RERA has introduced accountability to the real estate sector but loopholes remain, writes Tata Housing GC Parveen Mahtani
The Real Estate (Regulation and Development) Act, 2016 (RERA), was implemented two years ago. Its effective implementation has helped build tremendous confidence among homebuyers and investors. So far, 22 states and six union territories have notified RERA.
RERA has had an impact on all aspects of real estate development, from the inception of the project to dispute resolution. Here is a look at some of the areas in which the act has had an impact.
Every real estate project (where the total area exceeds 500 square meters or has more than eight apartments) must be registered under RERA. Existing projects, where the completion certificate or occupancy certificate has not been issued, are also required to be registered. For registration, developers are required to provide detailed information on the project such as the land status, approvals, schedule of completion, etc. Only when the registration is completed can the project be marketed. To ensure that a violation of the act is not taken lightly, stiff monetary penalties (up to 10% of the project cost) and imprisonment are prescribed.
The act, which has an effective redressal mechanism, has been well-received as providing a speedy and inexpensive forum of choice as home buyers are averse to litigation. The Real Estate Regulatory Authority, which is well-versed in the nuances of the industry, has been able to plug loopholes in the act and provide relief to homebuyers.
RERA has brought standardization to the industry. For example, the area of a building was calculated in three different ways, carpet area, built-up area and super built-up area, which often lead to confusion and a mismatch between what customers thought they were paying for and what they got. RERA makes it mandatory for developers to disclose the size of apartments on the basis of its carpet area, which is defined as “the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, excluding balcony or veranda and open terrace, but includes area covered by internal partition walls”.
RERA has also evolved as courts and state authorities have delivered several significant judgments under the act. In a recent case, the Maharashtra Real Estate Regulatory Authority directed a company to refund the buyer with interest for failing to handover possession even though the date of possession was not specified in the agreement.
The Maharashtra authority, relying on a non-obstante clause under the act, has also has taken the view that it has the jurisdiction to adjudicate disputes that are the subject of an arbitration agreement between the parties. Courts have also upheld the provision that developers should display sanctioned plans at the project site.
In another important development, following a recent amendment, customers of a project are deemed to be financial creditors within the meaning of the Insolvency and Bankruptcy Code, 2016. Hence, they are entitled to maintain an insolvency application and in case the insolvency process is admitted, promoters of the companies are staring at a reorganization and or even a takeover.
However, there are some loopholes in the act that the government should consider amending. For example, any delay in registration of the agreement makes the developer liable to a penalty of up to 5% of the estimated project cost. However, there is no corresponding penalty on the customer under the provisions of the act for delaying registration of the agreement in spite of requests by the developer. Further, in case of a default by a developer, there are severe penalties including the takeover of the entire project. However, in case of a default by a customer, the only recourse available to the developer is retaining 10% of the amount received from the customer, while rest is required to be refunded to the customer. The developer should also, ideally, have a remedy of specific performance.
RERA has introduced in transparency and accountability to the industry and instilled confidence among buyers, however, it has also led to an increase in project costs, tighter liquidity, higher capital cost and an increase in the project timelines. The litmus test for the the act is if it can resolve disputes succesfully, expeditiously and with a degree of finality.
Parveen Mahtani is the general counsel at Tata Realty and Tata Housing.