For too long there have been demands for greater transparency and accountability in the area of real estate transactions. Laws were too ambiguous, recourse methodologies were opaque, home buyers were not organized and the legal process was overloaded. It was to address these pressing issues that the Real Estate Regulation & Development Act (RERA) was passed by the cabinet in May 2016. However, real estate being a state subject, the implementation has to be done separately by each state and the state government also has the powers to make necessary amendments to the law if required.
The RERA will be implemented in Maharashtra effective April 01st 2017 and it will be among the first states in India to do so. It is also important because Mumbai is the biggest real estate market in India, both for residential and commercial properties. Hence implementation of the RERA in Maharashtra assumes added significance. So, what exactly will be the Implications of the implementation of RERA on the real estate market?
The RERA will make the real estate market more transparent in 10 unique ways:
- The RERA will make the quoting of price by property developers more transparent. Currently, developers sell property to customers based on built-up area. This also includes wall loading and other common amenities. Hence the customer does not exactly get a clear picture of what he is paying for. Under the RERA, builders will have to now quote based on the carpet area, which is the actual interior area that a person gets to live in. This will make the quote more realistic and transparent and the customer actually gets an idea of the cost per square feet. The standardization also makes comparison easier.
- Parking charges is another bone of contention between the builder and the customer. Currently, when a builder develops an apartment, the parking charges are charged separately and vary from Rs.2 lakhs to Rs.6 lakhs depending on the property. The RERA requires that the parking charge should also be transparently mentioned as part of the sale agreement.
- Real estate agents are still largely unregulated. The RERA will require all real estate agents to register themselves with the competent authority. This registration will ensure that gullible customers are not fleeced by unscrupulous real estate agents. The RERA has also broadly defined the nature and scope of the relationship between the agent and the customer.
- RERA also contains specific provisions pertaining to timely completion of projects by builders. Delay in completion of projects will make the developer liable to monetary penalty as well as imprisonment up to 3 years. In addition, RERA also contains a provision that if there is delay in delivering the project or if the buyer is not satisfied with the property in way then a refund can be claimed within 15 days of buying it.
- RERA also puts the onus on the builder of making a full and transparent disclosure to the customers. The builder / developer needs to make full disclosures about Title report of the land, any legal cases outstanding, any likely encumbrances, intention of the promoter of using the FSI (floor space index), use of construction technology, design standards etc. This will mean a lot more transparency for the property buyer.
- The real estate broker will be permitted to sell only those properties that are registered under the RERA pool and have met with all the conditions of an eligible property. Brokers who sell properties outside this list will be liable for penalties. This will ensure that brokers do not push properties of unscrupulous promoters and only push projects that meet up all the conditions prescribed by the RERA.
- The RERA brings much smaller projects also under the overall ambit of regulation. Currently, only projects with a 1000 square metre area come under the purview of regulation. That has been brought down to 500 square metres or a minimum of 8 flats. This will also bring a lot of low cost housing projects also under the regulatory ambit and protect their interests.
- In a big move for protection of consumer interest, according to the Act, it is mandatory for the promoter to deposit 70% of the amounts realised from the allottees from time to time in a separate bank account maintained with a scheduled bank in order to cover the construction cost and the land cost.
- Recently, there have been many cases of builders not taking responsibility for structural defects in construction. Under the RERA, the builder will be accountable for structural defects in the construction of the property up to a period of 5 years. The builder will have to also ensure that the land title is insured to prevent cases where consumers run into trouble due to uncertain land titles, where legacy issues are quite common.
- A state level regulatory body will be formed which will act as the nodal agency to address all such real estate complaints, disputes and related issues. The primary focus will be to address the grievances of real estate customers and will comprise of the Chief Justice of the High Court, the law secretary of the state and the housing secretary of the state.
With Maharashtra implementing the RERA effective April 01st 2017, it is a matter of time before other states join. In the process, not only will customer interests will be protected but builders will also benefit from greater transparency. In fact, regulation has always helped a market to develop more significantly as we have seen in the case of capital markets. For the real estate market that is plagued by overcapacity, this will surely be a blessing in disguise!