the Appellate Tribunal will be required to adjudicate disputes within 60 days. This will ensure timely settlement of cases. The Bill bars the jurisdiction of civil courts over real estate disputes. However, consumer courts are still allowed to entertain such matters.

Significance: The buyer will no longer be required to go through the time-consuming procedural laws of civil courts. Developers sometimes took advantage of the legal process. However, the buyer can approach both RERA and the consumer-friendly consumer courts.

• Precise saleable area: The Bill defines carpet area as the net usable area, and buyers are to be charged on the basis of that. Some developers had lately been using terms like super area and built-up area, making it confusing for buyers.

Significance: Developers will not be able overcharge buyers because the carpet area can be easily measured by them.

• No changes without buyers' permission: For any changes in an ongoing project, the developer will need an approval from at least two-thirds of buyers. This will stop arbitrary changes by developers.

Significance: At the pre-launch or initial stages, some developers made tall promises but buyers were disappointed to see what they got at the time of delivery was completely different from what they had booked. Such malpractices will now be a thing of the past.

• Transparent disclosures: Now, developers will have to disclose to the regulator all the information related to a project, including land status, layout plan, details of the promoter, and the approval status. Real estate advisors, contractors, architects and structural engineers will also have to share their details.

Significance: A major issue in the real estate sector has been a lack of transparency. That has been effectively dealt with by this provision.

• Refund provisions: The Bill entitles buyers to a full refund with interest, if there is an unreasonably long delay in project completion.

Significance: Earlier, to get their money back, buyers had to run from pillar to post and go for litigation against the developer. Now, with explicit refund provisions, an errant developer will find it difficult to escape liability.

• No sale without approvals: Developers will not be allowed to start construction or sell flats before obtaining all the requisite approvals. All clearances are to be obtained before launch of a project.

Significance: Pre-launch booking was highly uncertain for buyers because many a time the project was only on paper. An absence of approvals meant the project failed to take off, leaving the buyers in the lurch. That will be effectively addressed now.

• Developer's post-sale liability: Developers will be liable towards structural defects in their projects for up to five years. They will be liable to rectify structural faults, if any, free of charge during this period.

Significance: Use of sub-standard materials and poor-quality construction by some developers added to the woes of buyers. After delivery, the buyers were essentially on their own. That will change now, as the developer will have post-sale liability for up to five years.

• Insurance for land titles: The law has a provision for insuring land titles. In case of deficiency in land titles, both developers and buyers will be compensated.

Significance: Any discrepancy in the land title earlier meant that the buyer/developer lost his entire investment. Insurance will provide a safety net to all stakeholders.

• Interest parity: Developers and buyers are liable to pay interest at the same rate in case of delays or defaults. The earlier asymmetry favoured developers and went against buyers' interest.

Significance: The buyer ended up paying interest to the developer at an exorbitant rate in the event of a default, while the developer curtailed his liability in case of delays through one-sided agreements. Now, both parties will be charged at the same rate, thereby protecting the buyer from the discrimination he faced so far.

• Establishment of allottee/resident association: It has been made mandatory for the developer to set up an allottee or resident association within three months of the allotment of a majority of flats/units in a project. This will help buyers manage among themselves the common facilities like swimming pools, gardens, gymnasium, etc.

Significance: Developers earlier exercised control over the common areas and also charge buyers for using these. Now, that will change and buyers will be empowered to use of these facilities.

• No discrimination in allotment: A “non-discriminatory” clause has been introduced to ensure there is no discrimination in the matters of allotment or purchase of property. No discrimination is permissible on the basis of religion, region, caste, race or sex. This will enforce the “Principle of Equality for all” as provided in the Constitution.

Significance: It was earlier observed that people from certain states, castes, religions were not sold flats in some projects. Transgenders and people belonging to minority communities were subjected to discrimination. That bias will no longer be there.

• Disclosure of credentials: Developers are required to provide their credentials on the regulator's website. The details pertaining to projects launched in the past years – both completed and under-construction ones – have to be mentioned. The current status of projects also needs to be mentioned.

Significance: This will enable the buyer to make an informed choice before selecting the developer. Evaluating the credibility of the developer will become easier.

• Central advisory council: The Bill also provides for establishment of a central advisory council to advice the Centre on the implementation of the Act. It can recommend policy changes, measures to protect consumers' interest and foster growth in the sector.

Significance: The advisory council will ensure that the law remains dynamic and the government is able to make the changes in line with the requirement of the society.

• Regulator's responsibilities: RERA will act as a nodal agency. It will coordinate efforts of various stakeholders and advise the government on the various issues involved.

Significance: RERA will be set up in various States/UTs where it will be acting as a nodal agency for implementing the real estate law.