India: The Real Estate (Regulation And Development) Act, 2016 - Comments

Last Updated: 12 October 2016
Article by Tamoghana Goswami

For decades the promoter/developer, and not the consumer/allottee, has been king in real estate transactions. Buyers of property have been a harried lot. Their long cherished dreams of a house of their own were frustrated due to the uncertainty in construction and delivery of possession.

Attempts were made by the consumer/allottee to move the National Consumer Court or the Competition Commission of India in a wide variety of matters. The sheer number of cases clogged the two forums, bringing to fore a need for a separate dedicated and specialised regulator for the real estate industry

On March 25th, 2016, after a tumultuous passage in both the Houses of Parliament and after undergoing some substantial changes, The Real Estate Regulation and Development Act, 2016 was given assent by the President of India.

Described as a wide-encompassing Act, its object is to oversee the real estate sector through a Regulator and an Adjudicating body. Many analysts have reported that the home-buying process will get easier, the slump in the real estate industry will diminish and there will be greater quality and satisfaction available to the consumers. According to these analysts the Act is a pioneering initiative to protect the interests of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects. Also, the Act is expected to help consumers move towards an accountable, transparent and fair deal in a sector notorious for delays, shortchanging, overpricing etc. But, how soon will it happen? Let us look at the salient features of the Act

Salient Features

REGULATORY AUTHORITY

The foremost aspect of the Act is the setting up of a separate and distinct regulatory authority other than the consumer forum for dealing with "rogue developers". The forum will be named "Real Estate Regulatory Authority" and will be set up within a year from the date of commencement of the Act. The mail box period of a year will see the Secretary of the department dealing with housing, as the Regulatory Authority. The setting up of the regulatory infrastructure will be the first crucial step in the successful implementation of the Act as the regulator, if the parties so desire, would be like a moderator from the initiation to the conclusion of the real estate projects.

Along with the establishment of a Regulatory Authority, the Act envisages the establishment of a Real Estate Appellate Tribunal, also within one year from the date of commencement of the Act. The limit for filing an appeal is 60 days from the date of receipt of copy of order or copy of the direction issued by the Regulatory Authority. Further, the Appellate Tribunal is mandated to deal with appeals expeditiously within a period of 60 days from date of receipt of the appeal by the Tribunal. The next body of appeal will be the High Court in the relevant jurisdiction.

To expedite the disposal of complaints the Regulatory Authority, in consultation with the appropriate state or central authority, also has the power to appoint judicial officers as Adjudicating Officers for adjudging the compensation to be paid by the promoters after a fair hearing has been conducted. The Adjudicating Officer will be chosen from among the ranks of District Judge.

MANDATORY REGISTRATION OF REAL ESTATE PROJECTS

Chapter-II of the Act elaborately deals with registration of Real Estate Projects and Registration of Real Estate Agents.

The Promoter of the real estate project has to compulsorily register the project with the Real Estate Regulatory Authority before exploiting the commercial viability of the project by advertising, sale or invitation/offer of sale. However, where a project which has already commenced when the Act came into force but has not received a commencement certificate, the promoter has been given a period of three months from the commencement of the Act, within which the project needs to be registered with the Regulatory Authority.

The following categories of projects are exempt from registration:

  1. Where the area of land proposed to be promoted does not exceed 500 square meters or the number of apartments to be constructed in the project does not exceed eight apartments. However, the appropriate Government (Central or State) may reconsider and reduce the threshold limit below 500 square meters or eight apartments;
  2. Projects where the completion certificates have been issued prior to the commencement of the Act;
  3. Projects for the purpose of renovation or repair or re-development which do not involve marketing, advertising, selling; and new allotment of any apartment plot or building.

REQUIREMENTS FOR REGISTRATION OF THE PROJECT

The process of registration is made rigorous with the promoter made answerable at all steps. The promoter has to mandatorily make an application to the Regulatory Authority making disclosure of details of the promoter (registered address, type of enterprise); particulars of projects launched in the past 5 years, including the current status of completion, delay in completion, if any, and payments pending; authenticated copies of approvals and commencement certificates received for the projects /phases of the project; approved plans of the project, locational details, facilities provided, format of allotment letter, agreement for sale and conveyance deed which will be signed by the allottees etc.; an affidavit from the promoter stating that he has a legal title to the land free from all encumbrances or in case of encumbrances on the land, details of the same; an undertaking stating the time required for completion of the project or phase; an undertaking stating that 70% of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost , and shall be used only for that purpose.

GRANT, REFUSAL, AND REVOCATION OF REGISTRATION

After the application is received by the promoter, the Regulatory Authority is mandated to accept or reject the application within 30 days. If the registration authority fails to do so within the period of time allotted, the project will be deemed to have been registered. On grant of registration, a registration number, Login id and password is provided for accessing the website of the Regulatory Authority. The website will contain a webpage allotted to the promoter who would have to fill in the details required for the project.

The procedure for revocation of the registration granted may be put into motion on receipt of a complaint or suo moto by the Regulatory Authority or on the recommendation of a competent authority, when the promoter defaults to perform his duties as described in detail in Chapter III of the Act, including default in any term of grant of approval or involvement in an act of financial embezzlement.

When the registration of a certain project is revoked, the Regulatory Authority will debar the promoter from accessing the website of the Authority and add the promoter's name to the list of defaulters. The Regulatory Authority will also have the power to pass any other direction to protect the interest of the allottees. From thereon, to finish the residual development work, the association of allottees will be given the first right of refusal to carry out the remaining work or any other manner as may be determined by the Regulatory Authority. Also, the Regulatory Authority will have the power to freeze the bank account holding the project finance and may give directions later to unfreeze the account for use of the project finance to complete the project.

DEPOSIT OF 70% IN A SEPARATE BANK ACCOUNT

The reason for project delays has often been attributed to diversion of moneys received from allottees to completion of other projects or for investment purposes. To counter this practice the Act requires the promoter to deposit 70 % of the amount received from the allottees, in a separate account at a scheduled bank. It is also mandated that the amount shall be utilized for cost of construction/land for that specific project only. Also, when any amount is withdrawn by the promoter, the same should be in proportion to the percentage of completion of the project and with the assent/certification by an engineer, an architect and a chartered accountant. Further there is a mandatory provision for auditing the accounts every 6 months with reference to the project.

This move may have a variable effect on the developers, as it will make transactions and liquidity a little complicated and long drawn, though it will safeguard the interests of the consumers.

DELAY IN HANDING OVER OF POSSESSION

As mentioned hereinbefore, the Act will bring relief to the inundated corridors of Consumer court and the Competition Commission. The Act specifies actions in case of delay in possession due to suspension of the promoter, revocation of his registration or for any other reason. In any such situation the promoter shall be liable to return the amount received by him from the allottee with interest and compensation, which has been specified under the Act. In addition, the allottee may also exercise his rights to other remedies as made available under the Act.

STRUCTURAL DEFECT

The act mandates that in case the allottee, within five years of date of possession, notifies the builder of any defect in the quality of construction, quality or provision of services, the promoter is bound to rectify such defect without any further charges, within 30 days. In case the promoter fails to do the same, the allottee is entitled to claim relief under the Act.

OTHER RELEVANT PROVISIONS

  • The promoter will not be allowed to accept an amount greater than 10% of the total value as an advance payment/application fee, in the event a written agreement of sale has not been registered.
  • Hitherto the agreements relating to interest for delays in payments by either parties tilted in favour of the promoter/developer. Buyers delaying payments and builders delaying hand-over of properties did not share same penalties thus far. Now, they will be made equal.
  • The Act has prescribed that in case of default in payment due by either parties, that is, the promoter or the allottee, the same rate of interest will be applicable to both the parties.
  • Consumer courts will now be able to hear real estate disputes.
  • The promoter may cancel the agreement for sale according to the terms listed in the agreement, though the allottee may approach the Regulatory Authority if such cancellation is not within the ambit of the terms mentioned in the agreement.
  • The promoter is bound to execute the conveyance deed within the time period provided in the sanctioned plan under the local laws. In the event there are no local laws governing the time period, the conveyance deed is required to be executed within a period of three months from the date of issue of the occupancy certificate, in case of absence of local laws.
  • The allottee is entitled to take physical possession of the apartment, plot or building within a period of two months of the issue of occupancy certificate.
  • The provisions of this Act shall have an overriding effect in case there is any inconsistency between the provisions contained in this Act and in any other law (including a state law) for the time being in force. One of the state laws which was repealed with the enactment of the Act was the Maharashtra Housing (Regulation and Development) Act 2012.

OFFENCES AND PENALTIES

  • Non-registration of Project – Penalty up to 10% of the estimated cost of the project.
  • Non-compliance of the penalty levied- Imprisonment of the promoter up to 3 years or a penalty of up to 10% in addition to the penalty levied earlier or both.
  • False information in application for registration of project- Penalty up to 5% of the estimated cost of the project or construction.
  • Failure on the part of allottee to comply/not contravene the order/directions of the Regulatory Authority- Penalty for the period till such default continues, up to 5% of the cost of the plot, apartment, building.
  • Non-compliance by the allottee of the penalty levied - Imprisonment of up to one year or fine AMOUNT per day till such default continues, up to 10 % of the cost of the plot, apartment, building.

CONCLUSION

The Real Estate Act is a promising piece of legislation which will increase transparency, due to the mandatory public disclosure of all project details, further increasing competition in the sector which is in the interest of the consumer. The Act will also bring in regulatory oversight encouraging investments in the sector. Also, among the major positives, Government's urbanization agenda (smart city projects) will be majorly complemented by proper regulation of the sector.

Nonetheless if the Act is scrutinized closely, major overhauls in the sector which has been un-regulated till now, can have unpredictable adverse effects. The proposed 70 % deposit of the amount received from allottees in a bank account may force builders to rely upon further borrowings and cost of which may be borne by of the consumers themselves.

It is observed that not even a single clause has been dedicated to enhance the environmental protection aspect, as real estate industry in the recent times has been held as a major accomplice in destruction of natural habitats of various endangered species by reclaiming marshlands, illegally dredging sand for construction, modifying natural water paths, haphazard development leading to manmade flooding etc. The above mentioned calamities could have been specifically dealt with, if there were stricter penalties proposed for Developers, who were violating this Act, specifically with reference to environmental alteration.

The Act also does not make any attempt to minimize the pernicious role of black money, rampant in real estate transactions, with builders winking at offers of cash, secure in the knowledge that such cash would come in handy in greasing palms and buying stones etc. from quarry owners who have a strong dislike for the banking channel.

Its centerpiece is the website, to be put up by every registered builder on the Authority's portal. This presupposes all buyers are net savvy and computer literate. It is justifiable to make the Developer accountable and pay compensation for defects, delays etc. but then often defects and delays are a result of a variety of factors. To wit, the developer might have promised running water and sewerage lines to the buyers but he in turn is dependent on the local municipality for these facilities so much so that in all fairness he alone should not be made liable for deficiency in these services.

The Real Estate Regulation and Development Act, 2016 is a central legislation. Along with it there are states legislations also. The most prominent ones being in Maharashtra and Kerala. The Central Act and its provisions are to be brought into force by a notification to be issued by the central government. How soon will the notification be issued is the moot question. Builders lobby would like to get it delayed. The Central Government (Ministry of Urban development) is the nodal Ministry. Adequate resources have to be put in place and both regulatory body and the Appellate Tribunals are to be manned by professionals. Till then, it is hoped that the regulatory body in place in Maharashtra and Kerala would continue to do a good job and their best practices would be followed by the regulatory authority, as and when, it starts functioning.

Consulting Editor: Mr. K. N. Chaturvedi, Former Law Secretary, Government of India

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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