Do We Expect Weak RERA As States Seen Diluting Central Norms?

Even though states are rushing to notify the new Real Estate Law, rating agencies do not seem to be impressed with the pace. They fear the entire purpose of the newly enacted Real Estate (Regulation & Development) Act, 2016, may not be fulfilled because of the laggard approach shown by states. States were told to notify the laws by May 1 — when the Central law came into force — but so far only nine states and six union territories have done so.

Among the states that have notified the new law are Andhra Pradesh, Bihar, Gujarat, Kerala, Madhya Pradesh, Maharashtra, Odisha, Rajasthan and Uttar Pradesh. Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Delhi are the union territories that have notified the rules. A matter of concern is the fact that most of them have formed laws that are not in tandem with the Central law — they seem to have diluted norms which may weaken a law, expected to usher in transparency into a sector, which has been suffering a showdown owing to a negative buyer sentiment in the past three years.

According to rating agency ICRA, delayed notification and non-uniformity of the rules across various states might dilute the Act.

“For effective implementation of the provisions, state governments had to frame rules governing these sections and set up state-level RERA (Real Estate Regulatory Authority) and appellate tribunals ...The absence of a regulator or appropriate rules can result in a regulatory vacuum and dilution of the act's provisions,” the rating agency's senior vice-president and group head, corporate ratings, K Ravichandran, said in a statement.

According to a CRISIL Research impact note, many states have watered down the key provisions of the legislation through limited coverage. “Many states have either diluted a few crucial aspects of the Act, or given insufficient emphasis to its provisions in their rules,” said the rating agency.

The research note points out how states have diluted crucial provisions.

Definition of ongoing projects

The Central law includes projects that are ongoing on the date of commencement of the Act –May 1, 2017 — and for which the completion certificate has not been issued. Andhra Pradesh, Kerala and Uttar Pradesh have altered this definition in their notified rules. Some of them have treated projects that have applied for an occupancy certificate but have not yet received them as exceptions. Projects where development work is completed and more than 60 per cent area is sold and projects, where the common areas and maintenance have been transferred to the residents' welfare association, are also treated as exceptions by these states.

Penalties for non-compliance

The Central law recommends imprisonment for a term which may extend up to three years, or fine, which may extend up to 10 per cent of the estimated cost of the real estate project, or both, in case of non-compliance. Most states have added a clause of compounding of an offense which would help developers avoid imprisonment.

Payment schedule and liability on structural defects

The Central law says a sale agreement has to specify the 10 per cent advance payment a developer charges the buyer. It should also mention the application fee a buyer pays while entering into an agreement. Further, in case of any structural defects arising within five years of handing over the possession, developers will be liable to rectify them without taking any fee for that. There is no clarity on these clauses in states' versions.