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Indian RERA to rein-in dodgy realty developers
May 6, 2017, 3:28 pm
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India’s Real Estate Regulation and Development Act (RERA) that came into force on Monday, 1 May, promises to protect the rights of consumers and bring about greater transparency to a sector where fraudulence was rife.

Describing RERA as a consumer-centric law that will mark the beginning of an era where the consumer is king, the Housing and Urban Poverty Alleviation (HUPA) Minister Venkaiah Naidu said, “The act ushers in the much-desired accountability, transparency and efficiency in the sector; defining the rights and obligations of both the buyers and developers.” 

After a nine-year wait, the RERA Bill was passed by Parliament in March last year and all 92 sections of the Act came into effect on 1 May, 2017. The legislation mandates that commercial and residential property projects, where the land is over 500 square meters, or eight apartments, should be registered with RERA before launch. The law is aimed at protecting home buyers, encouraging genuine private players, boosting investment in realty projects and benefiting developers by increasing buyers' confidence in the sector.

Real estate players, including the two largest industry bodies, the Confederation of Real Estate Developers Association (CREDAI) and NAREDCO have welcomed the implementation, saying it will bring a paradigm change in the way the Indian real estate sector functions. Developers will now have to get the ongoing projects that have not received completion certificate and the new projects registered with regulatory authorities within three months from 1 May.

The Act mandates all states and Union Territories to make rules for carrying out the provisions of Act within a period of six months from its coming into force. So far only seven states and the five Union Territories and the capital Delhi have notified the rules. A HUPA ministry spokesperson said the ministry has been taking up the matter with all the states and UTs for implementation of the Act, requesting them to ensure action as per the provision of the Act within the time limit. Those states which have not notified the rules will face public pressure and even people could approach the court in the matter, he added.

The states that have notified the rules are:  Andhra Pradesh, Bihar, Gujarat, Madhya Pradesh, Maharasthra, Odisha and Uttar Pradesh. The Urban Development Ministry notified the rules for the National Capital Region of Delhi while the central government did so for the five Union Territories – Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, and Lakshadweep.

Some of the major provisions of the Act include:

Depositing 70 percent of the funds collected from buyers in a separate bank account for construction of the project. This will ensure timely completion of the project as the funds can only be withdrawn for construction purposes.

All developers are required to disclose their project details on the regulator’s website, and provide quarterly updates on construction progress.

Builders are also mandated to quote prices based on carpet area and not super built-up area. The carpet area has been clearly defined in the Act to include usable spaces like kitchen and toilets.

The law also prescribes penalties on developers who delay projects. In case of project delays, the onus of paying the monthly interest on bank loans taken for under-construction flats will lie on developers unlike earlier, when the burden fell on home buyers.

RERA also states that any structural or workmanship defects brought to the notice of a promoter within a period of five years from the date of handing over possession must be rectified by the promoter, without any further charge, within 30 days. If the promoter fails to do so, the aggrieved buyer is entitled to receive compensation.

Other highlight of the Act is imprisonment of up to three years for developers and up to one year in case of agents and buyers for violation of orders of appellate tribunals and regulatory authorities.

The Indian real estate sector involves over 76,000 companies across the country. As per industry data, real estate projects in the range of 2,349 to 4,488 were launched every year between 2011 and 2015, amounting to a total of 17,526 projects with investments of Rs13.70 lakh crore in 27 cities, including 15 state capitals.

About ten lakh buyers invest every year with the dream of owning a house. Over the last five years home loans have recorded the highest compounded annual growth rate (CAGR) of over 16 percent and now account for over 12 percent of all bank credit. In 2016-17 home loans stood at Rs8.60 lakh crore, 15 percent higher than Rs7.46 lakh crore as on end-March 2016.

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