All you need to know about Real Estate Bill (Act), 2016

You have been planning to purchase your dream house. You have finalized the property. Your loan is already pre-sanctioned. You just have to go and initiate the process. But you are still not at ease.

Innumerable stories of long delays in possession and harassment by builders have left you nervous.

You don’t want to experience what many of your friends have. You don’t want the mental agony of a never-ending wait for your apartment.

You don’t want to keep paying EMI and rent together for a long time. You don’t want to be in a hapless position when you can’t do anything knowing fully well that the developer is taking you for a ride. The legal route can take a lot of time and gives you little solace.

There is an option of going for an already constructed property but your budget does not permit that. You can only afford an under-construction property.

Much to your relief, the Government has taken cognizance of such issues faced by buyers across the country and has passed Real Estate (Regulation and Development) Bill on March 26, 2016.  The Real Estate Bill is now an Act. I will refer to the said Act as the Real Estate Act or simply Act during remainder of this post.

Let’s look at some of the salient features of Real Estate Bill (Act) and how this Act affects your rights as a buyer.

1. The Act applies to both residential and commercial properties.

2.  Setting up Real Estate Regulatory Authority in every state

The Act mandates setting up of Real Estate Regulatory Authority (RERA) in every state within one year of passage of this Act (March 26, 2016). Real estate is a concurrent subject (government by both Central and State Government laws). Even after the Parliament has passed this law, respective state governments can build upon these regulations.

3.  70% of the collection to be kept in separate account

Common grouse among buyers is that the builders siphon off money from their projects to other projects or purchase of land. Keeping this issue in mind, the builders are now mandated to deposit 70% of the collections from a project in a separate account. The funds from the account shall be used for completion of such project alone. Withdrawal from such account shall be in proportion to the percentage of completion of project.

4.  Mandatory Registration of Projects with RERA before launch

No builder can advertise market, book or sell any plot, apartment or building before registering the project with RERA. Even ongoing projects for which completion certificate has not been issued must be registered with RERA within 3 months.

There is an exception to mandatory registration.  Registration is not mandatory if the proposed area for construction is less than 500 sq. meters or the number of apartments is less than 8. If the State Government so desires, it can reduce (and not increase) these thresholds.  Additionally, registration is also not mandatory for projects which have been issued Completion Certificate.

At the time of registration, the builder needs to submit details of the current and old projects. The builder also needs to furnish various approvals (including Commencement Certificate from competent authority), sanctioned plans, implementation schedule and specifications. The builder must also disclose the number and type of apartments (with carpet area), number of garages (parking slots) under the projects. The builder also needs to provide details on ongoing litigations in the other projects. Even proforma of the allotment letter, sale agreement and conveyance deed to be signed with allottees needs to be submitted with at the time of registration.

5.  Mandatory Registration of Real Estate Agents

Real Estate Agents need to register with RERA too. Their registration number will go into every sale that they facilitate. It will be easier to trace such agents down in case of any incorrect representation

6.  Pre-launch sales of projects is now history

Registration of projects is now mandatory and registration requires approvals from the local authorities. Hence, builders cannot simply launch project or offer it for sale before receipt of such approvals. Henceforth, there will be no more pre-launch sales of projects.

This is good news for buyers. How many have been duped or left stranded for the want of approvals from the local authorities?

7.  Goodbye to Lopsided agreements

Now, if builder fails to meet terms and conditions of the agreement of sale or fails to deliver the apartment on time, you can force him to refund the amount along with interest.

But, what is the applicable interest?

All of us are used to one-sided agreements where we are required to pay penal interest at 18% if we default on your payments. On the other hand, the builder pays us penny change, if any, for delay on his part. Rs 3-5 per sq feet is no way enough.

With this Act, such callous disregard of buyer’s interests is a thing of the past.

The Act clearly states that the rate of interest charged by the builder (in case of default by the buyer) shall be same as the rate of interest paid by the builder ( in case of default by the builder).

This is a great step forward.

8.  Delay in Possession

If the builder fails to deliver the project in accordance with terms of the agreement of sale, allottee/buyer can withdraw from the project. The developer shall have to refund him the amount along with interest.

Alternatively, if the buyer or the allottee does not intend to withdraw from the project, the builder shall have to pay him the interest for every month till the possession is handed over to the buyer.

This is a huge relief. Builders will have to stick to promised deadline. They cannot really take you for granted anymore.

9.  Sale of Projects only on Carpet Area

There is just one area and that is Carpet Area. No more confusing and subjective terms such as Built-up and Super Built-up area. The definition of Carpet Area is clearly defined under the Act.

Carpet Area is the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment.

With this, you can expect price per square feet to go up. That’s because they will charge the complete price on a lower carpet area. But buyers should be happy with this move. At least you know what you are getting into. You wouldn’t get a 600 sq feet while you thought you have purchased 1000 sq. feet apartment.

10. Penalty on False Advertisements or Representation

If you get tricked into a purchase through false representation or advertisements, you have the option to exit the project.  Additionally, the developer will have to refund your money with interest.

11. Permission from buyers required to change plan

Any change in the plan (submitted at the time of registration) will require approval from 2/3^rd of the buyers or allottees. This is a nice way to rein in scrupulous builders.

12. Rectify Structural Defects

Builders are now obligated to rectify any structural defects (without charge) that are brought to their notice within 5 years of handing over possession to the buyers.

13. Information about the Projects available online

After getting registration with the Authority, builders will have to create webpage on website of RERA and upload details about the project.  This is good news for buyers.

Now, you can check details about the project not on builder’s website but on the RERA’s website. The developer is also required to update details about sales and booking status and progress of the project on such website.

In my opinion, this will facilitate much needed transparency in real estate projects. If you are planning to buy an apartment in an upcoming project, do remember to check the details on RERA website.

14. Grievance Escalation and Provision for Imprisonment

In case you have a grievance against a builder, you can escalate it to RERA. RERA must resolve it within 60 days. If you are not satisfied with resolution, you can refer the matter to Real Estate Appellate Tribunal.

If an real estate developer or agent acts in contravention of the Act or the decisions taken by RERA or appellate tribunal, not only does he face penalty but can also face imprisonment up to 3 years (1 year for real estate agent)

What about the existing buyers?

The Act applies to new projects that come after the passage of this Act. Moreover, registration is possible only after RERA is established in your state. The Real Estate Act gives time of 1 year to the states to set up Real Estate Regulatory Authority (RERA).

These regulations give a lot of power of the new buyers.

But, what about the existing buyers who projects have been stuck for a long time?

Unfortunately, there is not much relief for such buyers. The law is not retrospective.

Even though law mandates registration of even existing projects where the completion certificate has not been obtained,   it does not mean your project will automatically get approval. Perhaps, the builder will be forced to apply for it. However, there is no guarantee that your builder will get it.

If your builder is a crook, he has already siphoned off money. Or the builder is already in financial crunch. So, there is not much relief on this front.

You have already signed the sale agreements, which are lopsided in favor of builders. The passage of this Act does not make those agreements void.

In short, there is little relief for existing buyers.

PersonalFinancePlan Take

The job is only half done. State Governments need to pass a version of Real Estate Act or a notification enabling formation of RERA at the state level. The builders can registered the project only once RERA has been established in the state.

Even with that, this Act does not take out all the ills of the sector. Real estate developers impose so many irrational charges. I do not think Real Estate Act, 2016 goes to the extent of regulating such charges.  If the intent is not right, you can work around the system and laws. And real estate developers do not really rank high on trustworthiness.

However, I feel it is a very good start. State Governments can take it further. There is now parity in the way sale agreements will be drafted. Real estate developers face severe penalties for blatantly duping customers or failing to deliver on time.

All in all, this Act is a good development for prospective buyers.

Reference: Real Estate (Regulation and Development) Act, 2016

Disclaimer: I am not a real estate expert. My understanding of real estate matters is also limited. Though I have taken utmost care to avoid mistakes, my interpretation of the Act may be vastly different from ground reality. I would advise you to go through Real Estate Act, 2016 on your own. It is a short document, only 37 pages. It will not take more than a couple of hours to understand your rights and obligations while dealing with a real estate developer. You should be able to find points that are relevant to you. In case you find it difficult, consult a lawyer or a real estate expert. And a Real Estate Agent is not a real estate expert. There is too much conflict of interest if you seek clarification on the regulations from a Real Estate Agent. If you find any flaw in my interpretation, do leave your inputs in the comments section.

Image Credit: You can download the original image and information about usage rights from Pixabay.