By: Raghav Dembla
For decades, the real estate sector has faced a variety of issues primarily originating from real estate developers not being accountable to any separate governing body. Ever since the liberalisation of the Indian economy in the 1990s, the real estate sector saw a large amount of investment in the domestic sector, coupled with an increase in the investment in the form of Foreign Direct Investment when the Indian government in 2005 opened its doors to foreign investors in the sector.[1] While the sector underwent a huge change, the system still remained opaque because of a lack of accountability in the sector due to it being vastly unregulated. Large inflows of money into the sector in addition to no centrally governed law, led to increased malpractices from the side of various stakeholders, particularly the promoters and the Agents. Uncertainty loomed large over the sector until 2016 when finally the Real Estate (Regulation and Development) Act, 2016 (RERA) was passed by the central government. RERA has been enacted with the prime agenda of ensuring that the sales of properties take place in an efficient manner, therefore, several checks have been placed by the central government of the various stakeholders in a real estate transaction along with the establishment of a regulatory authority, as well as an appellate board. All of this, with the aim of making the transactions transparent and efficient.
Key areas of impact on the promoters
Ø Compulsory registration by the promoter– By the way of this act, A promoter cannot invite any person or persons to purchase in any manner any plot, without registering the real estate project with the real estate regulatory authority. The proviso to Section 3 states that the promoter has to make an application to the authority for registration of the properties for which a completion certificate has not been issued. This proviso refers to the projects that are ongoing on the date of commencement of this act.[2]
Ø The authenticity of the promoter is scrutinised by the way of Section 4. According to Section 4, every promoter shall make an application to the authority for the registration of the real estate project in such manner as may be specified by the authority.
Ø Revocation- Registration granted to the promoter under Section 5 shall stand revoked if he/she is found indulging in unfair practices.[3]
Ø Section 11 deals with the functions and duties of promoters. The promoter has to create their web page on the website of the authority and enter all details of the proposed project like details of registration, apartments, garages books, up to date and status of the project.
Ø Promoter cannot make any alterations- The promoter cannot make any alterations and additions in the sanctioned plans without the previous consent of the allottee and if there arises a need, then it has to be authorised by the engineer or an architect. (Section 14(2)(1))
Ø Liability of a promoter for structural defects-If the allottee discovers any defect in the plot within 5 years of handing over of such plot, it shall be the duty of the promoter to fix it within 30 days of such notice. (SECTION 14(3)). In addition, the liability of the promoter with respect to the structural defects mentioned in Section 14(3) shall continue even after the conveyance deed of all the apartments, plots, or buildings, as the case may be, to the allottees are executed[4].
Ø Transfer of rights and liabilities by the promoter- By way of this Act, A Promoter cannot transfer his rights and liabilities to a third party without prior approval of- a) 2/3rd allottees and b) the relevant authority. (SECTION 15)
Ø The Act defines the term “Carpet Area” [5] thereby ending an ambiguity of the jargons so far used by many promoters such as “build-up area” or “super build-up area” etc. The promoters are now mandated to sell/endorse the property on the basis of carpet area itself, thereby reducing the chances of them duping the buyers by luring them with the super built-up area.
Ø Now, if the promoter is unable to complete the project on time, then two situations will arise- 1) if allottee wants to withdraw, then the promoter has to return the entire amount. 2) if allottee does not withdraw, then the promoter has to pay him the required interest for the delay of every month, till the handing over of the possession. (Section 18)
Ø Also, now The promoter has to obtain insurance as may be notified by the appropriate government, and he shall be liable to pay all the cheques and the premium on it before transferring the insurance to the association of allottees. (Section 16)
Hurdles in the implementation of the Act
Though the act took 9 long years to come into life, yet there are still certain aspects left untouched by the drafters which can create a hindrance in the achieving the objective of the Act, i.e., transparency in real estate dealings. The act specifically deals with the purchase and sale of real estate but fails to address the approval/clearance issues, which the promoters face. Nowhere in the act, has there been a mention of formulating a mechanism for speedy clearance of all projects. The promoters have to go get through with clearances from departments like public welfare department, municipal corporations, national highway authority of India and various others before construction work can actually start. This, along with the pressure of saving the investment cost, will burden the promoters more and more. Moreover, in case a delay takes place because of delayed governmental clearances, the penalty will be levied on the promoter, which would be unjust[6].
In addition, with the introduction of the escrow account clause, the real estate builders will now have to separate 70 per cent of the advance payments received from the buyers and keep them in a separate account so that they are not able to divert the funds for any other projects. This will raise the debt burden on the promoters who will have to rely on external sources of capital. This will mount their burden that will be initially felt by the buyers on the property prices which would be expected to go high.
The time limit for the adjudication process by RERA might not work as expected. There were time limits for adjudication of real estate disputes on the consumer courts as well,
However, no complaint was disposed off within the period of 90 days. Hence, the time limits under the Act are also unlikely to work.
Conclusion
The statute, like every other statute, has certain loopholes. There will always be certain arbitrary provisions that can be amended. Therefore, with the introduction of RERA, there will be a substantial increase in the competition in the real estate sector, because only the promoters who adhere to the rights and duties as prescribed in the act will be able to survive in the market. The act will bring about much optimism within the homebuyers who were left at the mercy of the builders before the enactment. The enactment as a whole seems to be consumer-centric, which serves the much-needed purpose of homebuyer’s protection and in a way draws a pathway towards affordable housing as well.
[1] D. Satya Siva darshan, “foreign direct investment in real estate business” (legal services India, 26 May 2010) http://www.legalservicesindia.com/article/print.php?art_id=178 accessed 30 July.
[2] Real Estate Regulation and Development Act 2016, s3(1).
[3] Real Estate (Regulation and Development) Act 2016, s7.
[4] Real Estate (Regulation and Development) Act 2016, s 11(4)(a).
[5] Section 2(k) defines carpet area as 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.
[6]Balaji, L, “Transparency in realty: A reality” (live law, 23rd July, 2017) http://www.livelaw.in/understanding-financial-penal-liability-rera/ accessed 29 July, 2017.
(Raghav is currently a student at Symbiosis Law School, Noida.)
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