The Real Estate Regulation and Development Act (RERA) was passed by the cabinet in May 2016. However, real estate being a state subject, the individual state acts need to e ratified by the state legislatures and the states also have the freedom to make necessary modifications to the act as appropriate. The state of Maharashtra has taken the lead to be among the first states in India to implement the RERA effective April 01st 2017. This is important for two reasons. Firstly, it will provide a template for other states to implement the RERA in their respective states and hence Maharashtra’s initiative becomes crucial. Secondly, Mumbai is the largest real estate market in India, both for residential and commercial purposes. For buyers and investors in property, the RERA is likely to substantially increase the transparency and soundness of the real estate buying system. Here is what it will entail…
How RERA will protect the interests of property buyers…
- Today when you purchased property, there are different standards for giving you a per SFT quote. Some quote in terms of built-up area, some in terms of plinth area and some in terms of carpet area. Built-up area includes the walls and the common amenities and hence is not reflective of the real space that the buyer gets. The RERA insists that all property developers must give quotes only in terms of carpet area. That will give the buyer a clear idea of how much they are paying for the amount of space they actually get.
- Then, we come to the crucial issue of real estate agents. Today one can find real estate agents proliferating across the cities. There are no entry barriers for the real estate agents and there is no law to regulate them. RERA proposes to bring these real estate agents under the ambit of regulation. Firstly, real estate will be required to register under the competent authority. They will be subject to verification of antecedents, track record checking, net worth checking etc. These will ensure that only quality names will act as brokers. Secondly, the RERA will also define the maximum fee that the broker can charge to the end client so that they do not fleece gullible clients. Registered agents will also be under obligation to only sell only those properties that are registered in the central database and approved in all respects. That will add a level of safety and security for property buyers.
- The big change in the RERA is that it puts tremendous pressure on the builder to be fair and transparent in his dealings with the customers. Today, many large developers have complaints pending of non-completion pending against them. This imposes tremendous costs on buyers who do not get their property on time. The RERA proposes that the builder be penalized with either a monetary penalty or imprisonment up to 3 years or both in case of errant builders. This will force builders to be more fair and transparent in their dealings with the end customers. Additionally, builders will also have to take responsibility for structural deficits in the buildings for a period of 5 years from the completion of the project. Builders will be legally required to bear the responsibility of cost and execution to rectify such faults.
- Parking lot has been on more area of opaqueness. Most builders do not include the parking lot as part of the sale agreement but it is sold separately to the buyer. The RERA insists that the sale of the parking lot should also be made a necessary part of the sale agreement to give the buyer a more transparent picture of the cost. Additionally, the RERA insists that 70% of the construction including the cost of construction should be deposited in an escrow account as compared to just 50% of the construction cost today. This will go a long way in protecting the interest of the property buyer.
- With the government focus on low-cost housing, the RERA had to become sufficiently more expansive in terms of coverage. Currently, only developed properties in an area exceeding 1000 square metres are covered under regulation. The RERA has changed the definition to 500 square metres or a total of 8 flats as the bare minimum for regulatory coverage. This will be a much larger number of properties under the ambit of regulation.
- The RERA dwells at length on the builder’s conduct vis-à-vis the property buyer. The RERA will ensure that the builder can no longer take the customer for granted. The builder will have to make full disclosures about the title of the land, encumbrances, legal cases outstanding etc. Additionally, the builder will also have to guarantee timely completion of projects and inordinate delays will result in monetary penalties as well as imprisonment liability for the builders.
- Finally, the RERA also stipulates that a state level regulatory body will be formed to settle disputes in a fair and speedy fashion. This will ensure that the builders cannot delay the process by relying on the dilatory nature of laws and rules.
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