It would be pretty fair to state that real estate sector is perhaps one of the substantial contributors toeconomic growth and development of India. This sector has come a long way in the past decade. Yet, the never-ending delay in housing projects has severely affected the business model of the real estate sector and, more importantly, has affected the consumers.
In order to control and minimise the prevailing situation of delays, the Parliament decide to enact theReal Estate (Regulation and Development) Act 2016 (“Real Estate Act”). The new act in every sense intends to safeguard the interests of home buyers and bring in more transparency in the real estate sector.
The author has made an attempt to highlight how the enactment of this new Real Estate Act has promoted fair and transparent transactions involving the seller and purchaser of properties concerning the real estate sector and how this will make the complex real estate procurement an easier one by bringing in significant answerability and transparency in the real estate market.
It has always been a concern for home buyers that builders, for instance, make various alterations and changes to projects without even informing the buyers. Further, the project plan is not shared with the buyers, keeping them in the dark. Buyers then have no other option apart from believing the words of builders.
With the introduction of the Real Estate Act, builders are required to comply with certain rules; if they fail to do so, it would majorly affect the project. It would be fair to say that before the introduction of this new law, real estate and housing sector was majorly unregulated, and the consumers and buyers on many occasions were found running from pillar to post to makethe builders and developers accountable in instance of any inconsistency or fraud.
The Real Estate Act was brought with a thought to ensure that there is a sense of transparency, answerability as well as accountability in the real estate sector. The act has intended to eradicate problems within the sector such as project delays and mis-selling. Now, it is mandatory for the builders and developers to carry out the Real Estate Regulatory Authority (RERA) registration before they start a project.
It would be pretty fair to say that the gamble for completion of any project and unreasonable delays are majorly suffered by the consumer, but the new act ensures that all the expenses incurred would now have to be made by builder/developer concerned with the project.
The Real Estate Act has been introduced to safeguard greater responsibility to buyers and further diminish the deceptions and delays from the end of developer. The new law envisions of setting up of a quicker and fast dispute resolution process where consumers and buyers are provided with a speedy redressal platform.
Placing due reliance on the said case ofMadhu Vihar Cooperative Housing Society and Ors. v. Jayantilal Investments and Ors., the Bombay HC interpreted theSection 7 of the Maharashtra Ownership of Flats Act, 1963, which resonates withSection 14 of the Real EstateAct.
In the said case, HC was of the view that the consent of a home buyer must be an “informed consent”, which is easily given after the property buyer is given a notice disclosing detailed revelation of the said project which the developer proposes to implement.
Some mandatory compliances from the end of developers that are helpful to buyers post the implementation of the Real Estate Act:
1) Prior information to the buyers if there is any minor modification being done to the project.
2) Further there shall be consent of about 2/3rd allottees about any other addition, modification or any alteration.
3) Prior Information must be shared in respect of the information of the project plan, its layout, and all necessary government approvals.
4) No launch or advertisement of the project can be done before registration with the regulatory authority.
5) Creating a more consumer-centric approach where relevance is given to timely completion of projects and timely possession being delivered to the consumers.
Establishing a Regulatory Authority
It has always been felt that there needs to be a regulator in the real estate sector. It has always been an issue as to what would be the appropriate forum for a regulatory authority in matters concerned with real estate sector. With the rise of real estate market, various issues have arisen over the years. It has always been an expectation that the introduction of any regulatory authority would bring a regulation in the real estate sector and it will ensure that instances of fraud by builders would be duly addressed and consumers would be benefitted.
The major functions of any regulatory authority are to protect the vested interests of the concerned stakeholders and investors, collecting facts at a designated repository and further to establish a grievance redressal mechanism scheme.
However, the Real Estate Act has provided the authorities the right to interfere, which brings answerability. The Act has very well highlighted the delay delivery done by the developers in order to divert the funds to new scheme/projects. The Act has imposed developers/builders to make a distinct and a separate account for every scheme/project, and use funds in that distinct account only for that concerned ongoing project.
To prevent time lags (delay in disposal of cases), RERA has been mandated to dispose of the said applications within a time frame of not more than 60 days subject to extension only if there is any genuine concern whose reason have been well documented for the cause of delay.
As per the Act, every real estate project (where the total area to be established surpasses more than 500 sq metres or more than 8 apartments is planned to be developed in any stage), shall be compulsorily registered with their concerned state’s RERA.
Any of the existing project/scheme where the certificate of completion or the possession certificate has not been issued is duly mandated to comply with all the necessary registration under the Real Estate Act. Further in order to apply for registration under RERA, the promoters are duly required to provide a detailed information about the ongoing project including the status of the land, necessary details of the promoter/developer, all the necessary approvals from the concerned authorities and also the schedule of completion of the ongoing project.
Once all necessary registration is duly finished and other approvals concerning the construction related formalities are duly addressed and are in order then the project can only be marketed by the concerned developer/builder.
It can very well be stated that the biggest advantages with the inception of the Real Estate Act is that now builder/developer requires clearance from the concerned authorities and without proper registration developers, builders and real estate agents with the concerned regulator and providing every detail of the ongoing project necessary clearance won’t be provided which would not allow the developer/builder to sell their project to any consumer/buyer.
The biggest concern for the unwanted delay of any construction related project is that the means collected from one concerned project is significantly diverted by the builders/developers to start a new project. On various fronts, it has been witnessed that diversion of such funds by the developer to another project leads to shortage of funds, resulting in the delay of the project.
In order to prevent such misuse of funds now it has been duly incorporated in the act that the promoters/developers are mandated to keep 70% of the project receivables in altogether a separate reserve account which would ensure that the funds are not diverted by any means. Further the proceeds of such an account can only be utilised towards the ongoing project and all such expenditure/financial transaction will have to be duly certified from a professional which would ensure a tab is kept on the financial transaction resulting in non-diversion or any misuse of funds.
Continual Disclosures by Promoters
One of the major issues with buyers was that they have at times felt betrayed or been misled by builders in particular because buyers are not made aware or kept in the loop about the time-to-time development of the project.
With the implementation of the Real Estate Act, buyers/consumers are now able to keep a tab on the progression/development of their project on the internet (RERA Website) as developers/promoters are now required to make timely submission to the concerned authority towards the progression of the project. Thus, the compulsory disclosure will ensure more transparency and accountability towards real estate sector from the end of consumers and consumers would be in a better position prior to making any such investment.
If one has to summarise the most prominent and positive outcome of the Real Estate Act, it would be that with the compulsion of builders to duly register under this Act, so any promoter or developer can by no means sell, purchase, advertise, or for a matter invite any customer to invest in their projects without properly registering with the regulatory authority regarding their project.
Hence, allthe possible actions of builders and promoters will be thoroughly checked and now every buyer and consumer will be having the relevant details including the time required for the completion of project, step wise plan of the major development to be undertaken and as well as well as minor modifications being done in their respected venture.
Defining Carpet Area
Area of a property is usually calculated in three different ways – carpet area, built-up area and super built-up area. It has always been felt that at the time of purchasing any property, often these factors and terms leads a sort of confusion for the consumers and significantly it can be time-consuming. It creates dissatisfaction among the buyers as there happens to be a difference between whatone is actually paying and what one gets in reality.
As it is now a mandate for all the developer and promoters to reveal necessary details of ongoing projects in terms of the size of their apartments and houses on the basis of carpet area which consist of usable spaces including kitchen and toilets etc.
As per the act, carpet area has been defined as “the net usable floor area of an apartment, which excludes area covered by the external walls, areas under services shafts, exclusive balcony area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment”.
Carpet area definition brings a sort of relief and as well some clarity to homebuyers because if we see the aspect of carpet area as mentioned above, there have been instances where the home buyers have been misled at the time of booking the house/flat where after the completion of the project, the exact carpet area as promised was not delivered at the time of handing over the possession to the buyers.
Therefore, mandatory disclosure of the carpet area would ensure that buyers would be given what they have been initially offered. This would remedy the lack of clarity that consumers face.
Impact on the Real Estate Sector
Real Estate Act has presented a very promising and bright picture and is working in different ways for sustainable growth; the impact will be different for different situations and will depend on proper execution by the authorities.
In the context of the real estate sector, we may say that since developers are now required to work within the strict framework of the regulatory body,frivolous supply will also reduce (fewer projects by builders) because there is the involvement of several risks of doing multiple projects at one time. Naturally,developers (builders) will be focused on launching those projects which are likely to be completed within the promised time frame as per the agreement with the consumer, failing which there would be severe consequences.
The Real Estate Act explicitly states that the developer has to specify the time and duration of the completion of the project during its registration itself, and if the developer (builder) fails to do so, there will be strict action which would be taken against them which includes a hefty interest and penalties as seen in the case ofBindu R Jaisinghv.Ekta Parksville Homes Pvt. Ltd. In the said case, builder was directed by the authorities to handover the possession of the apartment which was in dispute to the complainant (buyers) before a certain prescribed time and in case the builder failed to act as per the order, the builder would be liable to pay interest to the purchaser till the real time of custody, on the complete sum which was duly paid by the purchaser.
In case ofMr. Rakesh U Jain v. Bhoomi & Arkade Associates, the complainant alleged that the builder had not given possession of the apartment and also violated the clause of possession given as per the builder buyer agreement. It was directed by the concerned authority to handover the custody of the said apartment to complainant before prescribed time period ends. The builder was also asked to provide the occupancy certificate, and in case there is a failure, the respondent (builder) was responsible to pay a compensation/interest to the buyers from a specified date until due date of custody on the whole amount paid by the builder/developer.
Analysis of the effects of RERA on Buyers and Delay in Possession
Looking at the effect ofRERA on home buyers and in cases of delayed possession,we can surely say that the approach has been very much consumer-centric. Moreover, the initiativehas protected the interests of buyers by enabling them to keep track of the construction of buildings and properties at every stage till the time it is completed.
We can say that with the introduction of the Real Estate Act, transparency has also been brought to the system as project efficiency has increased. Now, developers focus on adhering to the Real Estate Act guidelines creating a regulatedsector and a safe and secure environment for buyers.
Further, placing reliance on the aforementioned cases of Bindu R Jaisingh v. Ekta Parksville Homes and Rakesh U Jain v. Bhoomi & Arkade Associates, it can be established that the Real Estate Act gives utmost priority and importance to consumers and ultimately serves the best interest of buyers.
It would be fair to say that the Real Estate Act has in some way been able to rebuild the lost trust between the buyers and builders because the real estate sector has witnessed various instances of unnecessary delay and unwanted trouble for buyers in particular which created a negative image of builders in the eyes of the consumers.
As far as the positive effect of current Act on the real estate business is concerned, the introduction of the concept of ‘reserve account’ and various other mandatory requirements under the Real Estate Act perhaps may result in a rise of the cost of home and flats. On the other hand, the developers/promoters will also get relief from the Act as it imposes a severe penalty on the beneficiary in instances of delaying the payment on prescribed time and the builder has the option to approach the regulator in such instance where the buyer is at fault.
Conclusion and Recommendation
For a developing nation like India, providing adequate accommodation to people are one of the major challenges. In India, buying a home is not just a mere investment but also an emotional decision. For most home buyers, the purchase of a primary residence is arguably one of the most significant financial transactions they make in their lifetime.
It is quite unfortunate that the clearance of any project on the part of the concerned authorities requires clearance from multiple departments and authorities, which leads to constant delay of projects and arbitrary growth in the overall cost of any project.
Perhaps, emphasis should be placed on identifying the root cause for the delay of the project in most instances and taking necessary and precautionary measures to avoid such delays.
On the basis of various contributing factors for the delays in real estate industry, the following steps and measure maybe adopted to minimise such effects:
1) Proper and sound implementation of planning shall be done at the very beginning.
2) Introduction of single window clearance to streamline and fasten the approval mechanism since one of the major hurdles has been clearance from the end of government authorities resulting in a delay of the project.
3) Involvement of an Industry Expert for site management in particular so that an expert overview is also brought in. Such expertise will lead to the betterment of the project.
About the Author
Advocate Harsh Bhushan is an Assisting Counsel with Senior Advocate Ashok Kumar Singh.
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav & Aakaansha Arya
Senior Editor: Hamna Viriyam
Associate Editor: Abhinandita Biswas
Junior Editor: Tisa Padhy
Preferred Method of Citation
Harsh Bhushan, “Impact of RERA in Real Estate Sector in India: An Analysis” (IJPIEL, 3 January 2022).