Impact of RERA on REAL Estate Industry

History of RERA : The RERA Bill was introduced by Indian National Congress Government in 2013. However, the bill was passed by the BJP Government in Power in 2016. The RERA Act came into force on May 1st, 2017.

Reasons for RERA (Real Estate Regulatory Authority) to come into power : Initially we had Maharashtra Ownership of Flats Act (MOFA), 1963 which had similar provisions like RERA. The Major difference between MOFA and RERA is in case of dispute the rules specified by MOFA were referred to come to a conclusion whereas in terms of RERA its a regulator. For Eg : SEBI (Securities and Exchange Board of India) for Capital Markets.
There were myriad reasons for a Real Estate Regulator to come into effect. We shall discuss each in detail with the underlying logic.

1. Introduction of RERA : The general purpose of RERA is to protect homebuyers interests in the projects while playing a balanced role between the stakeholders i.e. Homebuyer and Developer.

2. 70% of Amount to be kept in a Separate Account : Initially, developers used to divert money from one project to another or they used to buy lands with the money of the people for further expansion. Such things had led to developers unable to complete projects on time and increasing the waiting period of the flat owners. We have various examples like Amrapali Group, Jaypee Infratech Insolvency Case filed by IDBI Bank. The approximate number of buyers to get homes from each of the developer ranges from 25000 - 33000. In fact, its a huge number. Such things have happened due to diversion of funds from one project to another. On the other end, the home buyers are paying rental and emi thus giving them a double blow to their financials and taken them to misery.
The provision of 70% of the amount of the money received from home buyers to be kept in a separate account deals with the same issue. The amount can be taken out as per the status of construction and with the go ahead from an engineer and chartered accountant.
Generally, it is said that projects can be completed within 50% of money received from the home buyers.

3. Quarterly Updates : Every developer will have to update its status of the project with the Regulator along with sales number, thus giving an homebuyer a direct idea of how the project is doing. In the past, such things were ambiguous for the homebuyer. Thus the homebuyer used to take risks in buying a project which may not be doing well. Hence, quarterly updates on RERA website ensures transparency in dealing.

4. Apartment to be sold on Carpet Area : This was a crucial part where most buyers were taken for a ride by the developers. There are 3 things in regards to area of an apartment.
a. Super Built Up Area : It includes Lobby, Lift Area, Staircase, sometimes even the amenities offered by the developer like Clubhouse, Garden Area, Children's Play Area. Hence, there used to be a difference or loading percentage of 30-40% of the livable area of the apartment.
b. Built Up Area : It includes the external walls in a building to be included in the area of the apartment, which sometimes includes Verandahs, Balconies, Decks.
c. Carpet Area : It simply indicates the area where you can lay the carpet in the apartment. This is the actual livable area a customer gets in a project. In RERA the internal walls are included to be a part of the carpet area of the apartment, but it excludes balcony, verandahs, decks, flower beds.  The thickness of the internal walls of the apartment will be a part of the carpet area.
The RERA rule of selling the apartment on the basis of carpet area solves the problem of ambiguity for the customers while buying. They would know how much they are getting and what they are paying for. Thus it brings in transparency for homebuyers.

5. Eligibility for Projects to Qualify for RERA Registration : The Land area of a project should be more than 500 sqm or more than 8 apartments in a development will have to mandatorily register under RERA. It solves the cases of the Fly by night operators, bidding them goodbye permanently.

6. Consumer Grievance Redressal Mechanism : The RERA will govern all cases in relation to dispute between a developer and a buyer. Initially, people had to go through various stages of Grievance Redressal Mechanism via State Consumer Redressal Forum to National Consumer Dispute Redressal Forum to get justice.

7. Making a Level Playing Field : The Agreement between the Homebuyer and the Builder/ Developer generally used to be one-sided favouring the developer. RERA says in case of delay in payments by both the parties, they shall be liable to pay each other SBI MCLR (Marginal Cost of Lending Rate) + 2% as rate of interest. Initially, developers used to charge homebuyers with an 18% interest rate per annum due to delay in payment of instalments, compared to 4-5/- per sqft per month being offered as compensation to the buyers in case of delay in possession by the developer.

8. Adherence to Timelines : The current trend being witnessed is developers have extended their project completion timeline by atleast 1 year in RERA registration, thus giving buyers the true picture of completion timeline of the project. This shall ensure that homebuyers get timely delivery of the projects, also developers will stop giving aggressive completion timelines to the homebuyers at the time of booking. The penalty for breaking the rules will be upto 10% of Project cost or 3 years imprisonment. Also buyers will be liable to RERA rules and if broken by them, they shall end up having 1 year imprisonment or penalty for non-adherence to the rules or repeated violation of the Rules of RERA.

9. Post Handover of the Project : The Developer is liable to fix any deficiencies arising in construction quality for a period of 5 years from the date of handover of the project and 1 year for any queries related to after sales service from the developer. Generally, such deficiencies were covered only for a period of 1 year from the date of handover. This ensures the homebuyer that whatever they have been given by the developer is of the best quality without cutting corners.

10. 2/3rd of the consent of the people : For making any changes to the area of the apartments or to any part of the project, the developer will have to take consent of 2/3rd of the buyers in the project. Initially, developers used to make changes midway in the project thus causing trouble to the buyers plans and financials. Changes in apartment is a difficult pill to swallow for the buyer. It also tends to increase the financial burden on the homebuyer. This rule again ensures transparency and developers at no cost can do anything to the project plans until and unless 2/3rd of the buyers consent is being received for the proposed change.

11. Registration of Project is Mandatory : Without registration of the project, a developer cannot sell, advertise, book the project. This thus ensures that pre-launches will come to an end. While registration of the project, developers will have to share Land Title Report and the status of various approvals of the projects including litigations if any.

12. Past Projects : Developers past projects are put up on RERA website with the promised timeline and the actual date of possession given by the developer.
Also the promoters pictures are available for the buyers to see. This provides an in depth answer to homebuyers who want a legal opinion on the project. Initially, developers used to be extremely hesitant in sharing the legal aspects of the project with the homebuyers. Such disclosures ensures transparency and makes it easier for the buyer to have a legal opinion on the project. They will also know what stage of approval the project is in and if there are any litigations on the project. Such crucial things used to be hidden from the homebuyers in the past.

13. Real Estate Agents needs to Mandatorily register with RERA : A Real Estate Agent/ Broker/ Channel Partner needs to be RERA registered to enable the role of a facilitator of the project for a homebuyer. A Non-Rera Registered Agent cannot sell, advertise or book a RERA registered property or vice versa. This shall ensure transparency in dealing with the agents for the homebuyers thus bridging the trust deficit created by fly by night operators in the past. For any fault of the developer the Real Estate Agent will also be held liable for it. The maximum penalty goes upto 5% of the cost of the apartment, if the mistakes are repeated. An Agent cannot mis-sell or misrepresent the facts of the project while enabling a transaction between the developer and an homebuyer. The Registration can be revoked by the authority in case of agent defaulting on the provisions of RERA.

14. A Real Estate Agent is required to maintain and preserve book of accounts, records and documents as prescribed by the authorities. Initially, there was no such thing.

15. Past Experience of Brokers : The website along with RERA Registration Number gives information on the past experience of the Broker. This ensures the authenticity of the Broker and his experience shall give confidence to buyers to go ahead with him in a transaction.


Tejas Jhaveri

An MBA in Marketing from Alliance University Bangalore, Tejas also has a 2 year hands on experience in Real Estate Residential Sales across affordable, luxury and premium segments. His stint with a leading Real Estate... read more

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