Real Estate (Regulation & Development) Act

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Context:
  • Real Estate (Regulation & Development) Act is now in effect
  • States have six months to formulate rules and regulations as statutorily mandated
  • States will have to set up the Real Estate Regulatory Authority’s (RERA) and the Real Estate Appellate Tribunals and have only a maximum of a year from the coming into effect of the Act to do so
 
Key provisions:
  • Register with RERA: Requirement for developers to now register projects with RERA prior to any advertisement and sale
  • Approval and Sanctions: Developers are also expected to have all sanction plans approved and regulatory clearances in place prior to commencement of sale
  • Updates on the Website: The Act stipulates an electronic system, maintained on the website of RERA, where developers are expected to update on a quarterly basis the status of their projects, and submit regular audits and architectural reports
  • Action for non-compliance: If there is non-compliance, RERA has the power to order up to three years imprisonment of the promoters of a project
  • Separate Escrow Accounts: It requires developers to maintain separate escrow accounts in relation to each project and deposit 70% of the collections in such an account to ensure that funds collected are utilised only for the specific project
  • Agents & brokers to register: The Act also requires real estate brokers and agents to register themselves with the regulator
 
Critically comment on the important features of this Real Estate (Regulation and Development) Act. Examine how these features will have bearing on the consumers. (200 Words)
 
Real Estate (Regulation and Development) Bill passed by Union cabinet recently has come as a big relief for the buyers as well as for overall picture of Indian real estate market.
 
Features:
  1. Independent Regulatory Authority: Real estate regulatory authorities (RERAs) will be established in every state and be paired with real estate appellate tribunals (REATs) to consider appeals against orders of RERAs. All commercial and residential projects now need to be compulsorily registered with RERA.
  2. Prevention of diversion of funds: The Bill now provides for a compulsory deposit of 50 per cent of the total amount realised from buyers into a monitor able account in a scheduled bank to be used only for the construction of the designated project. This will help in less diversion of funds but it is lesser than initially speculated 70% so some funds may still be diversified to chit funds.
  3. Mandating consumer protection measures:
    1. Specification of project cannot be altered without consent of two-thirds of buyers
    2. Prevention from accepting more than 10% advance fees without written agreement.
    3. Stringent penalties in case of violation and right to reclaim refund in case of promoter failure of delivery.
    4. Promoter needs to declare carpet area
  2. Mandatory Registrations with RERA: Only projects registered with RERA can be bought or sold.
 
Developers will have to mandatorily disclose all details on the regulator’s website.
 
Advantages to consumers:
  1. Consumer will have redressal mechanism
  2. They will have more idea about project and they cannot be betrayed
  3. Consumer money will be safe and will be refunded in case of issues.
 
Disadvantages:
  1. Existing projects might get delayed.
  2. Costs can go up.
 
Overall this bill will be beneficial for consumers and will definitely benefit India’s real estate market in longer run. It will also help in curbing black money in real estate
 
 
How REA will impede competition in the sector causing harm to the consumers ?
  1. 70% money in escrow account : would force builders to rely upon further borrowings & cost of which may be borne out of the consumers itself.
  2. Cancellation of Registration : RERA is empowered to cancel any project because of default on part of developer or non-compliance to any rule which reduce incentives of developers to compete given inherent market risks in the sector.
  3. Multiple Dispute resolution forums : leading to jurisprudence conflict to which consumers would be ultimate losers.
  4. Multiple Legislations : REA does not repeal existing laws leading to clash of jurisdiction & ambiguity.
  5. Regulatory : Still there is not a provision of single window clearance system reducing competition as part of developers.
  6. Nexus : between politicians, officials & builders is still neglected by the REA which is main reason for sky-rocket prices, reducing competition as part of consumers
 
What are some criticism of the ACT?
  • Grant Industry Status: The builder lobby has been demanding “industry” status for the real estate sector as it would help in the availability of bank loans
  • Failure of the Authorities: Real estate companies say that most delays are because of the failure of authorities to grant approvals/sanctions on time
  • Act silent on Force Majeure: While the Act addresses some of this, it does not deal with the concerns of developers regarding force majeure (acts of god outside their control) which result in a shortage of labour or issues on account of there not being a central repository of land titles/deeds

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