Real Estate (Regulation and Development) Act, 2016

After crossing the herd of controversies, apprehensions, protests and consents for last 8 years, the Real Estate (Regulation and Development) Act came into effect from 1st May, 2016. Now, the countdown has just begun for making essential operational rules, tribunals, authorities by the Ministry of Housing and Urban Poverty Alleviation. 

Real Estate (Regulation and Development) Bill 2016

In consideration to the increasing demand for housing, private builders and real estate players have been taking an undue advantage of this unregulated industry’s situation. Unfair contracts, prejudicial conditions, insensitive charging of interest on buyers and flaws in current laws have empowered the buyers to deal unreasonably with the conditions of consumers. Thus, there was a need of an effective legislation and mechanism that can enable consumers to enforce accountability against erring property developers and also, that can redress their grievances or adjudicate the disputes between buyer and developers. This led to the passing of this bill by both the parliamentary houses and which later, obtained the consent from the President of India. 

Objective of this Act - a brief glimpse

  • To address the concerns of home-buyers by providing an effective adjudicating mechanism for expeditious dispute redressal.
  • To bring transparency in real estate and housing transactions.
  • It intends to augment growth in the respective sector by encouraging domestic as well as foreign investments.
  • To provide single window system of clearance for real estate projects to expedite the entire process. 
  • To encourage efficient completion of building residential projects and their standardization.

New Guidelines and Provisions under the bill

  • Who is the Regulatory Authority? Currently, the ‘Real Estate Regulatory Authority’ is yet to be established but till now the Government has designated a temporary regulatory authority to take upon the role of ‘Regulatory Authority’
  • New Act will enforce Registration provisions on real estate promoters: 
    • The promoter or the building project owner has to compulsorily get his project registered with the authority for each phase of his project or in projects more than 500 sq.mts. with more than 8 apartments (inclusive of all phases),  before selling, booking or offering apartment for sale.    
    • In case of existing ongoing project on commencement of the Act, the promoter has to submit a registration application of their project to the authority within 3 months from the time of the act’s commencement.   
    • In certain cases, the project will not require registration in projects where project size is less than 500 sq. mts, the certificate of completion has been provided, repair or renovation projects which doesn’t involve marketing/selling/new allotment etc.   
  • Application Performa: The registration application must disclose all the contents as prescribed in the guidelines of the Act i.e. promoter details, previous 5-year project record, approval details etc.
  • Sell units only on Carpet Area: The new Act requires the developers to sell units only on carpet area, implying the net usable floor area of an apartment excluding internal walls, exclusive balcony, exclusive terrace area or areas under service shafts.
  • Realization proceeds in different bank accounts: As per the Act, the promoter has to deposit 70% of the realization proceeds from allottees, every now and then, in separate escrow bank account in order to ensure that such amount collected will be utilized for the construction of respective project.
  • The regulatory authority has to grant or reject the registration within 30 days from the date of receipt of application. The grant will give a registration number and log in ID/password in order to access the website of the authority. It is essential to create his web page with the authority in order to fill the details of the project. In the event, the authority fails to issue/reject the registration number within the said 30 days, the project will be deemed to have been registered with the authority.
  • Advertisement or prospectus of project: The promoter has to explicitly mention the website address of the regulatory authority where project details have been entered in the said advertisement or prospectus of the project issued by the promoter. Any loss of advance/deposit or damage sustained by the depositor due to misleading/false information in the advertisement/prospectus will be compensated/ borne by the promoter in the prescribed manner as mentioned in the Act.
  • Advance Payment:  As per the Act, a promoter will not accept more than 10% of the cost of apartment/plot/ building as an advance payment from a person/buyer unless it mutually enters into a written sale agreement with the said person and get it registered within the existing law in force.
  • No addition/alteration in plans: Once the project plans are approved, sanctioned and accepted by the allottee for sale, the promoter can’t make any addition/alteration in the plans, structural designs, technical specifications, and amenities of apartment/plot/building without the prior consent from the allottee.  Similarly, in case of addition/amendment in common areas within the project, he needs to take prior consent of atleast 2/3rd of the allottees who have consented to take apartment in the said project building.
  • Structural/workmanship defects after handing over: If there are any defects in structure/workmanship/quality or provision of services or any other promoter’s contractual obligations, the allottees can bring into the notice of the promoter within a period of 5 years from the date of handing over possession. The promoter has to set the defect right without fail within 30 days else he has to pay apt compensation to the allottee(s) in the prescribed manner mentioned in the Act.
  • Refund/interest in delays: As per the Act, if the promoter failed to hand over the possession within stipulated time period due to prescribed reasons, then, he will be liable (on the demand made by the allottee) to refund the received amount with interest and compensation in the manner prescribed in the Act.  Additionally, he will be granted with relief without prejudice to any remedy available to the allottee.
In case the allottee wishes to continue with the project despite the delay and doesn’t withdraw, then he is entitled to interest, at the mentioned rate, by the promoter for the delay till the date of handing over the possession.
  • Real estate Agents also should mandatorily get themselves registered else they can’t earn commission on facilitating sale/purchase of plot/land/apartment.
Apart from aforementioned main provisions, there are other additional provisions in the Act to support the fulfillment of the objectives laid down for the enactment of Real Estate Regulatory & Development Act.

Punishments/penalties on violating the provisions of new Act

  • In case of Non Registration/non compliance of the order of tribunal:  If the promoter does not register his real estate project by omission or by failure then he will have to pay a fine maximum upto 10% of the estimated cost of the project. If he does not agree to comply with the order of the tribunal then he has to bear punishment up to 3 years imprisonment or pay a fine up to 10% of the estimated cost of the project.
  • In contravention to any other provisions of the Act/ in case promoter provide false information to regulatory authority: The promoter has to bear the fine which can rise up to 5% of the estimated cost of the project.

Appeal Process in case of dispute or consumer grievance

  • According to the Act, there will be an establishment of Real Estate Appellate Tribunal within 1 year from the date of enforcement of Act.
  • The person/consumer aggrieved by any direction or decision imposed by Regulatory Authority or by an adjudicating officer under the legislative mechanism, may appeal before the appellate tribunal within 60 days from the date of receiving the copy of order or direction.
  • The tribunal will be required to deal with the appeal as fast as possible and put in best efforts to dispose the appeal within 60 days from the receipt of appeal.
  • The Appellate authority must carry equivalent powers as that of civil court. 
  • An appeal against the decision of tribunal can be filed with the jurisdictional High court within a period of 60 days from the date of receiving the decision or order of the tribunal.
Structural recap on significant provisions: 

DELAY IN CONSTRUCTION/ HANDOVER

  • Provision: As per the Act, if the promoter failed to hand over the possession within stipulated time period due to prescribed reasons, then, he will be liable (on the demand made by the allottee) to refund the received amount with interest and compensation in the manner prescribed in the Act.  
  • Remedy:In case the promoter did not finish the construction within specified time, then he has to pay the same interest which he charges from the purchaser in case there is delay in payment. 

CARPET AREA/SUPER AREA

  • Provision: The new Act requires the developers to sell units only on carpet area which implies net usable floor area of an apartment excluding internal walls, exclusive balcony, exclusive terrace area or areas under service shafts. On the other hand, Super Area includes the built up area and the proportionate areas of common area i.e. veranda, balcony, lobby etc.
  • Remedy: The property cannot be sold on the basis of super area and any violation of this provision will attract aforementioned punishment and fines.

MISMANAGEMENT OF FUNDS

  • Provision: As per the Act, the promoter has to deposit 70% of the realization proceeds from allottees, from time to time, in separate escrow bank account in order to ensure that such amount collected will be used only for the construction of respective project.
  • Remedy: A separate escrow account in the bank for each project separately to hold 70% of the collected proceeds will ensure that sellers don’t misuse or mismanage the funds received from one project to another project.

Accurate Information

  • Provision: In accordance to the Bill, promoters have to disclose all projects related information for eg. Layout, approvals, status of land, contractors, completion schedule, actual work completed etc. with both consumer as well as regulatory authority.

SETTING UP ALLOTTEE ASSOCIATION

  • Provision and remedy: It is compulsory to formulate an allottee association within 3 months from the date of allotment of major units/properties which would facilitate the residents to manage common facilities. If there are any defects in structure/workmanship/quality or provision of services or any other promoter’s contractual obligations, the allottees can bring into the notice of the promoter within a period of 5 years from the date of handing over possession. The promoter has to set the defect right without fail within 30 days else he has to pay apt compensation to the allottee(s) in the prescribed manner mentioned in the Act.

Advantages and Disadvantages under the Bill for the home buyers

Advantages:

  • The proper implementation of the Act will restrain the work on unapproved land layouts to a significant extent possible.
  • The builders and promoters have to act transparently by providing their project details, which can be seen by the home buyers by clicking on to the website of regulatory authority.
  • The builders will have to complete the project within stipulated time period to avoid interest or compensation. It surely brings sighs of relief to home buyers as for them it will be a win-win situation.
  • With proper adjudicating and appeal mechanism, the home buyers can expect speedy redressal of their grievances and can take their concerns to respective regulatory authority for expeditious and rightful actions.
  • Now, the existing ongoing projects will come into the purview of this Act which is positive news for home buyers who have invested their hard-earned money in housing projects.
One of the good effects expected for promoters and builders out of this bill is that they can expect less financing cost as they are anticipating fall in interest rates on bank loans and finances.  

Disadvantages

  • There is no proper clarity on how penalty will be imposed in case of ongoing projects. So, it is still creating apprehensions on the effective implementation of this Act.
  • The stringent provisions under the Act may considerably reduce the number of real-estate promoters or players in the sector.
The impact of Real Estate (Regulation & Development) Act, 2016 is keenly anticipated by analysts and economists from the perspective of consumers and they have come up with positive analysis.  The sector will become more organized, transparent and properly regulated. This will boost foreign direct investment as well as domestic investment leading to better economic growth of the nation. Last but not the least; it will act as a powerful weapon in the hands of home buyers against unfair real estate developers. 

Find a Lawyer

Recent Judgment


Sudha Mishra vs. Surya Chandra Mishra( R.F.A 299 of 2014

The Hon'ble High Court of Delhi in Sudha Mishra vs. Surya Chandra Mishra (R.F.A 299 of 2014)has ruled that a woman has a right over the property of her husband but she cannot claim a right to live in the house of her parents-in-law

More

Goods & Services tax (GST) bill passed by the Parliament

The Lok Sabha or the lower house of Parliament passed the 122nd Constitutional Amendment (GST) Bill, which was earlier modified and passed by the Rajya Sabha.  

More

Have a Legal Matter ?
Need a Lawyer?

Have a Legal Matter ?

Need a Lawyer?

Male
Female