INFRASTRUCTURE LAW PROJECT

CRITICAL ANALYSIS OF REAL ESTATE REGULATION AND DEVELOPMENT

Submitted By, Submitted To

Srijita Jana MAINAN RAY SIR

Semester – 10th Associate Professor

Section- A

Roll no- 659

Prior to the introduction of the Real Estate (Regulation and Development) Act, 2016, Indian
real estate customers had little legal recourse and they were offered consumer protection under
various acts such as the Indian Contract Act, 1872; the Consumer Protection Act, 1986.
Indian consumers had to approach various authorities, such as the Consumer Courts and the Civil
Courts, to deal with their grievances. Also, prior to the introduction of the above Act, there was
no single regulatory authority for the regulation of the real estate sector, and buyers had to face
various problems such as timely delivery of projects, delay in handing over the possession by the
developer, high-interest rates charged on late payments, multiple bookings for the same property,
project failures, etc. On the other hand, developers had to overcome the issues such as delays in
building permits, late payments by homeowners, and non-transparent operations.

“Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense,
paid in full, and managed with reasonable care, it is the safest investment in the world.” –
Franklin D. Roosevelt

The truth of this statement is inevitable even today, as the scurry of owning a home is high at all
times. In this regard, with the advent of the Real Estate (Regulation and Development) Act,
2016 (RERA), we now have a central piece of legislation governing the rights and obligations of
all key players in the real estate sector, which was previously largely governed by the local laws
of each State.

Highlights1

 The Bill regulates transactions between buyers and promoters of residential real estate
projects. It establishes state level regulatory authorities called Real Estate Regulatory
Authorities (RERAs).

 Residential real estate projects, with some exceptions, need to be registered with RERAs.
Promoters cannot book or offer these projects for sale without registering them. Real
estate agents dealing in these projects also need to register with RERAs.

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 On registration, the promoter must upload details of the project on the website of the
RERA. These include the site and layout plan, and schedule for completion of the real
estate project.

 70% of the amount collected from buyers for a project must be maintained in a separate
bank account and must only be used for construction of that project. The state
government can alter this amount to less than 70%.

 The Bill establishes state level tribunals called Real Estate Appellate Tribunals.
Decisions of RERAs can be appealed in these tribunals.
 Establishment of state level regulatory authorities- Real Estate Regulatory Authority
(RERA): The Act provides for State governments to establish more than one regulatory
authority with the following mandate

 Register and maintain a database of real estate projects; publish it on its website for
public viewing,

 Protection of interest of promoters, buyers and real estate agents

 Development of sustainable and affordable housing,

 Render advice to the government and ensure compliance with its Regulations and the
Act.

 Establishment of Real Estate Appellate Tribunal- Decisions of RERAs can be appealed

 Mandatory Registration: All projects with plot size of minimum 500 sq.mt or eight
apartments need to be registered with Regulatory Authorities.

 Deposits: Depositing 70% of the funds collected from buyers in a separate escrow bank
account for construction of that project only.

 Liability: Developer’s liability to repair structural defects for five years.

 Penal interest in case of default: Both promoter and buyer are liable to pay an equal rate
of interest in case of any default from either side.
  Cap on Advance Payments: A promoter cannot accept more than 10% of the cost of the
plot, apartment or building as an advance payment or an application fee from a person
without first entering into an agreement for sale.

 Defines Carpet Area as net usable floor area of flat. Buyers will be charged for the
carpet area and not super built-up area.

 Punishment: Imprisonment of up to three years for developers and up to one year in case
of agents and buyers for violation of orders of Appellate Tribunals and Regulatory
Authorities.

Adjudication before RERA

Until RERA, land ventures were legally required by the Town and Country Planning Act or the
Apartment Ownership Act. The Town and Country Planning Act was used specifically for the
control a nd growth of land use. The specific property owner of an apartment came under the
Apartment Ownership Act. The grievances were dealt with under the Consumer Protection Act,
1986. A consumer (home buyer) may file a complaint with the District Consumer Dispute
Redressal Forum, the State Consumer Dispute Redressal Commission or the National Consumer
Dispute Redressal Commission. The absence of a single regulatory institution for addressing
multiple issues in the real estate sector has been one of the prominent reasons for setting up the
Real Estate Regulatory Authority. Nevertheless, the significant debate has been conducted when
contrasting RERA with the National Consumer Dispute Redressal Commission (NCDRC) in
terms of redress and validity of complaints. Although consumers can still contact the NCDRC
for complaints about real estate, the Forum cannot initiate suo moto complaints of this sort. In
addition, the consumer forum can’t perform any inquiries. However, RERA has the power to
take suo moto action against perpetrators, as well as investigate the matter.

 Under this act there will be no regular forum for the buyer of real estate instead there will
be a special forum for buyer, REAL ESTATE REGULATORY AUTHORITY, where
they can file their complaint. This authority will be commissioned within one year as
soon as the act come into implementation
  The developer has to register their project under RERA before starting the project, incase
project is divided into different phases than each phase will consider as a different project
and have to register separately2.
 The project which does not have a land area more than 500 square meters or the number
of units does not exceed eight, does not need to register under RERA.
 According to this act the developer has to sell apartment on carpet area and cannot
continue to sell on super- built area that include the common area, shaft, exclusive
balcony etc.
 Developer has to open an escrow account in which 70% of the money of the allotees has
to deposit and that money can only be used for the construction of the project. To
withdraw the money from escrow account the developer needs a letter from
CHARTERED ACCOUNTANT, ARCHITECT and ENGINEER. And the withdrawal
will be in the proportion of completion of project.
 After the developer apply for the registration of the project, the authority in 30 days has
to reject or accept the application. If the authority failed to do this than the project is
deemed to be accepted.
 If the developer is found to be violating any rules, or make default in doing anything that
is required to be done or is involve in any kind of unfair means than authority has the
right to revoke the application number.
 The promoter cannot accept more than 10% of the advance payment as a token amount
for the sale of apartment, plot, as the case may be before coming into the written
agreement of the sale of the unit.
 The promoter cannot make any addition or the alteration in the approved plan, design,
structural design etc., without taking the consent of the allotees. At least 66% of the
allotees should the agree to the alteration, or addition to the plan or design than only
developer can change it.
 In case there is any structural defect, defect in the quality of workmanship, construction
and brought to the notice of developer within the five years from the handling over the
possession to the society, the developer has to rectify within thirty days without charging
any extra amount for repair works.
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  In case the developer is not able to hand over the possession of the unit on time due to
any reason than he is liable of paying the money back to the members with interest and
compensation according to the act.
 In addition to the establishment of the Regulatory Authority, the Bill also proposes to
establish a Real Estate Appellate Tribunal (Appellate Tribunal) within one year from the
date of commencement of the Act.There are various penalties for the various misconduct
by the developer and even by the buyers.

Advantages of RERA ACT3

 Timely delivery of flats

o Developers often make false promises about the completion date of the project, but
hardly ever deliver4.

o Strict regulations will be enforced on builders to ensure that construction runs on time
and flats are delivered on schedule to the buyer.

o If the builder is not able to deliver the flats on time, he/she will have to refund the
purchaser with interest.

 Furnishing of accurate project details

o In the construction stage, builders promote their projects defining the various amenities
and features that will be part of the project. But not everything goes as per plan, with
several features missing.

o As per the Act, there can't be any changes to a plan.

o And if a builder is found guilty of this, he/she will be penalized 10% of the project’s
costs or face jail time of up to three years.

 Specifying carpet area

o Generally, builders sell flats on the basis of built-in area, which includes a common
passage area, stairs and other spaces which are 20-30% more than the actual flat’s area.
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Deep Patel , Sameer Gujar , Vivek Patel, 2020, Review and Analysis of RERA Act, INTERNATIONAL
JOURNAL OF ENGINEERING RESEARCH & TECHNOLOGY (IJERT) Volume 09, Issue 11 (November 2020)
 o But, not all buyers are aware of the concept of carpet area.

o With this Act it will become mandatory to declare the actual carpet area.

 All clearances are mandatory before beginning a project

o Builders often attract buyers with huge discounts and pre-launch offers. And, the buyer,
enticed by the offers, does not bother about the clearance.

o But, due to delays in getting clearance, the buyer does not get the flat on time.

o This Act ensures that developers get all the clearances before selling flats.

 Each project should have a separate bank account

o Developers raise funds through pre-launch offers and use them to purchase some other
land or invest it in other projects.

o This Act will make it compulsory that a separate bank account be maintained for each
project.

o Each transaction will have to be recorded, and diversion to another project will not be
entertained.

 After sales service

o As per an interesting clause in the Act, if the buyer finds any structural deficiency in the
development of the building, the buyer can contact the builder for after sales service.

o But, the buyer should approach the builder within 5 years of purchase to rectify such
defects without further charges.
Penal Provisions Under RERA5

Promoters

OFFENSES PUNISHMENT

1. Violation of Law 1. It shall be punishable with around 3 years of imprisonment or a fine of 10%
building.

2. Non- registration of a 2. Shall be punishable with a fine of 10% of the estimated cost of the building.
project

3. False information 3. Shall be punishable with a fine of 5% of the cost of the building.

Agents6

OFFENSES PUNISHMENT

1. Failure to comply with 1. It shall be punishable with a penalty on daily basis which may extend t
Authority building.

2. Failure to comply with 2. It shall be punishable with an imprisonment of 1 year with or without fine, w
tribunals to 10% of the cost of the building.

3. Failure to comply with 3. It shall be punishable with a fine of Rs.10,000 per day or 5% of the total cost

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Prsindia.org/files/bills_acts/bills_parliament/Bill_summary-Real_Estate_bill.pdf
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Prsindia.org/files/bills_acts/bills_parliament/Bill_summary-Real_Estate_bill.pdf
 OFFENSES PUNISHMENT

Authority

4. Failure to comply with 4. It shall be punishable with an imprisonment of 1 year with or without fi
Tribunal extend to 10% of the cost of the building.

5. Non- Registration 5. It shall be punishable with a fine of Rs.10,000 per day or 5% of the total cost

Lacunas in the RERA Act

 Past real estate projects not included

o Only new projects are covered by the Act.

o Projects that are ongoing, completed or stuck due to clearance or financial issues, don’t
come under this.

o Hence, many buyers will not be benefitted by it.

 Delay from government agencies7

o There can be delays caused by the government, which sometimes takes a lot of time to
clear a project.

o It is up to government bodies to timely approve projects, so that developers can launch,

 No compulsory regulation for projects less than 500 square meter:

o Registration with the regulator will not be mandatory for projects less than 500 square
meter.

o So, small developers will not be bound to register.

o Because a project will not be allowed to launch without the requisite clearances from the
government (which generally takes two to three years), projects will automatically get
delayed.

 State governments regulated real estate before RERA as land and land improvement are in
the State List of the Seventh Schedule of the Constitution. RERA has been enacted
under Concurrent List. This has increased the tussle between various states and Centre over
implementation of RERA.

Recommendations8

 To reduce the time taken for approvals, digitisation of the documentation/approval and
outsourcing of certain type of work to competent parties should be initiated. Projects should
be classified under two categories, LOW RISK projects and HIGH RISK PROJECT. Some
permission should automatically granted to low risk projects, and high risk projects should
grant permission online within 15-30 days of application.
 Provision for punishment should be intact in all states, according to central RERA
imprisonment upto 3 years or fine to the amount of total estimated cost of the project or both
is applicable to developer, buyer, and real estate agent, whosoever does not comply to rules
and regulation. But except kerala all other states and UT have added a clause to compound
the offence to avoid imprisonment.
 Central RERA law should clarify on uniform payment schedule. Currently the law states that
10% advance is taken when signing a sale agreement, but no further clarification is made on
payment of the rest 90% of the payment. Gujarat and Maharashtra has link all the payment
instalments with the stages of construction. Similar model should follow in central RERA
law and all the tates should be notified to link the payment schedules with the stages of
construction.
 The percentage of the amount that should be deposit in escrow account should be reduce to
60%, this will give more cash to developer on hand to invest in different project and the
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 growth of the market will not be sluggish. If the demand exceeds the supply than the rates of
the real estate property will increase and may go out of the reach of the middle class people.
And also, states should not allow to dilute this clause. Some states to some extent have
diluted this law by removing PROPORTIONAL WITHDRAWAL clause.
 Structural defect should be clearly defined in the central law. Some states have diluted the
clause by removing DEFECT LIABILITY word from the clause, and hence make developer
less vulnerable to the trouble form the members after he hand over the project9.
 RERA specifies that any change to the plan,design or anything should be done after getting
the permission of the 2/3rd allotees. But this same law does not specifies the time by which
the allottees should collectively come to a conclusion on allowing the developer to do any
alteration. This may lead to the delay in the construction of the project. Any such delay
which is out of control of developer should be noted at correspondence time should be
extended for the completion of project.
 RERA should act as a support to real estate industry, the biggest issue in this industry is
always about cash, RERA should provide incentive to REIT and pension funds to invest in
the real estate projects. By this way industry will always be available with the cash and thus
developer will be encouraged to expand their business. All the legal barrier should be
abolished through this act.
 Set up the IT network to monitor all the projects register under RERA and for quick redressal
of the complaints.
 Land title insurance should be available to the developers, the primary issue in this sector is
land dispute. By providing land title insurance the developers can be assured about the
ownership of the land10.
 Carpet area should be re-define in the law, and area like the balconies should be consider as a
part of carpet area so as developer include balconies in their design.
 States which are yet to notified the law should be deemed that they have notified the central
law and will continue to act as per the central law.

9
Aditya V Kadam1, Rushikesh R Jangam, international Research Journal of Engineering and Technology (IRJET) e-
ISSN: 2395-0056 Volume: 05 Issue: 04 | Apr-2018 www.irjet.net
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Aditya V Kadam1, Rushikesh R Jangam, international Research Journal of Engineering and Technology (IRJET) e-
ISSN: 2395-0056 Volume: 05 Issue: 04 | Apr-2018 www.irjet.net
 In RERA it is stated that the complaints should be solved in 60 days, but in real it is not
happening, there are complaints which are pending from more than 180 days. The procedure
of solving grievances should be improve and the authority which does not solve the
complaints in 60 days should be punished harshly.
 RERA should also check technically the completion date given by the developer and also
suggest to the developer to change the completion date if the project can complete before the
date mention by the developer in the registration documents.

Conclusion

In order to protect the rights of both buyers and sellers and other parties to the transaction and
promote the dissemination of information to the parties, the Real Estate (Regulation and
Development) Act 2016 was implemented with a purpose for controlling and promoting the
unregulated real estate market. India’s regulatory index scores low due to a lack of proper
compliance mechanisms in the real estate market. It also aimed to create a separate adjudicatory
process as introduced under the bill, to settle conflicts more rapidly between the promoter and
the purchaser or the purchaser and the agent.

On the other hand, considering that land is a finite resource compared to the limitless demand of
real estate, RERA and the subsequently established Authorities would play a crucial role in the
future. Currently, the evolution of RERA jurisprudence is taking place at various paces in
different States. From the above-mentioned decisions, it is clear that each Authority has different
views on the same subject matter, resulting in an inconsistency in the security of allottee interests
in different States. Therefore, while an allottee in the State of Maharashtra can file a complaint
with the Authority about an unregistered project, an allottee in the State of Punjab is unable to do
so. Likewise, though an allottee can obtain a refund in the State of Karnataka if he so chooses, an
allottee in the State of Haryana does not. Such a dichotomy of views with regard to the same
provision may negate the intent for which the RERA was enacted, i.e. a central law in the
interests of effective consumer security, continuity, and standardization of business practices and
transactions in the real estate sector. However, there is still a huge scope for improvement in the
implementation of the act and it needs legislative amendments by consulting stakeholders.