Real Estate (Regulation and Development) Act, 2016 (RERA)

Introduction

With the liberalisation of the Indian economy in 1991, one of the sectors that have seen considerable activity has been the real estate sector. Urbanisation and aspirations have fueled housing demand and seen the entry of many players in the sector, even as traditional players have grown in size. The tendency to take deposits but start new projects before delivering on promises made to deposit holders, always prevalent, had become quite noticeable by the first decade of the twenty first century. A trust deficit between developers and home buyers was a pressing concern and instances of failure to deliver to home buyers or excessive delays was a common refrain. Home buyers could seek redressal through the Consumer Protection Act, 1986. This brought some financial relief for the aggrieved and possibly functioned as a check on the more egregious acts of developers. However, by itself, this did not really guarantee project completion or the growth of an efficient, reliable and orderly real estate sector.

In order to facilitate transparency and consumer protection, the Ministry of Housing and Urban Poverty Alleviation, Government of India, drafted a Model Real Estate (Regulation of Development) Act in 2009, to invite comments and suggestions as well as to serve as a template for the states to prepare their specific versions of the legislation. This preceded to formulate and enact the Real Estate (Regulation and Development) Act (RERA), 2016.

Implementation Progress of RERA

The Act mandated the setting up of the Real Estate Regulatory Authority (RERA) and Real Estate Appellate Tribunal (REAT) in each State and Union Territory (UT), which would function under the state-specific version of the regulations. As of June 2023, all States and UTs have notified rules under RERA, except Nagaland, which is in the process to notify the same.

Table: Implementation progress of RERA in India

Source: RERA Status Tracker, June 2023

Highlights of RERA provisions

The RERA Act of 2016 has provisions which enable both redressal of individual grievances and establishing a system that can prevent the occurrence of real estate crisis. Some of the features are explained below:

Project Registration

The RERA Act requires registration of all real estate projects with a total area exceeding 500 sqm and more than 8 apartments with the RERA authorities in their respective States (Section 3.2). This is also applicable to the pre-RERA projects that had not received a completion certificate before this Act came into operation. Further, to register a project, the promoters are required to provide detailed information about the project including various details that form part of the profiles of projects and promoters and also secure all clearances from statutory authorities. The RERA Act strictly prohibits the advertisement of the project or taking any advances till the project registration is approved by the authority.

Reserve account

Section 4 of the RERA Act 2016 requires that promoters maintain 70 per cent of all project receivables in a separate reserve account. This is to prevent the diversion of funds, unlike Evergrande where the money was collected from potential homebuyers and used to fund other projects. The proceeds of the escrow account can only be used to cover land and construction expenses, and these expenses require certification by a professional.

Grievance redressal system

The RERA Act specifies in detail a grievance redressal mechanism for those aggrieved by the actions of developers. As per Section 29 of the Act, a period of sixty days is specified for redressals, after which the authority must provide reasons for delay or extension.

Quarterly Progress Reports

As per Section 11 of the RERA Act, it is mandatory for promoters to make periodic submissions to enable keeping track of the financial and physical progress of the projects. The progress reports are to be uploaded on the RERA websites, thus enabling home buyers and interested stakeholders to monitor the progress of the project from the website.

Advance Payment

Both prior registration and a sale agreement are essential to secure funds from home buyers and investors. Furthermore, Section 13 of the RERA Act restricts the promoter to an initial advance payment of 10 per cent of the total cost of the apartment, building or developed plot.

Project Delivery

The promoters are expected to deliver the apartments/plots to the homebuyer as per the given terms and schedule given at the time of registration in the sale agreement. In cases where the promoters are unable to deliver the possession in time (except for cases where the promoter has requested for extension due to valid reasons), the promoter is liable to either return the amount paid by the buyer along with interest (if the buyer wishes to withdraw) or pay interest for every month of delay till possession of the apartment.

Stalled projects

Under the provisions of section 7 and 8 of the RERA Act, RERAs can function to resolve the issues related to the stalled projects. While section 7 allows the RERA authority to revoke the project registration in case of any default or violation by the promoter, section 8 provides for the authority to assess and restart a stalled project once an application is filed by the association of allottees.

Provisions to ensure a more professional real estate sector

At the time of registration, every developer/promoter has to disclose relevant details of the project such as – location, area, project cost, area covered, completion schedule, profile of the promoters, associated vendors, history of past projects, certification from development authorities, etc. All these data along with the quarterly reports are expected to be in the public domain on RERA websites.

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