Analysing the Real Estate (Regulation & Development) Bill, 2013
December 29, 2015
The Real Estate market has been the worst hit by the economic downturn which, coupled with high interest rates in the face of persistent inflation, has kept suspicious homebuyers away. Developers in key real estate markets particularly Mumbai, Bengaluru, Chennai and NCR have been struggling with “slow sales, high unsold inventory, delayed construction and stalled projects.” The following chart depicts this fall in ‘new launches’ in the real estate sector in 2015:
Prime reason, which could be attributed to this slump, is the loss of investor’s confidence in a developer’s ability to deliver projects on time. This is also because the developers are lacking the basic financial and execution discipline.
India has been waiting for more than 10 years for a real estate regulator. However, it seems the Real Estate (Regulation and Development) Bill, 2013 (hereinafter referred to as ‘the bill’) that had cleared all obstacles including the analysis by the parliamentary committee, won’t be passed in the ongoing winter session of Parliament. Very recently the Union Government’s cabinet cleared a draft real estate regulator bill, wherein the Ministry of Housing and Urban poverty alleviation, accepted and incorporated all the modifications suggested by the 21-member selection committee. Government still needs to address the reservation expressed by the real estate developers. It seems like a long time before the real estate bill will finally become a reality but the bill is expected to bring in the much-needed transparency and accountability in the real estate sector.
It is an initiative to promote fair play and ensure timely execution of contracts. The consumers in the county seek protection against the real estate builders whose activities would be kept under a check as well as the bill seeks to reduce frauds and delays against the real estate buyers. It seems evident that on its incorporation it will provide the much-needed umbrella to real estate buyers, thereby giving this sector acceleration, and the consumer confidence it requires. This will also boost lasting quality developer brands and ensure timely delivery of projects.
Through this article we shall look at some of the key highlights of the bill and how it impacts the consumers, promoters, developers etc. in general.
I. PRIOR REGISTRATION OF REAL ESTATE PROJECT AND REAL ESTATE AGENTS
Chapter II of the bill assigns a duty to the Promoter to register the real estate project, or part of it, in any planning are with the Real Estate Regulatory Authority (RERA) before booking, selling or offering to sell, or inviting persons to purchase in any manner any plot, apartment or building. Such registration however isn’t required in cases where:
Area of land proposed to be developed is not greater than 1000 square meters;
Proposed apartments not exceeding 12;
Area or number of apartments notified by central government on recommendations from the appropriate government, different for different states of union territories but not more than 1000 square meters or 12 apartments;
Promoter has received all requisite approvals for the real estate project prior to commencement of this Act; and
For renovating or repairing or re-development which does not involve re-allotment and marketing of the real estate project.
For getting his real estate project registered, every promoter shall make an application to the authority for registration of the project with such fee as may be specified and enclose the details of the enterprise, authenticated copy of the commencement certificate, the layout plan of the proposed project and of the whole project as sanctioned by the competent authority, plan of development works to be executed in the proposed projects, agreements proforma to be signed with the allottees, the number and the carpet area of apartments for sale in the project, the names and addresses of his real estate agents, names and addresses of the contractors, architect, structural engineer, concerned with the development of the proposed project. The application shall also include a declaration, supported by an affidavit, signed by the promoter or any person authorized by the promoter, stating:
He has legal title to the land on which the development is proposed along with a legally valid authentication of such title if such title is owned by another person;
The land is free from all encumbrances;
Likely period of time for the completion of the project;
The amount received as notified by the appropriate government, shall be kept in a separate account to be maintained in a scheduled bank within a period of 15 days of its realization to cover the cost of construction.
On the basis of such application, the Authority shall within a period of fifteen days grant or reject the registration for the reasons recorded in writing after according an opportunity of hearing to the petitioner. On failure of the authority to register or reject the application, the project shall be deemed registered. Such registration shall be extended on moving an appropriate application to the authority.
RERA (either on a complaint or on a recommendation of the competent authority), revoke the registration granted under Section 5 of the Bill, after giving thirty days notice, in writing, and considering the cause shown by the promoter for his conduct, if the promoter:
Makes a willful default;
Violates any of the terms of conditions of the approval given by the competent authority; and
Involves in any kind of unfair practice (i.e. false representation of service standards, or falsely represents that the promoter has approval for affiliation, makes a false or misleading representation concerning the services, permits publication of advertisement or prospectus not intended to be offered) or irregularities.
RERA instead of revoking the registration permit the promoter to remain in force subject to such binding terms and conditions as it thinks fit to impose in the interest of the allottees. Upon such revocation, the authority shall:
Debar the promoter from accessing its website in relation to that project and specify his name in the list of defaulters;
Recommend to the competent authority to facilitate the balance of the development works to be carried out in accordance with the provisions of Section 8;
Protect the interest of the prospective buyers or in the public interest, issue such directions, as it may deem necessary.
On lapse on revocation of registration as the case may be, the RERA shall consult the appropriate government to take such action as it may deem fit, which may include carrying out the remaining development work by competent authority, association of allottees or in a manner as determined by the Authority on expiry of the period of appeal.
Registration of Real Estate Agents
Every real estate agent has to make an appropriate application to the RERA for registration, on the basis of which the authority shall, grant, or reject registration for reasons to be recorded in writing. The registered real estate agent shall be granted a registration number by the RERA, which shall be quoted by the real estate agent in every sale facilitated by him under the bill. On breach of any of the conditions as specified under the bill, the RERA may revoke or suspend the registration of such real estate agent after according an opportunity of hearing to the said real estate agent.
Functions of the Real Estate Agents
Not facilitate the sale or purchase of any property, in a real estate project or part of it, in any planning area, which is not registered with the RERA;
Maintain and preserve such books of account, records and documents as may be prescribed;
Not involve himself in any unfair trade practice;
Facilitate the possession of all documents, as the allottee is entitled to, at the time of booking of any property; and
Discharge such other functions as may be prescribed.
The bill makes it mandatory for the real estate projects and real estate agents to be registered with the RERA before offering, selling or inviting persons to purchase the property. It seeks to promote mandatory disclosures by promoters to the customers through registration. Such registration will also ensure that the projects are completed on time and therefore, It is a step in the right direction in an industry where builders take the money from unsuspecting buyers and make them pay more due to delay and latches. The bill also requires the promoters to deposit certain amount raised from the buyers to be kept in a separate account for the purpose of construction, which will ensure that the promoters do not use the construction money for new projects. The power to revoke the registration of a real estate developer, on fulfilling any of the conditions provided under Section 7 of the Act shall keep the activities of the developers under constant checks and balances. It would also help the developers in building the necessary goodwill in the real estate market and ensure non-exploitation of buyers at the hands of the builders seeking to gyp them. “Errant builders, who until now had a free run, would now it find it difficult to dupe innocent buyers.”
II. FUNCTIONS & DUTIES OF THE PROMOTER
Create his web page on the website of the Authority and enter all details of the proposed project in all the fields as provided, including:
Details of registration granted by the Authority;
Quarterly up-to-date list of number and types of apartments or plots, booked;
Quarterly up-to-date status of the project;
Such other information and documents as may be specified by the regulations made by the Authority;
Advertisement or prospectus published, shall mention prominently the website address of the Authority,
On entering into an agreement of sale with the allottee shall be responsible to make available to the allottee, namely:
Site and layout plans along with specifications, approved by the competent authority; and
Stage-wise time schedule of completion of the project, including the provisions for water, sanitation and electricity.
The promoter shall:
Obtain a completion certificate from the relevant competent authority as per local laws or other laws for the time being in force and to make it available to the allottees individually or to the association of allottees;
Responsible for providing and maintaining the essential services, on reasonable charges, till the taking over of the maintenance of the project by the association of the allottees;
Take steps for the formation of an association or society or co-operative society, of the allottees, or a federation of the same, under the laws applicable.
The promoter may cancel the allotment only in terms of the agreement of sale, provided that the allottee may
Approach the Authority for relief, if he is aggrieved by such cancellation and such cancellation is not in accordance with the terms of the agreement of sale, unilateral and without any sufficient case.
The promoter shall prepare and maintain all such other details as may be specified by regulations made by the Authority.
Rights and Duties of Allottees
To obtain information relating to site and layout plans along with specifications, approved by the competent authority and other information approved under this Bill;
To know stage-wise time schedule of completion of the project, including provisions for water, sanitation and electricity;
To claim the possession of property, as per the declaration given by the promoter in terms of Section 4(2)(i)(c) of the Bill;
To claim refund of amount paid, from the promoter, on account of default by the promoter;
Entitled to have the necessary documents and plans, including that of common areas, after handing over physical possession of the property to the allottee by the promoter;
To make the necessary payments in the manner and time specified in the said agreement and shall pay at the proper time and place:
Proportionate share of the registration charges,
Water and Electricity Charges,
Ground Rent, and
Any other charges, if any, in accordance with such agreement.
To pay interest at such rate as may prescribed, for any delay in payment towards any amount of charges to be paid under sub-section (6);
Obligations and liabilities to be reduced on the basis of mutual agreement between the promoter and such allottee; and
Every allottee after taking possession of the property, shall participate towards the formation of an association or society or co-operative society of the allottees, or a federation of the same.
The bill seeks to empower the allottees by codifying their rights and duties. It has given the power to the allottees to be self-aware of their own investment. The biggest risk of not getting the invested money back has been removed as the allottees now have the option claiming their money back from the promoter on account of default. Through this section, the government seeks to ensure timely completion of the projects, which if not completed in a specific duration gives the buyers an option to claim a refund. However, there could be certain unforeseen circumstances, wherein the promoters/developers may actually run out of funds requisite for construction. In such circumstances, they may not even be able to refund the claim of the allottees. To ensure that such circumstances do not arise, the government should look to fund the developers. Such funding should be in the form of a loan, payable with interest. To maintain the balance of power, the allottees are also required to make timely payments towards any amount of charges towards their property required in terms of the bill.
One of the most promising provisions of the bill is the establishment of the RERA by the appropriate government of a state, or two or more states or Union Territories, as the case may be, to protect the interest of the allottees and promoters, to improve the processes and procedures for clearance and sanction of plans and development of projects, to encourage construction of environmentally sustainable and affordable housing, promote standardization and facilitate amicable conciliation of disputes between the promoters and the allottees through dispute settlement forums. RERA shall consist of a chairperson and two whole-time members experienced in urban development, housing, real estate development, infrastructure, economics, planning, law, commerce, accountancy, industry, management, social service, public affairs or administration.