Update: Real Estate (Regulation and Development) Bill, 2016

following post is contributed by Bhushan
and Labdhi Shah from
Mansukhlal Hiralal & Company. The views expressed herein are personal]
Parliament of India has passed the much
awaited Real
Estate (Regulation and Development) Bill, 2016
(Regulation) in the ongoing Budget
Session. The Regulation has been enacted with the intention of protecting
buyers, bringing transparency and plugging the flow of unaccounted monies, which
in turn will provide a much needed boost to the real estate sector. In this post,
we seek to highlight the key features of the Regulation and its implications on
the builders, buyers and the real estate sector in general.
Highlights of the Regulation
1.           Establishment
of the Real Estate Regulatory Authority (RERA/Authority):
Regulation mandates establishment of RERA in every state/union territory. The
Authority will act as a watchdog as it will oversee the compliance of the
Regulation in all real estate transactions. Functions of RERA include: (a)
ensuring that real estate projects are registered and their details uploaded on
RERA website, (b) ensuring that buyers, sellers and agents comply with
obligations under the Regulation, and (c) advising the government on matters
related to the development of real estate. The establishment of RERA is a
positive step taken by the Government in order to bring the much needed
credibility and transparency to the real estate sector.
2.           Registration
of all the Real Estate Projects:
The Regulation mandates registration
of all the real estate projects with RERA. If the project is to be developed in
phases, then registration is mandatory for each phase. Pursuant to the
registration, the builders will be provided a login ID and password in order to
create their webpage and make available all the information related to the
project, such as brief description of their enterprise, layout plan of the
proposed project, estimated timelines for completion of the project, etc
available in the public domain. With regards to ongoing projects, a window of 3
months (from the notification of the Regulation) has been given to the
developers for registration of their projects before the Authority.
Exemption: The following projects are
exempted from registration with the Authority:

If the area of land proposed to be developed does not exceed 500 square meters;

If the number of apartments proposed to be developed does not exceed 8;

If the promoter has received all the requisite approvals and completion
certificate prior to the commencement of the Regulations.
3.           Ensuring
timely approvals for housing projects:
The Regulation
also provides for creation of a single window system for ensuring that time
bound project approvals and clearances are given for timely completion of
projects. The developer will therefore not be required to approach separate regulatory
departments such as environment, aviation, defence, etc for separate approvals,
which will cut down the substantial delays in completion of the housing
4.           Registration
of Real Estate Agents
: The Regulation mandates registration
of all real estate agents with the Authority. The failure to comply with the
aforesaid registration requirement will lead to a real estate agent not being
able to facilitate the sale or purchase of any real estate property. The
Regulation also prohibits a real estate agent from involving in any unfair
trade practices and making false representations. This prohibition will keep
the real estate agents on guard, and they will have to think twice before inducing
buyers into buying properties by making false representations.
5.           Construction
: As per the provisions contained in the Regulation,
every developer/builder is required to compulsorily deposit 70% of the amount raised from buyers into
an escrow account maintained with a scheduled bank within a period of 15 days
of receipt of money to cover the construction cost of the project. This amount
can be used to fund cost of construction of that particular project only. While
this is aimed at preventing developers from diverting the funds raised from the
allotees to other activities and ensuring timely completion of the project, it
may actually end up increasing the cost of the project. It is pertinent to note
that the cost of a real estate project is inclusive of the cost of land and the
cost of construction. In the event, the cost of land turns out to be higher
than 30% and the cost of construction less than 70% of the total cost of the
project, then the developer may need to borrow funds from third parties in
order to finance the cost of purchasing land. This may increase the project
cost and will put additional pressure on the buyer, thus affecting its
purchasing power. This could also lead to part of the money (i.e. out of the 70%
of the amount raised and deposited) collected remaining unutilised. Thus, it
will be interesting to see if the mandatory allocation towards construction
cost will benefit the buyer or the developer/builder.
6.           Consumer is
: Many provisions in the Regulation are buyer
friendly. A few of them are:
(a) Post registration, the Regulation requires the
builder to provide quarterly updates on the status of the project on its
(b) The builders will have to complete the
project within the stipulated timelines and in accordance with the terms of the
agreement entered into with the buyers, failing which they will have to return
the amounts received from the buyers, along with interest at such rates as is
prescribed under the Regulation and even provide adequate compensation to the
buyers. If there is still a considerable delay in the completion of the project
then the Real Estate Appellate Tribunal (Tribunal)
would intervene and slap fines on the builders within 60 days of receipt of an
application from the aggrieved buyer. In a worst case scenario, the Tribunal can
send a developer found guilty of fraud to jail for three years.
(c) The builders cannot take a sum of more than
10% of the cost of the apartment, plot or building by way of advance or
otherwise, without entering into an agreement for sale with the buyers.
(d) The builders are required to adhere to the
proposed structural plan and will have to obtain prior written consent of at
least two-thirds of the buyers to make any alterations or additions to the
plan. Also, if within two years from the date of handing over the possession,
any structural defects are found, then the builder is required to make good the
defect and even provide appropriate compensation to the buyers.
(e) The Regulation defines the term carpet area,
which means that the buyers will only be paying for the carpet area and not the
super built up area, which was fraught with confusion earlier.
7.           Powers of
: In the event of any non-compliance with the
provisions of the Regulations by the builders or real estate agents, RERA has
been vested with very wide powers, including powers to enquire and investigate
the affairs of a promoter, allottee or a real estate agent. Further, RERA has
been vested with the same powers as are vested in a civil court under the Code
of Civil Procedure, 1908 (CPC). As a
result, in the event of any fraud by the builders, buyers can take recourse
with this Authority.
8.           Fast Track
Dispute Resolution
: Regulation also establishes a
fast-track dispute resolution mechanism through adjudication and establishment
of the Tribunal.The Regulation imposes an obligation on the said Tribunal to
dispose of appeals as expeditiously as possible and at the maximum within 60
days from the date of receipt of the appeal. Any person aggrieved by the order,
direction or decision of the Authority can make an appeal before the Tribunal.
However, an appeal from the builder/developer will not be entertained by the
said Tribunal unless it deposits at least 30% of the penalty amount or such
higher percentage as may be determined with the said Tribunal. The Tribunal
shall not be bound by the procedure laid down under CPC and shall have the
power to regulate its own procedure. The Tribunal shall also not be bound by
the rules of evidence contained under the Indian Evidence Act, 1872. The
Authority/ Tribunal has also been vested with the powers to punish a person with
imprisonment in the event of non-compliance with the orders, decisions or
directions issued under the Regulation. A person aggrieved by the order or
decision of the Tribunal can make an appeal to the High Court. It is pertinent
to mention herein that the Regulation bars civil courts from entertaining any
suit or proceeding in respect of matters which the Authority or adjudicating
officer or the Appellate Tribunal is empowered under the said Regulations.
The real estate sector is the second
largest sector (after agriculture) in India, which generates employment and
also contributes significantly to the country’s GDP. Inspite of this, the
sector has been opaque, lacks clarity, has been infested with fraudulent
practices and riddled with consumer disputes. Thus, the passage of the Bill in
the Parliament has raised a lot of expectations, especially from the buyers’
community and it will hopefully lead to ensuring better regulatory oversight
and orderly growth of real estate in the industry. Further, we believe that time
bound approvals and transparency will also lead to greater flow of investments,
both domestic and foreign in the sector, resulting in reduction in cost of
borrowing for real estate projects.

– Bhushan Shah & Labdhi Shah 

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • Thanks for throwing light on real estate regulation bill which has been passed recently.Now people are more safe while investing their money in buying flats either in new projects or old projects. Real estate developers are now more responsible regarding their clients needs. A big change happens to the real estate market that makes people’s dream of home come true.

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