Article by Ashish Kumar, Edited by Drishti Saigal.
Real Estate Sector in India
Real Estate sector is an amazing business in India. With a growing population, the demand is skyrocketing every day. If there ever was a business which assured profits, it is this one, well, at least almost!
However, it is very important that the real estate should work smoothly and no disputes should arise related to real estates.
And if any dispute arises related to real estate then and it should be resolved as quickly as possible so that the development does not pause and keeps on continuing. Real Estate sector is one of the most crucial sectors of India. It helps in developing the infrastructure of the country.
The real estate sector in India was a sector of over 100 billion US dollars in 2017. Real estate is one of the biggest employment opportunities generating sectors of the country.
Real estate sector contributes in about 5% to 6% of the GDP of the country. With such a large sector, there arises many problems and disputes. Due to these problems and disputes the real estate sector faces many ups and downs during a financial year.
This also affects country’s development and GDP. The Government had felt the need of a regulatory authority to streamline the registration and overview of the real estate sector, much like how the SEBI oversees the corporate scenario and therefore RERA was born.
In this article, you will get to know all about the benefits of registration with RERA and the penalties that may await you for non-registration.
Why Real Estate Regulation and Development Act (RERA) is Important?
It has become very important to regulate the real estate sector in order to protect the interests of the persons related to real estate sector and also the customers. There have been many instances where we can find that people are misled, cheated etc. and they have lost the money which they have invested in Real Estate sector.
Delay in the projects, not exactly giving what customers booked at the time of buying the property, using low standard materials for building purpose and many more by some of the builders. Cheating and misleading customers by some of the builders not only affected the customers but it also affected the other builders in the real estate sector who were doing their job well.
Cheating and delays in project created a disinterest among the customers about the real estate sector due to which other builders started to suffer. In order to safeguard the interest of customers as well as the builders RERA was introduced in the country.
REAL ESTATE REGULATION AND DEVELOPMENT ACT, 2016
The Real Estate (Regulation and Development) Bill was passed by Rajya Sabha on 10th March 2016 and by the Lok Sabha on 15th March 2016.
The president gave his assent to the Real Estate (Regulation and Development) Bill passed by the parliament on 25th March 2016.
This Real Estate Regulation and Development bill was officially published on 26th March 2016 in the Gazette of India. Thus, the Real Estate (Regulation and Development) Act became effective from first May 2017 throughout the country.
This act is meant for not only residential real estate but also for the commercial real estates. The real estate Regulation and development act 2016 aims at protecting the rights of home purchase as well as promoting investment in the real estate sector of the country.
The Real Estate (Regulation and Development) Act 2016 makes it mandatory for all the residential and commercial real estate projects where there are more than 8 apartments in the building or where the land is over 500 square metres to register there property with real estate regulatory for launching a project in order to provide greater transparency in project marketing and execution.
Why the Developers need to Register themselves Under RERA?
As I have discussed earlier RERA was introduced in the country in order to safeguard the interests of home buyers and the real estate developers from cheating, misleading and delays in the project.
Let us deal with all these things in detail one by one in order to understand why developers need to register themselves under RERA and how their registering with RERA will safeguard the interests of home purchase as well as that of the developers.
One of the salient features of the real estate Regulation and development act is the requirement of registration of the real estate project by the Promoter (Builder, Developers, Development Authorities, Society or Holder of Power of Attorney from the owner of the land on which building or apartment is constructed or plot is developed for sale) with the real estate regulatory authority which falls within the planning areas.
In the absence of a registration under real estate regulatory authority, the promoter of the real estate project is not permitted to advertise, market, book, sell or offer for sale or invite persons to purchase in any manner in any real estate project or part of it.
RERA gives benefits to both the home purchasers or the customers as well as the builders or developers.
Now, before you go ahead, you should consider the type of your business legal structure. While a sole proprietorship is great for the flexibility in conducting business, it is terrible when it comes to raising funds for your business.
Therefore check out these-
- Should You Start Your Business as an LLP or Private Company
- How You Can Register an LLP
- How You Can Register a Private Company and One Person Company
With that out of the way, let us see what RERA has for Promoters.
Benefits of RERA for Promoters
The Real Estate (Regulation and Development) Act aims to bring back the credibility into the unorganized real estate sector which was lost due to cheating, fraud, delays in project by some of the developers.
For this purpose the real estate regulation and development Act elaborates several points keeping in mind the rights of every stakeholder including Developers.
Here are some points that will benefit the builders if they register themselves under “The Real Estate Regulation and Development Act”.
- Penalty on payment defaulters
The real estate regulation and development act imposes a stringent penalty on developers for delay in the construction of real estate projects.
It also penalizes the buyer for delayed installments. Incessant payment delays despite a prior notice empower the promoter to cancel the booking and refund the amount to the purchaser after deducting booking amount and interest.
This has given the developers the assurance that the purchasers cannot cheat them and the money they have invested is safe. Overall, the Act not only safeguards the right and interests of the house purchasers but the developers as well.
- Extension of project registration and relaxation in penalty norms
Section 5 under clause 6 of the Real Estate (Regulation and Development) Act provides for an extension of registration of reality projects under two circumstances.
First, in case of forces majure (Act of God) that is war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature and impacting the regular development of a real estate project.
Here, the developer must submit an application to the authority clearly stating the reason of delay along with a fee as specified by the authority.
Second, under reasonable conditions where there is no fault of the promoter. In this case, a written application must be submitted to the authority, highlighting the reason for the registration delay. However the delay must not be more than a year.
The whole world is currently suffering from the pandemic covid-19 including India. Due to this the whole country was locked down. As a result it is obvious that many ongoing projects are going to be delayed. The developers registered under “The Real Estate Regulation and Development Act” are for sure going to get relief under this Act.
- Enhanced Housing Demand
The Real Estate (Regulation and Development) Act has fueled the housing demand in the country and thereby, accelerated the absorption of unsold housing units.
Promoters were the immediate beneficiaries of the renewed confidence in the sector. Restored transparency and organized market has allowed the genuine players to reach out to their target audience, market their product and create an impact.
- No Delay in Registration
It is not only that the developers are bound by the rules of the real estate Regulation and Development Act but the respective authority’s are also bound by it.
If the developers are bound by the Real Estate Regulation and Development Act and cannot delay the projects, same is the case with the Authorities as they also cannot delay the registration process.
Under the real estate Regulation and development act the authorities have to either accept or reject the developers request for the registration number within 30 days of the request. If the developers application for the registration of their project is rejected by the authority then it should be done within 30 days of the application.They also have to give a valid reason for rejection of the project.
If the authorities fail to register or reject the project within 30 days of the application by the builder then the project automatically gets registered.
The Real Estate (Regulation and Development) Act has enabled the builders to complete their projects on time as there could be no delay in the approval of the project by the authorities and if there is a rejection then there has to be a valid point for the rejection of the project as the authorities cannot arbitrarily reject the project.
- Getting loans is easier
The developers which are registered under the Real Estate Regulation and Development Act get loans very easily for their projects.
Getting loans easily attracts many investors to invest in the Real Estate sector and it also gives them the assurance that their projects will not be delayed due to lack of funds.
- Faster settlement of disputes
As the states have established tribunals specially for the Real Estate sector, the Real Estate (Regulation and Development) Act has enabled the redressal of the disputes to be faster.
Earlier, if any dispute use to arise then it would take a much longer time for the civil courts to settle the disputes due to which the projects used to get delayed.
Delays in project not only affects the customers but it also affects the developers as it increases the cost of developing the infrastructure due to which the developers have to suffer a loss.
- Flexibility in delivery date
Real Estate Regulation and Development Act has made it flexible for the promoters / developer registered under the Real Estate (Regulation and Development) Act to choose the date of delivery of the project according to their own consent.
Depending upon the project development, the society can decide the day of delivery of the project.
- Less number of unoccupied assets
Under the Real Estate Regulation and development act the buyers are required to take the possession of the house within two months after acquiring the occupancy certificate.
The maintenance costs, water and electricity charges have to be borne by the buyers. This gives a sigh of relief to the developers and helps the builders to move ahead and focus on their other projects.
- Inculcating Professionalism
Real Estate Regulation and Development Act is strengthening the Real Estate sector and is also helping it to attain a certain level of professionalism. The builders who used to delay the projects purposely are now compelled to finish the work on time.
Due to real estate Regulation and development act, only the dedicated builders are joining the real estate sector.
RERA certification provides authentication to the promoters as well as the brokers and agents which attracts more potential customers due to the buyers concerns in the Real Estate Regulation and Development Act.
- Preventing funds
Under Real Estate (Regulation and Development) Act every builder has to maintain a separate escrow account for each project which stops insolvency of the fund. The money from these escrow accounts can be used for the project only for which the escrow account has been made. The builder cannot use the fund of one project in another project.
- Additional flow of funds
The Real Estate (Regulation and Development) Act has increased transparency in the real estate sector as a result many money lenders are willing to give money to the builders for the development of their projects. With the coming of GST and liberalization in the foreign direct investments (FDI), the builders registered under Real Estate Regulation and development act facilitated the ease of the business.
- Less competition
With coming of the Real Estate Regulation and development act, the untrustworthy developers are excluded from the Real Estate sector. Now, only the genuine builders registered under Real Estate (Regulation and Development) Act are able to win the trust of the buyers who provide good quality of buildings and deliver them on time.
What is the Benefit to the Purchaser if the Developer is Registered under RERA?
If the developer is registered under the Real Estate Regulation and Development Act then it provides credibility to the developer.
The buyers trust the builders more who are registered under Real Estate (Regulation and Development) Act than those who are not registered. Some of the benefits that the purchasers get from a developer registered under Real Estate Regulation and development act are mentioned below-
- Standardized carpet area
Carpet area is the area that is actually usable in the apartment. Before the real estate Regulation and development act builders had different measures to calculate carpet area.
For example, for a flat, a builder would measure the carpet area as 1400 square metres where as the other builder for the same flat wood measure the carpet area as 1500 square metres.
Builders used to measure the carpet area on their own. After the coming of the real estate Regulation and Development authority, there has been a standard measure for measuring the carpet area of the flat.
- Advance payments by the purchasers
The developer cannot ask the buyer to pay more than 10% of the cost of the flat as an advance application fees before entering in the agreement of sale.
This is one of the major benefits of real estate Regulation and development act which the buyers enjoy.
Recommended Read: What are Smart Contracts: Explained!
- Preventing the developers from using the money in any different project
The builders are needed to deposit 70% of the money received from the buyers in an escrow account. The money from this account can be withdrawn only as per the stages of construction which should be approved by the engineer and the Chartered Accountant of the builder. This makes sure that the builder does not utilize the money paid by the home purchasers in some different project other than the one for which they have been paid.
Consequences of Non-Registered Projects
Under section 59 of the Real Estate (Regulation and development) Act, there is a fine of upto 10% of the expected project cost for the failure to register and if the same is continued an additional 10% of the estimated project cost or three year imprisonment or both can be given to the developers.
Further the projects could even be banned by the authority if it is found that it is not upto the mark as prescribed by various departments.
Now, the question, is – How You Can Register Yourself under RERA?
Read this article on How Developers Can Register Themselves With RERA to Find Out!
Wrapping It Up
Thus, it is very important for the developers to register themselves under Real Estate (Regulation and Development) Act so that their projects are completed successfully and they do not have to suffer any loss due to delays in project or non payment of the money by the purchasers.
Real Estate (Regulation and Development) act enables the developers to do a professional job. Real Estate Regulation and Development Act aims to improve the real estate market, encourage transparency, accountability and appreciation for promises made.
As more and more builders are choosing the path of the Real Estate Regulation and development act, non registered builders are going to face issues for progressing on their projects.
If you have any questions, let me know by leaving your comments down below. And if you liked this article, do give it a share!
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Author Bio: Ashish Kumar is a B.A. LL.B student from the Central University of South Bihar and an intern at WinSavvy. Connect with him on LinkedIn.
Editor Bio: Drishti Saigal is a Bachelor of Laws – LLB student at Svkm’s Jitendra Chauhan College, Mumbai. Connect with her on LinkedIn.