Paresh Karia, Director, Acquest is a Chartered Accountant with over 15 years’ experience in Banking/Financial services and Real Estate. In the past, he has worked with renowned banks like HDFC Bank, ICICI Bank and ABN Amro Private Banking.
The much-anticipated regulator for the real estate sector is now a reality. The legislation, which was initiated nine years ago, has become effective from May 1, 2017. While the Central Act encompasses the key provisions, land being a state subject, the enforcement of the Act is delegated to the states. Each state is required to appoint a regulator and frame rules based on the provisions contained in the Act. While a majority of the progressive states have already fulfilled their obligations, others are in the process and hopefully will be doing so shortly. Let us examine some of the main provisions of the Act and how they will protect the interests of home buyers.
Protection to buyers In the past few years, we have seen that thousands of home buyers have suffered due to delay or non-completion of projects. The main reasons are delay in getting approvals, litigations and misappropriation of funds by the developer. The Act has taken cognisance of this and adequately addressed this key issue by stipulating that:
1) A developer cannot sell any unit in the project unless he has clear title to the land (details of any encumbrances/defect in the land title to be declared) and all the approvals from various authorities.
2) 70 percent of the money perceived from the sale of units has to be kept in a separate account which will be utilised for meeting the cost of completing the project. Funds from this bank account can be withdrawn only after obtaining certificates independently from a certified architect, a certified engineer and a chartered account. Further, the amount to be withdrawn has to be in proportion to the percentage of completion of project.
3) The developer has to declare the date by which he will hand over the project with occupation/completion certificate. In case of delay, the buyer has the option to withdraw from the project whereupon the developer will have to refund the money to the buyer with interest at a prescribed rate. If the buyer wishes to continue with the project despite the delay, the developer shall pay him interest in every month of the delay till handing over of possession at such rates as may be prescribed.
Transparency and uniformity in information dissemination
Another serious problem plaguing the realty sector has been lack of transparency and misrepresentation. It is an irony that when you buy a bottle of cola costing just Rs 10 or even less, the net weight and ingredients are clearly mentioned on the bottle for the buyer to see, but when it comes to buying property worth lakhs or crores, you are not sure what you are getting and more often than not, you end up getting much less than what was promised.
RERA has appropriately addressed this issue by providing that:
1) The developer makes complete disclosure of all the details regarding the project, including the size of the unit in terms of carpet area (which has been defined under the Act), the plans, layouts, common area, amenities, facilities, fixtures and fittings, etc. to be provided.
2) Prohibiting the developer from making any changes without the consent of the buyers.
3) Penalising the developer if he does not deliver what he has promised.
Further, by bringing real estate agents also within the ambit of RERA and ensuring that they give only such information to the buyers which is provided by the developer as above, the Act has ensured that there is uniformity in dissemination of information and buyers are not misled.
Rectification of defects
The developer is now responsible to rectify any structural defects or defect in workmanship, quality or provision of services up to a period of 5 years from the date of handover, within 30 days or pay compensation to the buyer.
Agreement for sale
Another major problem faced by home buyers has been that the agreement for sale in most of the cases was completely in favour of the developer, and to the detriment of home buyers. The developers were reluctant to make any changes to it. The Act has now prescribed a model agreement which is more balanced and protects the interest of home buyers.
As per the prevailing law, one can take possession of the apartment/unit only after the project has received the Occupation/Completion certificate which is granted by the local authority when the developer has completed the project in accordance with the norms prescribed. However, we have seen that developers have been flouting rules and there are hundreds of projects, especially in Mumbai, which have long been completed, but still not received the Occupation Certificate. There is a possibility that such projects or the illegal components thereof could also be demolished. The Campa Cola society in Worli is a classic example of such case.
The act has now cast a responsibility upon the developer to get the Occupation/Completion certificate before handing over the possession. Failure to do so will attract penalty.
Conveyance of land title
This is another problem faced by many home buyers, especially in Mumbai, where the developers have not transferred the title of the land on which the project is developed to the home buyers or their association. The act has made it mandatory for the developer to execute a registered conveyance deed for the land, including the common areas and hand over physical possession thereof to the association of buyers within three months from the date of receipt of Occupation certificate.
Thus, as can be seen from above, RERA has taken cognisance of the difficulties faced by home buyers and have made provisions to address the same. While states have been given enough teeth to enforce the provisions and take punitive action against the defaulters, it remains to be seen how far they are willing to go and what role the centre will play to ensure that RERA is implemented by the states in letter and spirit.