Real Estate Act comes into force

• The much awaited and widely acclaimed Real Estate (Regulation and Development) Act, 2016 has come into force from May 1, 2016.
• As per the notification, Rules under the Act have to be formulated by the Union and State Governments within a maximum period of six months from the act coming into force that is by 31 October 2016.

Highlights:

• The act regulates both commercial and residential real estate projects. It seeks to set up Real Estate Regulatory Authority (RERA) in states and union territories to oversee real estate transactions.
• Under this act , strict regulations will be imposed on developers to ensure timely construction and delivery. It further provides that consumers are entitled to a full refund with interest, if there has been a long delay in the delivery of a flat.
• The act mandates that developers need to share final project plans as part of their disclosure terms, with no room for iterations. There is also an imposition of 10% project cost penalty and upto 3 years in jail.
• The developers need to deposit 70% of the collections from buyers in separate eschrow accounts towards the cost of construction including that of land as against a minimum of 50% suggested by the committee formed for this purpose.
• Norms for registration of projects has been brought down to plot area of 500 sq.mts or 8 apartments as against 4,000 sq. mts proposed in the draft Bill in 2013 and 1,000 sq.mts or 12 apartments suggested by the Standing Committee.
• It ensures that all clearances are completed before the launch of a project. Sections of the Bill mandate that developers have to receive all clearances before issuing their properties for sale.
• Under the act , buyers are simply required to inform the developers of the deficiency within one year of purchase.
• Liability of developers for structural defects has been increased from 2 to 5 years and they can’t change plans without the consent of two thirds of allottees.
• Commercial real estate also brought under the ambit of the Bill and projects under construction are also required to be registered with the Regulatory Authority.
• Carpet area has been clearly defined which forms the basis for purchase of houses, eliminating any scope for any malpractices in transactions.
• Both consumers and developers will now have to pay same interest rate for any delays on their part.
• It provides for arranging Insurance of Land title, currently not available in the market .

Analysis:

• The law aims to protect homebuyers from real estate developers who fail to deliver on time, and regulate India’s murky real estate sector in the country.
• It ensures the timely completion and delivery of flats to the consumer by ensuring that strict regulations will be imposed on developers to ensure timely construction and delivery. It further provides that consumers are entitled to a full refund with interest, if there has been a long delay in the delivery of a flat.
• This bill is expected to boost consumer confidence as it is expected to ring in transparency in the sector. At present, a slowing down home sales is taking a toll on the economic revival.
• This bill add a much needed degree of accountability and also protect consumers from this highly prevalent malpractice.
• Buyers delaying payments and builders delaying hand-over of properties did not share same penalties thus far. Now, they will be made equal. Consumer courts will now be able to hear real estate disputes. Builders, apart from disclosing various details on architecture and engineering, cannot change designs or plans without approval from consumers.

By: Vishal