Real Estate (Regulation & Development) Act, 2016

The stated purpose of Real Estate (Regulation & Development) Act, 2016 is to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case maybe, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redress all and also to establish the Appellate Tribunal to hear appeals from the decisions, directors or orders of the Real Estate Regulatory Authority and the adjudicating officer and for matters connected there with or incidental thereto. The scope covers residential as well as commercial projects. The Act broadly specifies the requirements in respect of the following : 1. Real Estate Regulatory Authority –

Establishment, Functions, Regulations & Powers 2. Registration of a Real Estate Project with RERA 3. Promoter’s Obligations 4. Regulation of Real Estate Agents’ Activities 5. Rights and Duties of Allottees 6. Real Estate Appellate Tribunal, Offences &

Penalties The Promoter’s Obligations include : 1. To get the project registered with the regulatory

authority 2. Not to advertise or make offer for sale without

registering the project 3. To make available documents at the time of

booking and issue of allotment letter 4. To obtain the completion certificate or the

occupancy certificate 5. To obtain lease certificate 6. Not to accept deposit or advance over 10% of

cost without executing agreement to sell 7. To keep 70% of the amount received in separate

bank account 8. To adhere to sanctioned plans and project

specifications 9. To refund the amount received in case of failure

to give possession in time 10. To compensate the allottee for loss due to

defective title of the land

11. To enable formation of association or society of the Allottees or a federation of the same

12. To provide essential services till handing over to the association of Allottees

13. To execute conveyance in favour of Allottees and their association

14. Pay all outgoings till transfer of physical possession

15. Not to create any charge after execution of agreement for sale

16. To get the project insured 17. To rectify structural or other defects 18. Not to assign his majority rights and liabilities to

a Third Party The rights of Allottees include :

Information rights (covering inter alia, time schedule for completion),

Claiming possession,

Claiming refund in case of non-completion,

Obtain documents and plans,

Register conveyance deed,

Take possession,

Participate in the formation of society / association etc.

The enactment of Real Estate (Regulation & Development) Act, 2016 is a welcome development for the construction industry. A brief summary of the impact of the RERA Act on the construction industry is presented below : 1. Requirement of registration of the Project with

the Authority : Beneficial, as this will ensure that the construction work in new Projects begin with all applicable clearances in place. The delays and disruptions in construction phase due to clearances will reduce.

2. Promoter’s obligation to adhere to sanctioned plan and specifications : Beneficial, as this will avoid subsequent changes to the original drawings and specifications, which tend to delay the construction schedule. The delays and disruptions in construction phase due to clearance delays and due to subsequent changes in scope and specifications will reduce.

3. Prohibition to accept more than 10% of cost without execution of agreement : Beneficial, as this will restrict the Project launch to be only when sales are tied up by Promoters or otherwise when the Project cash flow is tied up through financing arrangements. The delays and disruptions in construction phase due to staggered inflows of funds will reduce.

4. Promoter’s obligation to earmark 70% of the

sale proceed for the project work : Beneficial, as this will ensure smooth flow of funds in the Project for the construction work. The delays and disruptions in construction phase due to payment delays will reduce.

5. Promoter’s obligation to complete the Project

in time : Beneficial, as the interests of the Promoter and the Contractor will be aligned for expeditious completion. The delays and disruptions in construction phase due to various reasons will reduce.

6. Promoter’s obligation to rectify structural or other defects : Beneficial, as the five year guarantee requirement will boost the demand for good quality of construction, with willingness to pay the appropriate cost.

The prescription for deposit of 70% of the amount received from buyers in a dedicated account that will be utilised for funding the construction works and the requirement for timely completion are fundamental requirements under the Act that have won accolades of all stakeholders. Thus, The Real Estate (Regulation & Development) Act, 2016, to be administered through the Real Estate Regulatory Authority (RERA) in each State, will immensely benefit the construction industry, increasing the market size for established players besides enabling timely completion and improved cashflows. The thrust on timely completion and durable quality of construction entail the projects to be undertaken for construction by contractors with the proven experience, expertise and resources.

The Act has come into force on 1st May 2016 and the Real Estate Regulatory Authorities are being established by the States this year. There will be a delay in launch of new projects in the short term, when the State RERAs are set up and they get adequately equipped to handle the processes as mandated under the Act. The process of securing clearances will be time consuming and the requirement of such clearances will delay the launch of new projects. Also, we may see a consolidation in the market, with joint development and marketing of real estate projects so that the obligations are discharged by the Promoters in a due and proper manner. All said, the wait will be worth the reward when the projects get into construction phase. The improved regulatory environment under RERA, combined with the positive effects of a growing economy, and the Government thrust on Housing for All, will boost the demand for housing significantly. The increasingly positive investment climate with the renewed interest of Private Equity funds, combined with the expected launch of Real Estate Investment Trusts will enable fund flow into the sector.