V Pattabhi Ram
“Real estate is the real things, go grab it: they don’t make any more of that stuff,” said the wag.
Historically if the epicurean principle was eat, drink and be merry; if the American idea of a dream was wealth, wine and women; Indians believed in gold, property and religion, not necessarily in that order. A roof to live under, a house before 35, have been typical middle class dream … until the economy opened up and India turned aspirational.
But in recent times, the property market has a lot of answering to do. It has given the good ones too a bad name.
If you have been one of those teeming millions taken for a ride by builders, here is some hope.
The Real Estate Act, 2016 has been passed by the two houses of parliament and received presidential assent. That it should have taken so many years since it was first introduced in parliament is a tad sad, but “it’s better late than never.”
The Act is welcome because it protects buyers by offering them TEA: transparency, efficiency and accountability in the execution of real estate projects. No one is saying that promoters are crooks but there have been rank inefficiencies even amongst the best of them, and there were no sufficient distress redressal mechanisms.
Here are THIRTEEN important things that you should know about the new Act.
- Real Estate Regulatory Authority
If you have a grouse, you can lodge your complaints with the proposed “Real Estate Regulatory Authority (RERA).” This body will be set up within one year from the date of commencement of this Act. Until then there will be a stand-by body. One hopes that RERA does to the real estate market what SEBI did to the capital market and what IRDA did to the insurance sector. Remember, despite all the noise, AMFI in the case of mutual funds, SEBI in the case of equity market and IRDA in the area of insurance have done swell jobs.
2 Registration with the Regulatory Authority
A few specific requirements have to be adhered to by every promoter.
- Every promoter has to register his project, whether residential or commercial, with RERA before booking, selling or offering apartments for sale.
- In respect of projects ongoing on the date of commencement of the Act, and which have not received a completion certificate, the promoter shall apply for registration within three months of the start of the Act.
- The following projects do not require registration:
- Where the land area to be promoted does not exceed 500 square meters or the number of apartments to be constructed does not exceed eight apartments.
- Projects where the completion certificate has been received before the commencement of the Act;
We believe that this is the first defining step towards building Accountability. Remember, accountability is the starting point for professionalism in any field.
3 Carpet Area
A marked departure from the past is that developers can sell units only on carpet area. This would essentially mean that the quote will be per unit of carpet area.
Carpet area is the net usable floor area of an apartment. This excludes the area covered by the external walls and common area but includes the area covered by the internal partition walls of the apartment. Typically in high-rise buildings, 30% of the area is the common area. Thus, if you are buying a property of 2000 square feet at say Rs 7500 per square feet, you will be paying Rs 150 lac. But in reality, you would be paying that amount for about 1700 square feet of livable area, which translates to Rs 8823/-. Yes, this does not change the buyer’s money purse, but it, at least, gives him the true cost of purchase.
This is a step towards Transparency. Transparency we think is the second step towards professionalizing any field of activity.
4 70% of realisation from allottees in a separate bank account
- The promoter will have to deposit 70% of the amount received from buyers in a separate bank account. This money will have to be used only to defray the cost of land and construction of this specific project.
- The promoter can withdraw the money in proportion to the percentage of completion of the project. Such drawings can be made only after certification by a CA that the withdrawal is in proportion to the percentage of completion of the project.
- The promoter gets his accounts audited by a CA within six months of the closure of the financial year.
This is a step towards efficiency. Efficiency involves using money for the purpose for which it is intended. Any professional would like to see his business run on professional lines. This is fair to both builder and buyer.
5 Acceptance or refusal of registration
- The Regulator Authority shall within 30 days, grant or reject the registration, failing which the project shall be deemed to be registered.
- Upon granting a registration, the promoter will be provided with a registration number, including a login Id and password for accessing the website of the Regulatory Authority and to create his web page and to fill in complete details of the proposed project.
This is a step towards efficiency.
6 Website of the Regulatory Authority
The promoter shall, upon receiving his login Id and password, create his web page on the Internet site of the Regulatory Authority and enter all details of the proposed project including providing quarterly updates on the status of the project.
The presence of a well regulated website would add a lot to the credibility of the builder. This is a step towards transparency.
7. Revocation or lapse of registration
RERA can revoke registration if the promoter defaults in doing anything required under the Act. If the registration is canceled or it lapses, RERA shall:
- Debar the promoter from accessing the website about the project, specify his name in the list of defaulters on its internet site and inform other Regulatory Authorities in other States and Union territories about such cancellation;
- Facilitate the remaining development works to be carried out by competent authority or the association of allottees.
- Direct the bank holding the project bank account, to freeze the account.
This is a step towards accountability. We believe that a few tough measures, that include making an example of chronic defaulters, and publicly announcing the same will weed out a lot of bad apples.
8 Advertisement issued by the promoter
- The advertisement or prospectus published by the promoter should prominently mention the website address of the RERA.
- Where any person makes an advance on the basis of the information contained in the advertisement or prospectus and sustains any loss because of any incorrect statement included in these, he shall be suitably compensated by the promoter.
This is a step towards accountability. In an era where creative professionals and celebrity endorses can weave a wool of magic around the eyes of the buyers, this is a welcome measure.
9 Limit on receipt of advance payment
A promoter shall not accept a sum more than 10% percent of the cost of the apartment or building, as advance payment or application fee, from a person without first entering into a written agreement of sale with such person and register the said agreement of sale.
This is a step towards efficiency. This is fair as there is no reason why a promoter should need more money than that.
10 Restriction on addition and alteration in the plans
- The promoter cannot make any other addition or alteration in the approved and sanctioned plans, without the previous written consent of at least two-thirds of the allottees.
- The promoter shall make good without any further charge any defect in workmanship or obligations brought to his notice at any point within a period of five years from the date of handing over possession.
This is a step towards efficiency.
11. Refund of amount in case of delay in handing over possession
If the promoter is unable to hand over possession to the allottee in accordance with the terms of the agreement, he shall on demand being made by the allottee, to return the amount received by him from the allottee with interest and compensation at the rate and manner as provided under the Act.
This is a step towards accountability. Promoters are known to levy penalty on buyers for delays even of by a day. It’s time they learn how the shoe pinches.
12. Other relevant provision
a. The same rate of interest will be payable by the allottee and the promoter in the event of their respective defaults.
b. After the promoter executes an agreement for sale no charge can be created by the promoter on such property.
c. The promoter shall insure the land and building and construction of the project and pay the necessary premium.
d. The promoter shall compensate the allottees in the case of any loss caused to him due to a defective title of the land.
e. Every allottee shall take physical possession within two months of the occupancy certificate issued for the said apartment.
These steps are towards transparency.
13 Real Estate Appellate Tribunal
- A decision of the Regulatory Authority can be appealed before the Real Estate Appellate Tribunal within 60 days.
- The Appellate Tribunal shall dispose of the appeal within sixty days from the date of receipt of the appeal.
These provisions are likely to bring in greater transparency, efficiency and accountability in the execution of real estate projects and act as win-win for both parties. It also would inject a lot more of professionalism into the industry.
All told, this is a bill, which hasn’t come a day too soon in a country, which is getting to be increasingly aspirational.