In this article, Siddharth Kottiath pursuing M.A, in Business Law from NUJS, Kolkata discusses Real Estate (Regulation and Development) General Rules, 2016.

Shelter, food and clothing are one of the basic needs of human society. The need of shelter has been prevalent since the evolution of mankind who previously used to take shelter in caves and as society evolved different types of shelter were explored. The right of housing is one of the most basic rights which every human being should be administered with.

Even in the age of supercomputers, people die a painful death because of lack of infrastructure for housing, people are forced to sleep on the streets, die of cold, hygiene and other road accidents. It is one of the most important human rights which should be given utmost importance by almost every government.

“The first important document that codified the right to adequate housing is the Universal Declaration of Human Rights (UDHR) adopted by the UN General Assembly in 1948. Article 25 (1) states Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.“

Owning a house has its own sets of freedom some being, the security from being evicted, a property which has a face as well as a resaleable value, right to privacy and well being. Conflicts like war and riots have played a major role in displacing millions of human beings from their abode since decades. Inspite of having a place to stay people are forced to leave their houses in war stricken places and have to lead a dreadful life as refugees. Immigration also changes the entire demographics of a host country.

Natural disasters like the tsunami in India, also displaced a number of people in places like the Andaman and Nicobar island of Kamota, etc. The Indian government had taken initiatives in building shelters for the people who had been displaced during the natural calamity. Displacement of any kind needs to be counter effected by fulfilling the conditions of placing the displaced people properly. It is also pertinent to note that such facilities of housing should be made available to all the strata of the society irrespective of any gender bar or any other hurdles of caste, creed and colour.

Regardless the cause of such action, this is a major cause of infringing the basic human right of peaceful settlement. Though there is no obligation on the Government of countries to provide access to such settlement to each and every citizen of the country, government are endeavouring in providing assistance to citizens to build their own houses. In India, the right to housing, though not discussed directly has found a source in Article 21 of the Indian Constitution. There are matter of concerns which should be exercised while displacing indigenous tribes from their natural habitat, if there are events of development and industrialisation in interest of the State.

There are many programmes in India which have cropped up for providing shelter to the needy, to name a few

• Bharat Nirman Programme
• National Urban Housing & Habitat Policy
• Jawaharlal Nehru National Urban Renewal Mission

Human settlements have evolved down the years. Previously families used to stay in joint families in one house, with the advent of nuclear families people have started to move into private flats or individual houses. The changing economic scenario has also added to the scope of investments in the form of real estate. Real estate can be defined as the land and anything which is permanently attached to it.

In India, the real estate sector has been into a roller coaster ride with its share of ups and down. This sector witnessed growth with the liberalization of the economy. The rising economic changes have led to such growth.

The real estate sector can be broadly divided into the following sections – retail, hospitality, housing and commercial. It is one of the most influential sector responsible in propelling the economic capabilities of the country. The housing arena has witnessed a steady growth while the commercial sectors have seen additional growth in terms of office spaces, wherein many Multinational companies and other domestic companies have been spreading their wings in the growing Indian economy. Banking policies have also played a major role in boosting the sector, lower interest in home loans, have aided in the growth of the demand of first time home buyers.

Inspite of the boom, there have been instances wherein the consumers of this sector have faced harrowing experiences. One of the most articulate problems faced by the consumer is the delay in projects, these can be due to manifold issues like land clearance, financing issues and problems created by the builders.

Though the builders are not always on fault, they have their own set of problems which they have to regulate. Red tapism in the government, lack of approvals from the government departments, land acquisition problems, high rate of taxation, labour problems, material costs, syndicate problems, environmental issues are amongst a few. The main reason for such problems is that this industry was mostly unregulated and it was uncharted territory on which initiatives and actions were being taken.

This sector has the potential to attract a lot of Foreign Direct Investments, but there needs to be a symbiotic relation with the investors and the government. Transparency in the process, improved financing can lead to build low cost projects for the masses.

To counter these problems, The Real Estate (Regulation and Development) Bill, 2013 was introduced principally to regulate the real estate sector so as to protect the interests of the consumers and buyers and to provide a forum for grievance redressal. The Real Estate (Regulation and Development) Act, 2016, has been passed with the intent to bring transparency and safety in the market for consumers of residential and commercial projects by introducing a sectoral regulatory mechanism. It received the assent of the President on 25th March, 2016.

The Act has been notified and sections relating to Definition, Constitution and Powers of RERA, Constitution of Central Advisory Council, Appellate Authority, Appointment of Judicial Officers for calculating Compensation, Finance Accounts & Audit of RERA and other Miscellaneous Provisions relating to the formation of the Authority have come into force from 1st May, 2016 and all the States have been advised to form Rules under the Act by 31st October 2016 and establish Authorities by 30th April, 2017.

The Act contains several provisions to address the lacunae in the real estate market, essentially by way of establishing a disclosure framework and setting strict liabilities for promoter irregularities. Under the new RERA Act, Projects cannot be advertised, marketed, booked or sold in any form by any Promoter prior to registration and obtaining the necessary construction approvals. The Act provides that it is applicable to all ongoing projects where the completion certificate has not yet been obtained, thereby making it is partly retrospective in effect. The promoter of such projects shall make an application to the Authority for registration of the project within a period of three months from the date of establishment of the Authority, as per the relevant provisions of the Act.

The Authority may, direct the promoter of projects which are developed beyond the planning area but with the requisite permission of the local authority, to register such project with the Authority.

The Act requires mandatory registration of real estate projects with the RERA where the total area of land proposed to be developed exceeds 500 sq. mts. or where more than eight apartments (inclusive of all phases) are proposed to be developed. However, the Appropriate government may reduce this threshold limit.

The registration is not required for projects which has already received completion certificate prior to the commencement of the Act. Also, it is not obligatory for the purpose of renovation or repair or re-development which does not involve marketing, advertising, selling, or new allotment of any apartment, plot or building.

The promoter shall file an application for registration of the project in such form and manner as may be prescribed. Documents to be enclosed with the application are – a brief detail of the Promoter’s enterprise, a brief detail of the projects launched by him in the past five years, whether already completed or being developed, including current status of the said projects, any delay in completion, details of cases pending, details of type of land and payments pending, authenticated copy of the approvals and commencement certificate from the competent authorities as may be applicable for the projects mentioned hereinabove.

The plan of development works to be carried out in the proposed project and the proposed facilities to be provided thereof including fire fighting facilities, drinking facilities, emergency evacuation services, use of renewable energy, the location details of the project, with clear demarcation, Proforma of the allotment letter, agreement for sale and conveyance deed proposed to be signed with the allottees, Publicly accessible disclosures of the project and promoter details, along with a self-declared timeline within which the promoter is required to complete the project is compulsory. Promoters must park 70% of all project receivables in a separate account. Drawdown from such account is permitted for land and construction costs only, in proportion to the percentage of completion of project (as certified by an architect, an engineer and a CA).

A promoter shall not accept a sum more than ten per cent of the cost of the apartment as an advance payment or an application fee, from a person without first entering into a written agreement for sale with such person and register the said agreement for sale, under any law for the time being in force.

“The promoter shall transfer or assign his majority rights and liabilities in respect of a real estate project to a third party after obtaining prior written consent from RERA and two-third allottees, except the promoter. Provided that such transfer or assignment shall not affect the allotment or sale of the apartments, in the real estate project made by the erstwhile promoter.

On the transfer or assignment being permitted by the allottees and the Authority the intending promoter shall be required to independently comply with all the pending obligations under the provisions of the Act and the pending obligations as per the agreement for sale entered into by the erstwhile promoter with the allottees.”  However, this shall not result in extension of time to the intending promoter to complete the real estate.

The promoter shall execute a registered conveyance deed in favour of the allottee and hand over the physical possession of the apartment to the allottees and the common areas to the association of the allottees or the competent authority, as the case may be, in a real estate project, and the other title documents pertaining thereto within specified period as per sanctioned plans as provided under the local laws. Provided that, in the absence of any local law, it shall be carried out by the promoter within three months from date of issue of occupancy certificate.

It shall be the responsibility of the promoter to handover the necessary documents and plans, including common areas, to the association of the allottees or the competent authority, as the case may be, as per the local laws. Provided that, in the absence of any local law, it shall be done within thirty days after obtaining the occupancy certificate.

In case the Promoter fails to complete or is unable to give possession in accordance of the terms or due to discontinuance of his business, he shall be liable to return the amount received from the allottee, along with interest. The Promoter shall compensate the allottees in case of loss caused to him due to defective title of the land. (Such claim shall not be barred by limitation). The promoter shall be liable to compensate the allottees in case of any other failure to discharge his duties in the manner as provided under the Act.

Apart from the RERA Act, the Real Estate (Regulation and Development) (General) rules have been enacted for the five Union Territories. Some of the highlights of such rules are the following

Regarding ongoing projects

In respect of the ongoing projects that have not received completion certificate in specified time,  developers will have to make public the original sanctioned plans with specifications and changes made later, total amount collected from allottees, money used, original timeline for completion and the time period within which the developer undertakes to complete the project, duly certified by an Engineer/Architect/practicing Chartered Accountant. Promoter shall also declare size of the apartment based on carpet area even if it was earlier sold on any other basis.

The developer, within three months of applying for registration of a project with the Real Estate Regulatory Authority shall deposit in a separate bank account, 70% of the amount collected and unused for ensuring completion of ongoing projects.

Registration of projects

For registration of projects with the authorities, developers will be required to submit authenticated copy of PAN Card, annual report comprising audited profit and loss account, balance sheet, cash flow statement and auditors report of the promoter for the immediate three preceding years, authenticated copy of legal title deed, copy of collaboration agreement if the promoter is not the owner of the plot. Promoter also has to declare information regarding the number of open and closed parking areas in the project.

Promoter shall upload on the webpage of the project, within 15 days of expiry of each quarter information regarding number and type of apartments or plots, garages booked, status of the project with photographs floor-wise, status of construction of internal infrastructure and common areas with photos, status of approvals received and expected date of receipt, modifications in sanctioned plans and specifications approved by the competent authority.

Registration fees

To incentivize registration of projects and Real Estate Agents with Regulatory Authorities, fee for the same has been reduced by half based on suggestions from promoters for reduction of fee. For registration of projects, the fee has been reduced to Rs.5 per sq.mt for up to 1,000 sq.mt area and Rs.10 per sq.mt beyond this limit subject to a maximum of Rs.5.00 lakh per project. For commercial and mixed development projects, it will be Rs.10 and Rs.15 per sq.mt subject to a maximum of Rs.7.00 lakh. For commercial projects, it will be Rs.20 and Rs.25 subject to a cap of Rs.10 lakh per project. For plotted development, it is Rs.5 per sq.mt with a ceiling of Rs.2.00 lakhs.

A cap has been placed on the total amount of registration fee based on the suggestion of real estate bodies.

Fee for renewing registration of projects with the Regulatory Authorities would be half of the registration fees.

Interest to be paid in case of delay

Developers will be required to refund or pay compensation to the allottees with an Interest Rate of SBI’s highest Marginal Cost of Lending Rate plus 2%.

Fee for appeals and complaints

For every appeal to be made to the Real Estate Appellate Tribunal, fee proposed is Rs.5,000. For every complaint to be made to Regulatory Authorities and Adjudicating Officers, fee proposed is Rs.1,000.

Compounding of punishment

Rules provide for compounding of punishment with imprisonment for violation of the orders of Real Estate Appellate Tribunal against payment of 10% of project cost in case of developers and 10% of the cost of property purchased in case of allottees and agents. Compliance with reasons for punishment shall comply within 30 days of compounding.

Under the Rules, Adjudicating Officers, Real Estate Authorities and Appellate Tribunals shall dispose of complaints within 60 days.”

The interesting thing which lies is how effective RERA and the rules would be in ironing out the lacunae in this sector. The watertight compartments issued by the regulator would be a difficult situation, from which the promoters and builders, would find difficult in wriggling out of the situation. Further, the demonetisation drive might have affected the builders and promoters, causing a dent in their finances. Previously, it was almost a rule amongst the promoters and developers that a major chunk of the price of the real estate property would be dealt in black money and the balance in white. A clarity is expected in this after the new rules have stepped in.

Further, it could also have a negative impact, as a lot of fund has to be kept in escrow accounts. The end result would be that previously the price of flats and other real estate properties which were negotiable earlier, would have to be sold at a premium or at fixed rates, because there would not be much circulation of money, increase in cost of labour and other variables will also add up to the price increase. It is worthwhile to think, that soon the builders and promoters would take the advantage of using more substandard raw materials, in order to reduce the cost of construction and further increase their profit margin. An additional legislation or a set of standards should be laid in the forthcoming period or retrospective effect, on the use of materials to be used in such real estate projects, so that the consumers can expect the same thing which they are paying for. While, this legislation is more towards the interest of the consumers, the builders can also protect themselves from errant consumers, who hold back the legitimate dues for no reason at all and also customers who make untimely payments.

On the other hand, it would be helpful for the consumers. Though they will have to cough up additional money, it would really aid them in case the promoters or the developers try to cheat them. They would pay for the exact carpet area, instead of getting into the complexities of super built area, which used to be deceitful and inaccurate in nature. Instead of going from pillar to post in case of deceit, default by such promoters and builders resulting in entangling themselves under various others acts, they now have a one stop redressal forum. This was really needed, as this sector was never properly regulated as it was mostly a unorganised one.

The sense of commitment should be infused totally into business practices so that the margin of error and quality of property should be at par, with the strict quality controls applicable in international projects. Further, it would also reduce the number of middle men in the arena. If there is clarity between the end consumer and the developers or the promoters there would no need of middlemen and brokers. It is a matter of time to understand, that how RERA would benefit the sector.