The Indian Parliament approved and affected the Real Estate Regulation and Development Act, 2016 (RERA) on March 15, 2016 and it came into force from May 1, 2016. RERA is aimed at protecting the interests of residence buyers and also boost investments in the real estate sector.
RERA is designed to regulate India’s real estate industry. Here we try to understand every aspect of this Act from the viewpoints of buying a house.
RERA and the Home Buyer
RERA will benefit the home buyer through the following compliances:
- Updating buyers even about trivial addition or alteration
- Permission of at least 2/3rd allottees is mandatory for any addition or alteration
- RERA does not allow any advertising before registration
- Majority rights can only be transferred to 3rd party after the consent of 2/3rd allottees
- It mandates sharing of information project plan, layout, government approvals, land title status and sub-contractors
- It focuses more on timely completion of projects and delivery to the buyer
- Emphasis on better quality of construction prodded by the defect liability period of five years
- Mandatory to set up RWA in a defined time frame or 3 months after sale of units
RERA and the Real Estate Industry
- Primary stockpile
Registering a project with RERA involves a lot of paper and leg work to collate information such as status of the project, promotor’s credentials, elaborate execution groundwork details and others.
- Increased project cost
Owing to an expected fall in supply as developers will focus more on the projects in hand rather than launching new ones, it is expected that the prices of flats will rise.
- Tight liquidity
RERA requires a developer to deposit 70% of the yield from a project in a separate account, which is supposed to be used only for the designated project. This has a major impact on the short-term liquidity of developers.
- Rise in cost of capital
Capital will turn expensive for developers since they will now have to search for equity instead of structured debt to pay for land buys
Owing to the legalities of RERA, unethical players will not be able to flourish and a consolidated and strong sector will soon be on the cards
- Increase in project launch time
Since finalizing the intricacies of a project before it is launched is a time consuming process, it will result in an increase of project launch time
Projects covered by RERA
- Commercial and residential real estate programmes including plotted development
- Projects that are running across an area of more than 500 sq mts or 8 units.
- Projects that had no Completion Certificate, before the Act was initiated.
- RERA does not cover renovation / repair / re-development projects that are not offering re-allotment and marketing, advertising, selling or new allotment of any apartments, plot or building in the real estate project.
RERA Compliance Guidelines for Developers
To be RERA compliant, a builder is required to follow the following guidelines:
- Get his project registered
- Advertise it only after registration
- Adhere to Withdrawal – POC method.
- Make his website transparent and updated
- Price projects against carpet area
- Execute any alteration in the project only after approval of 2/3 allottees
- Ensure phase-wise project accounts – audit
- Mandatorily deposit 70% of the funds collected from allottees in the project account. Withdrawals from that account should only to be used for that project.
- Withdrawals to justify phase-wise project work.
- Withdrawal to be authenticated by an engineer, architect, and CA.
- Under RERA there are provisions to freeze project bank accounts in case of non-compliance.