The Real Estate Regulation Bill passed by the parliament will largely safeguard the interest of buyers and ensure that they are being treated like a king. It is a milestone for the Indian Real Estate Industry. The act will help promote accountability, transparency and efficiency in a sector that was considered cloudy due to malpractices committed by some unorganized players. The act is bound to forge a symbiotic relationship between the discerning home buyers and genuine real estate developers. While the draft Maharashtra RERA rules had relaxed a few clauses of the central RERA, the final notification is quite in line with the central act. The state is yet to appoint a full time regulator and has appointed an interim regulator at the moment. The following can be the implications of the act on home buyers:
The act warrants compulsory registration of all ongoing and upcoming real estate projects.
- Developers have to disclose all details pertaining to the property like project plan, layout, government approvals, facts of promoters, number of units with carpet area, sanctioned FSI, number of buildings and wings, number of floors in each building, etc. This is to ensure that developers have all the essential sanctions, and thereby do not consign beyond their reach and are accountable to what they have committed during the actual sale. The details of all registered projects will be put up on a website for public access by the RERA regulator.
- Buyers will have to pay only for the carpet area. Till now, the industry has been selling real estate based on super built up area. As per the current market trend, carpet area of a project is generally 30% to 35% lesser than the super built area of the project. Accordingly, the sale of projects on a carpet area basis is likely to result in the per square feet price of the project going up by about 40% to 50% of the price based on the super built area. But, even though per square feet (psf) price changes, the overall cost of the property may not be impacted much. Home buyers will now be in a position to make better-informed decisions as there will be improved clarity on the space being offered. The standardization also makes comparison easier for buyers. There is a restriction on the sale of open car parking spaces and a stringent requirement to transfer common areas to housing societies.
- Consent of two-third buyers to be taken for any major addition or alteration.
Delivery of the project on the scheduled time mentioned in the purchase agreement. One of the major benefits for homebuyers due to RERA Act is that if the project completion is delayed, the developer will have to return the money taken from the buyer with interest or pay the same interest as the EMI paid by the buyers.
- Any structural defect or any other obligation not honored by the builder as mentioned in the sale agreement brought to the notice within 5 years from possession to be rectified/ added free of cost by the developer in 30 days. This concept just works like a product warranty.
- No exaggerated commitments to be given in advertisements, as all advertisements will need to mention the RERA registration number of the project.
- The amount to be paid by the buyer has been reduced from 20% to 10%, which should be paid only after registering the agreement for sale with the builder.
70% of the project money received from buyers for a particular project to be transferred into an escrow account. This is likely to diminish the buyer risk to a certain level and will make sure that developers are not able to invest in numerous new projects with the proceeds of the booking money for one project, thus delaying completion and handover to consumers.
- Withdrawals to be in proportion with the completion of the project and it need to be certified by the engineer, architect and chartered accountant.
Developers will have to register their projects with RERA before advertising or marketing.
- Brokers/ agents to be registered with RERA.
- Project details to be updated quarterly on RERA website.
- Project accounts to be audited annually by a practicing chartered accountant.
- The Maharashtra RERA also prohibits discrimination on the basis of religion, caste and gender, which has been a bane for homebuyers.
In case of delay, developer will pay interest to home buyers at State Bank of India’s highest marginal cost of lending plus two percent.
- Developer may terminate the agreement in case of three payment defaults by buyers by giving 15 days’ notice.
- Penalties for not registering the project and continuous default with any provision of the act.
- The complaint at the initial stage to be handled by the RERA Authority with further appeal resting with the RERA Appellate tribunal. A second appeal can also be filed before a high court. These bodies will try to settle the dispute within 120 days.
Ongoing projects have 90 days to comply with RERA regulations. This period is likely to witness less activity in the market as most of the developers will be busy complying with the new regulations. The effective implementation of the act will surely improve transparency and timely delivery. The real estate sector will become more organized and trustworthy, thus instilling confidence in the buyers. Post demonetization and RERA, there is an anticipation of a significant consolidation drive in the real estate sector that could result in a large number of unorganized players being wiped out. Pricing will be impacted with both GST and RERA becoming effective but may take six to 12 months to pan out. Considering that many states are yet to notify the rules, we expect an impact to be visible in a year. We at Sanghvi Realty appreciate the bold move taken by the current government and Prime Minister in the interests of the larger sections of the society. The real estate sector is the second largest employer in the country after agriculture and ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. The housing sector alone contributes 5-6 per cent to the country’s Gross Domestic Product (GDP). India has huge potential to attract large foreign investments into real estate. In the coming years, the opportunities in the real estate sector will attract more global players to India and hence will help the industry to mature, become more transparent, improve management and adopt advanced construction techniques.
By Mr. Pakshal Sanghvi, Director, Sanghvi Realty
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