India has finally taken the first step towards structuring the highly
unregulated real estate sector. The real estate bill was approved by
the Union Cabinet on 4June, 2013. The bill was pioneered and
conceptualized by Dr. Girija Vyas, Minister of Housing and Urban Poverty
Alleviation. The real estate sector contributes more than 5% to the
nation’s GDP and yet the industry does not have a regulatory authority.
The real estate sector in India is highly dominated by the private
players and the absence of a central regulatory authority led to high
rates of frauds, defaults and unethical practices.
The real estate bill may increase the burden on the Developers and the promoters but for the consumers it is a blessing in disguise as it not just sets up regulatory authority but also introduces new regulations that will help in regulating the sector. The real estate bill addresses only the residential real estate and the rules and laws are not applicable to the commercial real estate.
The Real Estate Bill proposes to set up three real estate bodies in India – a Central Advisory Council (CRC) and a Real Estate Regulatory Authority (RERA) and a Real Estate Appellate Tribunal (REAT) for every state or union territory.
1. The Real Estate Regulatory Authority (RERA)
Each state/union territory has to establish a Real Estate regulatory authority. Although two or more states or union territories may form a common Real Estate Regulatory Authority if they feel that this may suffice for all the cases of all the member states or union territories. Similarly, a state may form more than one RERA.
RERA is responsible for publishing on the website a list of all the registered real estate projects with sufficient details about each of them. It also maintains a list of promoters who are defaulters with details of the project whose registration has been revoked or which has been penalized. This helps buyers by allowing them to review the projects that are registered with the authority and also keep a track of promoters who are at default and not to invest their money in projects of such promoters.
RERA maintains a similar database of Real Estate Agents as well which includes registered agents as well as the defaulters. It would make real estate agents more cautious because it would make buyers and sellers more aware and people would avoid working with agents enlisted in defaulters list.
RERA also makes recommendations to the Government on the following issues :
If any buyer breaches the orders or directions of the RERA, he would be penalized for the period during which he or she was at default and the cumulative sum of the fine may extend up to 5% of the estimated cost of the plot, apartment or building bought by him or her.
2. Central Advisory Council (CAC)
The Central Advisory Council shall consist of representatives of the Ministry of Finance, Ministry of Industry and Commerce, Ministry of Urban Development, Ministry of Consumer Affairs, Ministry of Corporate Affairs, Ministry of Law and Justice, Planning Commission, National Housing Bank, Housing and Urban Development Corporation and State Government and Central Government representatives and RERA representatives.
The function of CAC is to recommend the Central Government on implementation of the act, towards protection of consumer interest, to foster growth and development of Real Estate Sector among others.
3. Real Estate Appellate Tribunal (REAT)
Every state or union territory has to set up a REAT. Two or more states or union territories may form a common Appellate Tribunal based on mutual understanding. Any person can appeal against the decision or order made by the Real Estate Regulatory Authority. Appellate Tribunal would be having 3 members – one chairperson, one judicial member and one technical or administrative member, to be appointed by the appropriate government. Appellate tribunal has been given the status similar to that of the Civil Courts in India and all the proceedings before the Appellate Tribunal have been the given status of judicial proceedings.
If the person is still dissatisfied with the decision of the Appellate Tribunal, he or she can challenge it in High Court within a period of 90 days from the date of communication of the decision. An appeal may be entertained after 90 days if the High Court is satisfied with the reason for the delay.
If the promoter breaches the orders or directions of the REAT, he would be penalized for every day of default and the cumulative sum of the fine may extend up to 10% of the estimated cost of the project.
If any buyer breaches the orders or directions of the REAT, he would be penalized for the period during which he or she was at default and the cumulative sum of the fine may extend up to 10% of the estimated cost of the plot, apartment or building bought by him or her.
Real Estate Bill has introduced some new ground rules for the protection of the consumer against frauds. These rules will make the consumer more aware and well-informed which will help them take better investment decisions. Some of the key points of the bill are:
1. Carpet Area Ambiguity
One of the biggest issues concerning the Real Estate buyers was the concept of carpet area. Most of the Real Estate developers are quoting the prices in terms of Rupees per square feet. In such a scenario, the definition of the carpet area and the distinction between the carpet area and the built-up area becomes all the more important.
Developers have been using the terms like Super Area and Super-Built Up Area to sell the projects. The Real Estate Bill defines carpet area as “ Net usable floor area of an apartment, excluding the
area covered by the walls.”
The Super Built-up area comprises of the net usable area, the area covered by the walls and the proportionate share in the all the covered area such as stair case, lift lobbies, fire escapes, common entrances etc.
The New Real Estate Bill mandates that the developers use the ‘Carpet Area ’ and not the Super Area or Super Built-Up Area to sell the projects. This will introduce greater transparency and will give buyer a clear idea of the net usable space in the apartment or the flat or the building.
2. No More Pre-Launch Parties and Discounts
The promoters can no longer sell or pre-book the flats or apartments in any real estate project without getting it registered with the Real Estate Regulatory Authority. Most of the projects in recent times have sold out flats at 5-20 percent discounts even before getting the necessary approvals. After raising cash, builder has an incentive to delay the project as the escalation prices are paid by the customers.
The bill also seeks from the developer – layout plan of the project, name and address of contractors, architect and structural engineer and an authenticated copy of commencement certificate.
However, if the area of the project does not exceed four thousand square meters or the no. of apartments to be build does not exceed 12, inclusive of all phases, there is an exemption from the registration. The redevelopment and renovation projects in which there is no re-allotment or transfer of allotment are also exempted from the Registration requirements.
An important point to be considered is that the limits of four thousand square meters and the 12 apartments is applicable for each individual phase of the project. Each individual phase would be treated as a different Real Estate Project.
If the promoter fails to register the project with real Estate Regulatory Authority, he can be fined up to 10% of the estimated cost of the Real Estate Project. Further violations can attract an imprisonment of up to 3 years or a fine of further 10% of the cost of the project or both.
3. Build On Your Own Land
At the time of registration of the real estate project, the developer is required to submit an affidavit stating that he has legal title on the land on which development is proposed. Developer also needs to assure that the land is free from all charges and there is no lien or mortgage against the land.
This is a welcome step as it brings in more transparency and would help in reducing the number of frauds. A high number of frauds have come to light in which the developer has developed and sold apartments on mortgaged or leased plots or on plots for which he is not the legal owner.
Recently, Arunachal Pradesh government allowed a private developer to commercially exploit land leased to it by Maharashtra at subsidized rates to set up a state guest house-cum-emporium. The City Industrial and Development Corporation of Maharashtra (CIDCO) leased the land to the Arunachal Pradesh Government and is the lawful owner of the plot.
With the new rule, we can expect a decrease in such practices.
4. Escrow Account
The rule mandates that 70% o the amount realized for the project from the buyers shall be deposited in an escrow account and should be used only for the particular real estate project. It is a common practice among developers to use funds collected for one project for buying land or for construction activities of another project. The rule would force them to maintain separate fund accounts for each project and would hopefully cut down on the delays and help them deliver the project as per the schedule.
5. Web Page for Every Project
After the registration of the project, every developer has to create a webpage on the website of the authority and enter the details of the project such as : Number and Types of apartments booked, up-to-date status of the project, details of the registration granted by the authority.
Any advertisement or promotional material must include the link to the website as well as the Registration Number of the project. The buyers can first go to the website of the Real Estate regulatory Authority and verify all the details of the project. The buyer can also see whether the promoter has been listed in the defaulters list and can act accordingly.
Duties of the Promoter
1. The promoter has to provide the buyer the site and layout plans along with the specifications.
2. The promoter has to provide the stage wise time schedule of completion of project, including provision for water, sanitation and electricity.
3. If a person makes an advance payment on the basis of the information provided in the advertisements which is false or incorrect, and he wishes to withdraw from the project, the promoter shall return the entire amount with the interest.
4. The promoter cannot accept more than 10% of the cost of apartment or building as advance unless he enters a written agreement for sale with the buyer.
5. In case of any structural defect in the building or apartment, the buyer has to bring it to the notice of the promoter within 2 years of handing over of the flat. The promoter is obliged to repair it without any charges or give compensation for the same.
6. It the promoter fails to give possession as per the schedule, he shall be liable to return the entire amount of the buyer with the interest rate.
7. If the promoter provides false information regarding any aspect of the project, he can be fined up to 5% of the estimated cost of the real Estate Project.
Rights and Duties of the allottees
1. The allottee is entitled to know stage wise time schedule of the project.
2. The allottee is entitled to claim the possession as per the declaration of the promoter and claim the refund of the amount paid in case the promoter fails to stick to his schedule.
3. After entering the sale agreement, allottee is required to make the payments specified in the agreement within the time specified for each payment.
4. The alottee is required to pay the proportionate share of registration charges, electricity charges, maintenance charges and other charges as mentioned in the agreement.
5. In case of the default, the allottee is liable to pay the interest on the same.
Although real estate bill has come across as the means to resurrect the Indian Real Estate Market through the introduction of transparency and accountability in the real estate sector, there are a few issues still unaddressed.
1. The commercial real estate sector is not covered which leaves out a major chunk of the real estate promoters and buyers and they would not be able to benefit from the bill.
2. The exemption from registration for area which is less than 4000 square meters or which has less than 12 apartments can be the spoiler. The small scale builders would go unscathed and a large percentage of buyers who are not investing in large residential societies would not be able to benefit from the bill.
3. According to the Real Estate Industry body, CREDAI’ s press release, “McKinsey has said in its report to the Government of India that delays in approval processes alone increase sale value of houses by 40%”.
With the approval cycle being the biggest concern for the FDI investors in India, it is surprising to see that the there is no mention of it in the Real Estate Bill.
4. The 2009 version of the bill mandated that projects involving plot area greater than one thousand square meters should be registered. The 2013 version has changed that limit to four thousand square meters. Moreover, each phase is considered a separate real estate project which gives developers an incentive to break down big projects. Developers would be enticed to start 3 small projects without regulatory constraints instead of one big project with regulatory constraints.
5. The projects which have already started are not covered in the bill.
Real estate bill will definitely boost the confidence in the sector as it increases the accountability of both the promoter and the buyer. It will help in reducing frauds and would promote greater transparency. It will also set up a structure for addressing the complaints and grievances of the Real Estate sector and the fast track dispute settlement mechanism will introduce professionalism in the sector. Although the effects of the bill on the industry are yet to be seen, the positivity has already creeped in.
Advik Realty Hopes this will help you in the future.
The real estate bill may increase the burden on the Developers and the promoters but for the consumers it is a blessing in disguise as it not just sets up regulatory authority but also introduces new regulations that will help in regulating the sector. The real estate bill addresses only the residential real estate and the rules and laws are not applicable to the commercial real estate.
The Real Estate Bill proposes to set up three real estate bodies in India – a Central Advisory Council (CRC) and a Real Estate Regulatory Authority (RERA) and a Real Estate Appellate Tribunal (REAT) for every state or union territory.
1. The Real Estate Regulatory Authority (RERA)
Each state/union territory has to establish a Real Estate regulatory authority. Although two or more states or union territories may form a common Real Estate Regulatory Authority if they feel that this may suffice for all the cases of all the member states or union territories. Similarly, a state may form more than one RERA.
RERA is responsible for publishing on the website a list of all the registered real estate projects with sufficient details about each of them. It also maintains a list of promoters who are defaulters with details of the project whose registration has been revoked or which has been penalized. This helps buyers by allowing them to review the projects that are registered with the authority and also keep a track of promoters who are at default and not to invest their money in projects of such promoters.
RERA maintains a similar database of Real Estate Agents as well which includes registered agents as well as the defaulters. It would make real estate agents more cautious because it would make buyers and sellers more aware and people would avoid working with agents enlisted in defaulters list.
RERA also makes recommendations to the Government on the following issues :
- measures to improve the processes and procedures for clearance and sanction of plans and development of projects.
- measures to encourage construction of environmentally sustainable and affordable housing, promote standardization, including grading and use of appropriate construction materials, fixtures, fittings and construction techniques.
- measures to facilitate amicable conciliation of disputes between the promoters and the allottees through dispute settlement forums set up by the consumer or promoter associations.
If any buyer breaches the orders or directions of the RERA, he would be penalized for the period during which he or she was at default and the cumulative sum of the fine may extend up to 5% of the estimated cost of the plot, apartment or building bought by him or her.
2. Central Advisory Council (CAC)
The Central Advisory Council shall consist of representatives of the Ministry of Finance, Ministry of Industry and Commerce, Ministry of Urban Development, Ministry of Consumer Affairs, Ministry of Corporate Affairs, Ministry of Law and Justice, Planning Commission, National Housing Bank, Housing and Urban Development Corporation and State Government and Central Government representatives and RERA representatives.
The function of CAC is to recommend the Central Government on implementation of the act, towards protection of consumer interest, to foster growth and development of Real Estate Sector among others.
3. Real Estate Appellate Tribunal (REAT)
Every state or union territory has to set up a REAT. Two or more states or union territories may form a common Appellate Tribunal based on mutual understanding. Any person can appeal against the decision or order made by the Real Estate Regulatory Authority. Appellate Tribunal would be having 3 members – one chairperson, one judicial member and one technical or administrative member, to be appointed by the appropriate government. Appellate tribunal has been given the status similar to that of the Civil Courts in India and all the proceedings before the Appellate Tribunal have been the given status of judicial proceedings.
If the person is still dissatisfied with the decision of the Appellate Tribunal, he or she can challenge it in High Court within a period of 90 days from the date of communication of the decision. An appeal may be entertained after 90 days if the High Court is satisfied with the reason for the delay.
If the promoter breaches the orders or directions of the REAT, he would be penalized for every day of default and the cumulative sum of the fine may extend up to 10% of the estimated cost of the project.
If any buyer breaches the orders or directions of the REAT, he would be penalized for the period during which he or she was at default and the cumulative sum of the fine may extend up to 10% of the estimated cost of the plot, apartment or building bought by him or her.
Real Estate Bill has introduced some new ground rules for the protection of the consumer against frauds. These rules will make the consumer more aware and well-informed which will help them take better investment decisions. Some of the key points of the bill are:
1. Carpet Area Ambiguity
One of the biggest issues concerning the Real Estate buyers was the concept of carpet area. Most of the Real Estate developers are quoting the prices in terms of Rupees per square feet. In such a scenario, the definition of the carpet area and the distinction between the carpet area and the built-up area becomes all the more important.
Developers have been using the terms like Super Area and Super-Built Up Area to sell the projects. The Real Estate Bill defines carpet area as “ Net usable floor area of an apartment, excluding the
area covered by the walls.”
The Super Built-up area comprises of the net usable area, the area covered by the walls and the proportionate share in the all the covered area such as stair case, lift lobbies, fire escapes, common entrances etc.
The New Real Estate Bill mandates that the developers use the ‘Carpet Area ’ and not the Super Area or Super Built-Up Area to sell the projects. This will introduce greater transparency and will give buyer a clear idea of the net usable space in the apartment or the flat or the building.
2. No More Pre-Launch Parties and Discounts
The promoters can no longer sell or pre-book the flats or apartments in any real estate project without getting it registered with the Real Estate Regulatory Authority. Most of the projects in recent times have sold out flats at 5-20 percent discounts even before getting the necessary approvals. After raising cash, builder has an incentive to delay the project as the escalation prices are paid by the customers.
The bill also seeks from the developer – layout plan of the project, name and address of contractors, architect and structural engineer and an authenticated copy of commencement certificate.
However, if the area of the project does not exceed four thousand square meters or the no. of apartments to be build does not exceed 12, inclusive of all phases, there is an exemption from the registration. The redevelopment and renovation projects in which there is no re-allotment or transfer of allotment are also exempted from the Registration requirements.
An important point to be considered is that the limits of four thousand square meters and the 12 apartments is applicable for each individual phase of the project. Each individual phase would be treated as a different Real Estate Project.
If the promoter fails to register the project with real Estate Regulatory Authority, he can be fined up to 10% of the estimated cost of the Real Estate Project. Further violations can attract an imprisonment of up to 3 years or a fine of further 10% of the cost of the project or both.
3. Build On Your Own Land
At the time of registration of the real estate project, the developer is required to submit an affidavit stating that he has legal title on the land on which development is proposed. Developer also needs to assure that the land is free from all charges and there is no lien or mortgage against the land.
This is a welcome step as it brings in more transparency and would help in reducing the number of frauds. A high number of frauds have come to light in which the developer has developed and sold apartments on mortgaged or leased plots or on plots for which he is not the legal owner.
Recently, Arunachal Pradesh government allowed a private developer to commercially exploit land leased to it by Maharashtra at subsidized rates to set up a state guest house-cum-emporium. The City Industrial and Development Corporation of Maharashtra (CIDCO) leased the land to the Arunachal Pradesh Government and is the lawful owner of the plot.
With the new rule, we can expect a decrease in such practices.
4. Escrow Account
The rule mandates that 70% o the amount realized for the project from the buyers shall be deposited in an escrow account and should be used only for the particular real estate project. It is a common practice among developers to use funds collected for one project for buying land or for construction activities of another project. The rule would force them to maintain separate fund accounts for each project and would hopefully cut down on the delays and help them deliver the project as per the schedule.
5. Web Page for Every Project
After the registration of the project, every developer has to create a webpage on the website of the authority and enter the details of the project such as : Number and Types of apartments booked, up-to-date status of the project, details of the registration granted by the authority.
Any advertisement or promotional material must include the link to the website as well as the Registration Number of the project. The buyers can first go to the website of the Real Estate regulatory Authority and verify all the details of the project. The buyer can also see whether the promoter has been listed in the defaulters list and can act accordingly.
Duties of the Promoter
1. The promoter has to provide the buyer the site and layout plans along with the specifications.
2. The promoter has to provide the stage wise time schedule of completion of project, including provision for water, sanitation and electricity.
3. If a person makes an advance payment on the basis of the information provided in the advertisements which is false or incorrect, and he wishes to withdraw from the project, the promoter shall return the entire amount with the interest.
4. The promoter cannot accept more than 10% of the cost of apartment or building as advance unless he enters a written agreement for sale with the buyer.
5. In case of any structural defect in the building or apartment, the buyer has to bring it to the notice of the promoter within 2 years of handing over of the flat. The promoter is obliged to repair it without any charges or give compensation for the same.
6. It the promoter fails to give possession as per the schedule, he shall be liable to return the entire amount of the buyer with the interest rate.
7. If the promoter provides false information regarding any aspect of the project, he can be fined up to 5% of the estimated cost of the real Estate Project.
Rights and Duties of the allottees
1. The allottee is entitled to know stage wise time schedule of the project.
2. The allottee is entitled to claim the possession as per the declaration of the promoter and claim the refund of the amount paid in case the promoter fails to stick to his schedule.
3. After entering the sale agreement, allottee is required to make the payments specified in the agreement within the time specified for each payment.
4. The alottee is required to pay the proportionate share of registration charges, electricity charges, maintenance charges and other charges as mentioned in the agreement.
5. In case of the default, the allottee is liable to pay the interest on the same.
Although real estate bill has come across as the means to resurrect the Indian Real Estate Market through the introduction of transparency and accountability in the real estate sector, there are a few issues still unaddressed.
1. The commercial real estate sector is not covered which leaves out a major chunk of the real estate promoters and buyers and they would not be able to benefit from the bill.
2. The exemption from registration for area which is less than 4000 square meters or which has less than 12 apartments can be the spoiler. The small scale builders would go unscathed and a large percentage of buyers who are not investing in large residential societies would not be able to benefit from the bill.
3. According to the Real Estate Industry body, CREDAI’ s press release, “McKinsey has said in its report to the Government of India that delays in approval processes alone increase sale value of houses by 40%”.
With the approval cycle being the biggest concern for the FDI investors in India, it is surprising to see that the there is no mention of it in the Real Estate Bill.
4. The 2009 version of the bill mandated that projects involving plot area greater than one thousand square meters should be registered. The 2013 version has changed that limit to four thousand square meters. Moreover, each phase is considered a separate real estate project which gives developers an incentive to break down big projects. Developers would be enticed to start 3 small projects without regulatory constraints instead of one big project with regulatory constraints.
5. The projects which have already started are not covered in the bill.
Real estate bill will definitely boost the confidence in the sector as it increases the accountability of both the promoter and the buyer. It will help in reducing frauds and would promote greater transparency. It will also set up a structure for addressing the complaints and grievances of the Real Estate sector and the fast track dispute settlement mechanism will introduce professionalism in the sector. Although the effects of the bill on the industry are yet to be seen, the positivity has already creeped in.
Advik Realty Hopes this will help you in the future.
No comments:
Post a Comment