After crossing the herd of controversies, apprehensions, protests and consents for last 8 years, the Real Estate (Regulation and Development) Act came into effect from 1st May, 2016. Now, the countdown has just begun for making essential operational rules, tribunals, authorities by the Ministry of Housing and Urban Poverty Alleviation.
Real Estate (Regulation and Development) Bill 2016
In consideration to the increasing demand for housing, private builders and real estate players have been taking an undue advantage of this unregulated industryâ€™s situation. Unfair contracts, prejudicial conditions, insensitive charging of interest on buyers and flaws in current laws have empowered the buyers to deal unreasonably with the conditions of consumers. Thus, there was a need of an effective legislation and mechanism that can enable consumers to enforce accountability against erring property developers and also, that can redress their grievances or adjudicate the disputes between buyer and developers. This led to the passing of this bill by both the parliamentary houses and which later, obtained the consent from the President of India.
Objective of this Act - a brief glimpse
- To address the concerns of home-buyers by providing an effective adjudicating mechanism for expeditious dispute redressal.
- To bring transparency in real estate and housing transactions.
- It intends to augment growth in the respective sector by encouraging domestic as well as foreign investments.
- To provide single window system of clearance for real estate projects to expedite the entire process.
- To encourage efficient completion of building residential projects and their standardization.
New Guidelines and Provisions under the bill
In case the allottee wishes to continue with the project despite the delay and doesnâ€™t withdraw, then he is entitled to interest, at the mentioned rate, by the promoter for the delay till the date of handing over the possession.
- Real estate Agents also should mandatorily get themselves registered else they canâ€™t earn commission on facilitating sale/purchase of plot/land/apartment.
Apart from aforementioned main provisions, there are other additional provisions in the Act to support the fulfillment of the objectives laid down for the enactment of Real Estate Regulatory & Development Act.
Punishments/penalties on violating the provisions of new Act
- In case of Non Registration/non compliance of the order of tribunal: If the promoter does not register his real estate project by omission or by failure then he will have to pay a fine maximum upto 10% of the estimated cost of the project. If he does not agree to comply with the order of the tribunal then he has to bear punishment up to 3 years imprisonment or pay a fine up to 10% of the estimated cost of the project.
- In contravention to any other provisions of the Act/ in case promoter provide false information to regulatory authority: The promoter has to bear the fine which can rise up to 5% of the estimated cost of the project.
Appeal Process in case of dispute or consumer grievance
- According to the Act, there will be an establishment of Real Estate Appellate Tribunal within 1 year from the date of enforcement of Act.
- The person/consumer aggrieved by any direction or decision imposed by Regulatory Authority or by an adjudicating officer under the legislative mechanism, may appeal before the appellate tribunal within 60 days from the date of receiving the copy of order or direction.
- The tribunal will be required to deal with the appeal as fast as possible and put in best efforts to dispose the appeal within 60 days from the receipt of appeal.
- The Appellate authority must carry equivalent powers as that of civil court.
- An appeal against the decision of tribunal can be filed with the jurisdictional High court within a period of 60 days from the date of receiving the decision or order of the tribunal.
Structural recap on significant provisions:
DELAY IN CONSTRUCTION/ HANDOVER
- Provision: As per the Act, if the promoter failed to hand over the possession within stipulated time period due to prescribed reasons, then, he will be liable (on the demand made by the allottee) to refund the received amount with interest and compensation in the manner prescribed in the Act.
- Remedy:In case the promoter did not finish the construction within specified time, then he has to pay the same interest which he charges from the purchaser in case there is delay in payment.
CARPET AREA/SUPER AREA
- Provision: The new Act requires the developers to sell units only on carpet area which implies net usable floor area of an apartment excluding internal walls, exclusive balcony, exclusive terrace area or areas under service shafts. On the other hand, Super Area includes the built up area and the proportionate areas of common area i.e. veranda, balcony, lobby etc.
- Remedy: The property cannot be sold on the basis of super area and any violation of this provision will attract aforementioned punishment and fines.
MISMANAGEMENT OF FUNDS
- Provision: As per the Act, the promoter has to deposit 70% of the realization proceeds from allottees, from time to time, in separate escrow bank account in order to ensure that such amount collected will be used only for the construction of respective project.
- Remedy: A separate escrow account in the bank for each project separately to hold 70% of the collected proceeds will ensure that sellers donâ€™t misuse or mismanage the funds received from one project to another project.
- Provision: In accordance to the Bill, promoters have to disclose all projects related information for eg. Layout, approvals, status of land, contractors, completion schedule, actual work completed etc. with both consumer as well as regulatory authority.
SETTING UP ALLOTTEE ASSOCIATION
- Provision and remedy: It is compulsory to formulate an allottee association within 3 months from the date of allotment of major units/properties which would facilitate the residents to manage common facilities. If there are any defects in structure/workmanship/quality or provision of services or any other promoterâ€™s contractual obligations, the allottees can bring into the notice of the promoter within a period of 5 years from the date of handing over possession. The promoter has to set the defect right without fail within 30 days else he has to pay apt compensation to the allottee(s) in the prescribed manner mentioned in the Act.
Advantages and Disadvantages under the Bill for the home buyers
- The proper implementation of the Act will restrain the work on unapproved land layouts to a significant extent possible.
- The builders and promoters have to act transparently by providing their project details, which can be seen by the home buyers by clicking on to the website of regulatory authority.
- The builders will have to complete the project within stipulated time period to avoid interest or compensation. It surely brings sighs of relief to home buyers as for them it will be a win-win situation.
- With proper adjudicating and appeal mechanism, the home buyers can expect speedy redressal of their grievances and can take their concerns to respective regulatory authority for expeditious and rightful actions.
- Now, the existing ongoing projects will come into the purview of this Act which is positive news for home buyers who have invested their hard-earned money in housing projects.
One of the good effects expected for promoters and builders out of this bill is that they can expect less financing cost as they are anticipating fall in interest rates on bank loans and finances.
- There is no proper clarity on how penalty will be imposed in case of ongoing projects. So, it is still creating apprehensions on the effective implementation of this Act.
- The stringent provisions under the Act may considerably reduce the number of real-estate promoters or players in the sector.
The impact of Real Estate (Regulation & Development) Act, 2016 is keenly anticipated by analysts and economists from the perspective of consumers and they have come up with positive analysis. The sector will become more organized, transparent and properly regulated. This will boost foreign direct investment as well as domestic investment leading to better economic growth of the nation. Last but not the least; it will act as a powerful weapon in the hands of home buyers against unfair real estate developers.