The Real Estate (Regulation & Development) Act, 2016, the landmark realty law to protect home buyers from unscrupulous developers,
What is Real Estate Act, 2016?
The Act which is envisaged to regulate both commercial and residential real estate projects, seeks to set up a state level regulatory authority called Real Estate Regulatory Authority (RERAs) for regulation and promotion of the real estate sector.
The Act makes it mandatory for uploading the details of a Real Estate project on the website of the RERAs. Real estate agents also need to register with the RERAs.
The Act also makes it mandatory for the builders to put 70% of the amount collected from buyers in a separate bank account. This must only be used for construction of the project. However, the state government can alter this amount to less than 70%.
The Act also seeks to establish fast track dispute resolution mechanisms for settlement of disputes through adjudicating officers and Appellate Tribunal.
Here’s all you need to know about the new realty law:
• It makes it mandatory for all builders - developing a project where the land exceeds 500 square metre - to register with RERA before launching or even advertising their project. Developers have been given time until July 31 to register.
• Not doing so will invite up to a maximum imprisonment of 3 years or fine of up to 10% of the total project cost.
• Developers will have to submit as well as upload project details, including approved layout plan, timeline, cost, and the sale agreement, that prospective buyers will have to sign to the proposed regulator.
•Only developers who fulfil this disclosure clause would be permitted to advertise their project to prospective buyers.
•Real Estate Appellate Tribunals to be set up in every state.
•As of now, the real estate sector was largely unregulated in India. If a consumer had a complaint against a developer they had to make rounds of consumer or civil courts. Now, in case of any grievance, the consumer can go to the real estate regulator for redressal.
• Developers will have to put 50% of the money collected from a buyer in a separate account to meet the construction cost of the project. This will put a check to the general practice by developers to divert buyer’s money to start a new project instead of finishing the one for which money was collected. This will ensure that construction is completed on time.
• The law is likely to stabilise housing prices. It will lead to enhanced activity in the sector, leading to more housing units supplied to the market.
• It will weed out fly-by-night operators from the sector and channelise investment into it.
• Builders will also benefit as the law has penal provisions for allottees who do not pay dues on time. The builder can also approach the regulator in case there is any issue with the buyer.
What are some of the key issues?
Major issue is Parliament’s jurisdiction to make laws related to real estate as “land” is in the State List of the Constitution. However, the primary aim of the act is to regulate contracts and transfer of property, both of which are in the Concurrent List.
Some states already have laws to regulate real estate projects. And the act differs from these state laws on several grounds.
The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction. In certain cases, the cost of land more than 30%.
The real estate sector has some other issues such as a lengthy process for project approvals, lack of clear land titles, and prevalence of black money. Some of these also fall under the State List.
Why establishing RERA is important?
Only 4 States and 6 Union Territories so far notified the final Real Estate Rules. So, the Minister of Housing & Urban Poverty Alleviation has urged the Chief Ministers of states to implement the Act before April 30, 2017.
From May 1, 2017, under the provisions of the Act, both buyers and developers of real estate property can approach RERA seeking relief against violation of the contractual obligations and other provisions of the Act.
For this to happen, Real Estate Authorities and Appellate Tribunals were required to be in place and in a position
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How it works in other countries
United States
Real estate in the US is regulated at numerous levels. There is no single regulatory body, but a series of bodies that regulate different ownership and usage aspects. To safeguard the interest of the end-users, the US department of housing and urban development (HUD) has rules under the real estate settlement procedures act to protect consumer interests pertaining to residential properties.
If a buyer enters a contract with the developer, and the developer does not deliver on the terms agreed upon in the contract, the developer can be taken to court for breach of contract. In the US, there are state real estate licensing laws and a code of ethics in place.
United Kingdom
There is no regulator to monitor development. The financial services authority (FSA), which is now part of the Bank of England, regulates almost all investments in real estate. The Property Misdescriptions Act, 1991, prohibits making false or misleading statements on property matters in the course of estate agency business and the property development business.
(Source: Realty decoded: Investing across borders by Ernst & Young and Ficci)
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