RERA- General Provisions

RERA- General Provisions
Real Estate (Regulation and Development) Act, 2016

SHORT SUMMARY:
In this Flash editorial, the author begins by referring the provision of the RERA, Real Estate (Regulation and Development) Act, 2016.  The provisions of RERA came into effect from 1st May, 2017. The Real Estate Act coming into force after a nine-year wait and marks the beginning of a new era”.  The Real Estate (Regulation and Development) Act, 2016 (RERA) will finally gives to India’s real estate sector its first regulator. RERA seeks to bring clarity and fair practices that would protect the interests of buyers and also impose penalties on errant builders. The main thrust of the article, however, is upon the what is RERA? And what are the rules, regulations of RERA and how it will impact the real estate market”
Housing Minister M. Venkaiah Naidu says the Real Estate Act will “Make The Home Buyer King”, while real estate developers will also benefit from the increased buyers’ confidence in the regulated environment. However, there will be some “teething problem” initially in the implantation of the law.


INTRODUCTION:
The Real Estate (Regulation and Development) Act, 2016 is an Act of the Parliament of India.  The bill was passed by the Rajya Sabha on 10 March 2016 and by Lok Sabha 15 March 2016.  The Bill was assented by the President of India on 25 March, 2016 and notified in Gazette of India for public information on 26 March, 2016.  The Act extends to residential and commercial real estate.

Implementation:
The act was passed by parliament in March, 2016 and the Union Ministry of Housing and Urban Poverty Alleviation had given time till May 1, 2017, to formulate and notify rules for the functioning of the regulator. However, Section 2, sections 20 – 39, sections 41 – 58, sections 71 – 78 and sections 81 – 92 notified with effect from 1st May, 2016 and Remaining sections of the Act to come into effect from 1st May, 2017. In general sense Act become operational from 01st May, 2017.
According to RERA, each state and Union territory will have its own regulator and set of rules to govern the functioning of the regulator. Centre has drafted the rules for Union territories including the national Capital. While many states are still behind on schedule for notification of RERA rules, many have notified rules and a regulator will start functioning. only 13 states and Union Territories (UTs) have so far notified rules till 1st May, 2017.
This is article no. 1 of the series of editorials written by the author on RERA and article no. 227 of editorial written by author on corporate laws  {including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
A.     What was the need for a regulatory law for the real estate sector?
The real estate sector has grown in the recent years but has largely been unregulated from the perspective of consumer protection. Though, consumer protection laws are available, the recourse available therein are only curative, but not preventive. This has affected the overall potential growth of the sector due to absence of professionalism and standardization.
B.     What is RERA?
RERA is a government body which comes under the Real Estate (Regulation and Development) Act, 2016. This body will deal with all the issues, problems and provisions in the real estate sector of India.
RERA stands for “Real Estate Regulatory Authority”. The major problem that real estate in India is facing is that of the delayed possession given to the home seeker by the rich and the cunning builders. Thus, RERA will help people by bringing in a high level of transparency and discipline that these builders must have to follow
Appropriate Authority: Section 2(g) of the Act defines ‘appropriate Government’ to mean as follows:
        i.            for the (i) Union territory without Legislature, the Central Government;
      ii.            for the (ii) Union territory of Puducherry, the Union territory Government;
    iii.            for the Union territory of Delhi, the Central Ministry of Urban Development; (iii)
    iv.            for the State, the State Government

Coverage of Act: The Act covers both residential and commercial real estate. Section 2(e) defines ‘apartment’ and section 2(j) defines ‘building’ which include both residential and commercial real estate.
[1]Key Terms: A number of key terms have been defined. Some of them are:
Advertisement, Agreement for Sale, Allottee, Apartment, Architect, Building, Carpet Area, Commencement Certificate, Common Areas, Completion Certificate, Development, Development Works, Engineer, Estimated Cost of Real Estate Project, External Development Works, Family, Garage, Immovable Property, Interest, Internal Development Works, Local Authority, Occupancy Certificate, Person, planning area, Project, Promoter, Prospectus, Real Estate Agent, Real Estate Project, Sanctioned Plan
Objects and reasons of the Act:
The Real Estate Act is intended to achieve the following objectives:

a.      Ensure accountability towards allottees and protect their Interest
b.      Infuse transparency, ensure fair-play and reduce frauds & delays
c.       Introduce professionalism and pan India standardization
d.      Establish symmetry of information between the promoter and allottee
e.      Imposing certain responsibilities on both promoter and allottees
f.        Establish regulatory oversight mechanism to enforce contracts
g.      Establish fast- track dispute resolution mechanism
h.      Promote good governance in the sector which in turn would create investor confidence


Major Impact of RERA on Real Estate
Ongoing Projects:
A major portion of the existing supply relates to under-construction properties including 'unsold inventory' which could take anywhere around 12 months or more to complete. All such ongoing projects would now be required to be registered under RERA and hence adhere to new rules. 
The ongoing real estate projects need to be registered within three months of the Act coming into effect, otherwise they will become unauthorized. Therefore, the ongoing projects need to be registered by end of July, 2017 with the regulator set up under this law.
According to the provisions of this law, the ongoing projects, for which the completion certificate has not been issued, developers have to make an application to the authority for registration of projects within a period of three months from the date of commencement of this Act.
Prior Registration:
No developer or builder shall advertise, market, book, sell or offer for sale, or invite persons to purchase any plot, apartment or building, in any real estate project or part of it, in any planning area, without registering Real Estate Project (REP) with Real Estate Regulatory Authority (RERA).
Situations in which registration of Real estate project is not required:
There are three situations when registration of real estate project is not required:
§  Where area of land proposed to be developed does not exceed 500 sq m or number of apartments proposed to be developed does not exceed 8 inclusive of all phases
§  Where promoter has received completion certificate for Real Estate Project prior to commencement of Act
§  For purpose of renovation or repair or re-development which does not involve marketing, advertising, selling or new allotment of any apartment, plot or building, under real estate project
IMPACT ON REAL ESTATES PRICE:
C.      With the RERA in place, will the real estate prices move upwards especially in the residential market? 
The answer to this may not be as straight as an arrow. While the new rules call for a much stricter compliance and transparency, which may push the real estate prices up especially for the new launches, the large amount of inventory overhang in the system, will probably keep the price rise at bay till the supply gets over. 
Super Area V/s Super Built up Area:
One such new rule relates to the sale of real estate on the basis of 'super area' and not on 'super built up area'.
Presently the industry has been selling real estate based on super built up area. As per the current market trend, carpet area of a project is generally 30% to 35% lesser than the super built area of the project.
After RERA, projects to be sold on carpet area. Accordingly, the sale of projects on a carpet area basis is likely to result in the per square feet price of the project going up by about 40% to 50% of the price based on the super built area."
Other Reasons:
Ø  Supply will dip during this year but demand will improve as buyers will have increased confidence about investing in the property market.

Ø  Cost of the developer will increase as sales can only happen post registration which is possible only posts approval.
On the basis of the above discussed some grounds it shall not be wrong to say that price of the real state may increase by RERA.

NEW LAUNCHES:
Maintenance of Separate Bank Account:
The promoter of a real estate development firm has to maintain a separate escrow account for each of their projects. A minimum 70 per cent of the money from investors and buyers will have to be deposited. This money can only be used for the construction of the project and the cost borne towards the land
The developer shall withdraw amounts from separate account, to cover cost of project, in proportion to percentage of completion of project.
Registration:
It will be the responsibility of each state regulator to register real estate projects and real estate agents operating in their state under RERA. The details of all registered projects will be put up on a website for public access.
Key Restrictions:
Restriction on sale of open car parking spaces, requirement to transfer common areas to housing societies, increased cost of compliances such as webpage maintenance, monthly Updations, quarterly filings, etc. 
it is pertinent to clarify that the Real Estate Act, 2016, does not differentiate with regard to an ongoing project or a future project, whether it is relating to disclosures, violations, penalty, interest or compensation.

Penalty:
Penalties on account of delays under the new real estate rules are applicable to ongoing as well as new projects.  The Real Estate (Regulation and Development) Act, 2016, does not penalize project completion delays before the Act came into force. 
Punishments to be levy under RERA are as follow:
§  it is obligatory for the promoter to register a project with the Authority, and the promoter fails to do the same, he shall be liable to a penalty upto ten percent of the estimated cost of the real estate project
§  if the promoter defaults as regards matters covered under section 4 any other provision of the Act or the Rules and Regulations made there under,  he shall be liable to a penalty up to five percent of the estimated cost of the real estate project
§  If the real estate agent fails to do the same, he shall be liable to a penalty upto of rupees ten thousand per day of default, which may cumulative extend upto five percent of the cost of the plot / apartment, for which the sale has been facilitated by him




CONCLUSION:
The implementation of RERA will bring paradigm change in the way Indian real estate functions. Before RERA, the risk of delays, quality, title, and changes were borne by the customer. These will now be borne by the developer.  
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION

 (Authors – CS Divesh Goyal, Goyal Divesh & Associates. Company Secretary from Delhi and can be reached at csdiveshgoyal@gmail.com, 8130757966/8130657778)

 
 




[1] I will try to interpret and discuss the key terms in next editorial of RERA.

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