RERA comes into force
From May 1, 2017, the Real Estate (Regulation and Development) Act comes into force. The law, popularly known by its acronym RERA, was passed by Parliament in March 2016 with the aim of bringing about greater transparency, accountability, and efficiency in the real estate sector, besides protection for home buyers from unscrupulous developers. For the uninitiated, RERA is a model law. As land is a state subject, it is up to the states to draft and pass their own laws according to the guidelines. In its missive to all State governments, the Centre had asked them to notify the Act before April 30, 2017. Only 13 States and Union Territories have ratified RERA so far.
Moreover, by July 30, all real estate developers and agents are to register with their respective state regulatory authorities. Of the states that have framed rules under the Act, only three – Maharashtra, Rajasthan, and Madhya Pradesh – have appointed a housing regulator. Also, only Maharashtra has set up a website on which real estate agents can register themselves. One of the fundamental problems that RERA seeks to resolve is the extensive level of information asymmetry, where one side (real estate promoters and agents) possess a lot more information than the other (home buyers). The new legislation seeks to address this information asymmetry by setting up real estate regulators in all States and Union Territories.
Before every real estate promoter begins to sell or advertise a project, it will have to register with the Real Estate Regulatory Authority of that particular state or Union Territory. In its application to the regulator, the real estate promoter must report key details like the projects already launched in the past five years, and whether they have been completed or still under development. If there are delays in projects beyond the original date of completion, the promoter must present the reasons behind the delays. "Over and above this an authenticated copy of the approvals and commencement certificate from the competent authority also needs to be submitted," writes Vivek Kaul, a regular columnist on economic affairs.
"Other important details like land title, the layout plan for the proposed project, the location details of the project, also need to be submitted to the regulator." Once the regulator grants the approval for a project, the promoter is now rule-bound to upload all these details on to the regulator's website. Moreover, at the time of booking, the developer must furnish the precise details of when the project due for completion. Another fundamental problem that the Bill seeks to address is that the buyer often does not get possession of the property, as promised by the seller due to delays in construction and changes to the sanctioned plan, layout plans, and other specifications. Delays are often the result of unfair financial practices undertaken by promoters, whereby the money raised for the new project is used to complete an earlier project or pay off debts. The bill seeks to ensure that 70% or "such higher percent, as notified by the appropriate (state) government" of the money taken from buyers is set aside in a separate bank account to ensure that funds collected are utilised only for the particular project.
The law states that any changes to the sanctioned plan or layout plans will require the consent of two-thirds of the home buyers other than the promoter. If the developer violates any of the above provisions, he is liable to either a three-year prison term or a massive fine, or both.
There are also instances when home buyers are declined flats owing to their caste, ethnic origin, dietary choices or any such factor. In response to this apparent discrimination, the Maharashtra government, for instance, has introduced an anti-discriminatory clause in their Real Estate Act. The new anti-discriminatory clause could prove to be a game-changer, especially in cities such as Mumbai and Delhi, where housing apartheid is still prevalent.
At present, India does not have an anti-discriminatory provision in its housing sector, unlike the US and many member states of the European Union. In India, there have been several reported instances of access to housing being denied based on prejudices arising out of a person's religion, caste, and other identity markers. But the current Real Estate Act only covers transactions between builders and home-buyers, and not between landlords and tenants. Reports indicate that the Centre is seeking to include a similar anti-discriminatory clause in the draft model Renting Housing policy, which will be notified soon. However, the model policy will not have the same level of enforceability as the Real Estate Act. Imposing such provisions on a privately-held property will be tough. Developers, however, have raised serious concerns about certain provisions in this Bill.
They believe that these regulations will further burden builders already suffering from insufficient funds and a whole host of regulatory challenges. Contrary to their claims, RERA does address some of these concerns, although it does not deal with issues regarding force majeure (acts of God outside their control). Reports indicate that of the 92 sections listed in the Act, the Centre has notified only 69. Experts contend that if RERA is implemented by the states in the spirit of the Centre's bill, there are a lot of potential benefits in store for the industry as a whole. Nonetheless, the potential benefits of any new law hinge on its effective implementation. States must step up to the plate. For the sake of their citizens, these governments must frame rules and establish a state-specific regulator at the earliest possible time.
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