More power to the home buyer

Think of an ordinary home buyer and it conjures up the image of a harried and hassled man running from pillar to post.

The exercise starts with the person doing multiple rounds of several properties and finally zeroing in on one. But the end of house hunting does not always mean the end of his troubles. In fact, in many unfortunate cases, it is just the start of many more — delays in construction and flat possession, not being provided adequate information, violation of the building plan and so on.

All this is, however, set for an overhaul, once the Real Estate (Regulation and Development) Act, 2016 is implemented by the States. The Bill was passed by Parliament in March and the Act came into force on May 1, 2016, after being notified by the government.

The States, however, have time until April 30, 2017, to set up the regulatory bodies — the Real Estate Regulatory Authority (RERA) and the Real Estate Appellate Tribunal — to kick-start the implementation of the Act.

Once that happens, home buyers can hope to see an end to many of their woes. But only new projects, and under-construction projects which had not received a completion certificate prior to May 1, 2016, will be covered under the Act.

Here we take a look at how the various provisions of the Act will address the challenges that home buyers grapple with, head-on.

First and foremost, in a break from the past, a property developer will now have to register every real estate project with the RERA even before he can advertise, let alone make bookings and sales. Failure to do so can lead to the developer being penalised for an amount of up to 10 per cent of the estimated project cost. Further, failure to comply with the penalty or repeat violations can even land the developer in jail for up to three years. “The Act, for the first time makes violations not only a financial but also a criminal offence, which is not the case currently,” says Ashutosh Limaye, National Director - Research, JLL India, a real estate services firm.

Only new projects with an area of up to 500 square metres or those with only up to eight apartments and existing projects undergoing renovation (with no new allotments) will be exempt from registration.

Today, aggrieved home buyers have to knock on the doors of consumer courts that are already overburdened with all kinds of cases. Once RERAs are set up, buyers can expect faster redress of their complaints as these authorities will handle only real estate-related matters. Further, buyers can also appeal to the Appellate Tribunal against the decisions of RERA.

Among the foremost problems that buyers have to deal with are delays in construction and handing over of flat possession. The Act comes packed with many provisions that will act as a check on these. Property developers have to create a separate escrow account to hold 70 per cent of the amount collected from the allottees of a project. The money has to be used by the developer only for that particular project. Also, the account has to be audited every six months to certify that the money has been used only for the intended purpose. This will keep a check on the diversion of funds to the builder’s other projects, a common reason for many project delays.

The Act provides yet another safeguard to buyers. Property developers have been forbidden from accepting more than 10 per cent of the apartment cost as advance (or application fee) without first entering into a written sale agreement with the buyer and registering it.

Apart from that, if the developer provides incorrect project information and makes false declarations — that he holds the legal title to the land and that it is free from any legal and financial liabilities — he can be penalised by RERA for an amount of up to 5 per cent of the estimated project cost. In fact, the violation of any provision of the Act will attract the same fine (except for failing to register, for which the penalty is even higher).

The Act also seeks to take to task builders who short-change buyers by delivering to them flats that do not adhere to the original construction plan. Builders can no longer undertake unilateral changes without keeping the flat owners in the know. The consent of at least two-thirds of the allottees (other than the promoter) has to be sought before any major alterations can be made to the approved plans, structural design and specifications of the building and common areas within the project.

Also, structural defects or any other defect in quality or provision of services, if brought to the notice of the promoter by the allottee within five years from handing over possession, will have to be rectified within 30 days without further charge.

If a builder fails to do so, RERA can impose on the builder a fine of up to 5 per cent of the estimated project cost. Non-compliance with the RERA order invites additional penalties.

Today, one of the biggest challenges that flat buyers face, when a builder fails to deliver as promised, is the lack of information on where the project is headed. The Act mandates builders to provide quarterly updates on the progress of the project on the RERA website for public viewing. The builder has to also upload on the website, information such as the basic details of the project, a copy of the approvals received for it, the sanctioned building plan, number and the carpet area of the apartments and details of the projects launched in the last five years — submitted at the time of registration. Failure to do so can result in penalties as prescribed under the Act.

Apart from that, property developers will now have to sell flats based only on carpet area (net usable floor area of a flat). Currently, flats are sold based on the super built-up area (which includes the area covered by the walls of the house and also a mark-up for the common spaces in the building). If the mark-up is substantial, then the buyer is misled into believing that he is getting a large flat, when it actually could be much smaller.

The Act has many other safeguards. For instance, a builder is forbidden from mortgaging an apartment (plot or the building) after the agreement for sale for any apartment has been executed with the buyer.

Real estate agents too have been brought under the ambit of the Act and have to get themselves registered. They are also forbidden from facilitating the sale or purchase of any apartment or building of an unregistered developer.

But while the Act has several provisions to ensure accountability of the builder, as pointed out in a JLL India and Khaitan & Co report, it does not elaborate on how government agencies will be held accountable. As Chintan Sheth, Director, Sheth Corp, a real estate developer, points out, the Act has to also take into account the delays in clearing plans and getting statutory permissions.

That apart, as Ashutosh Limaye says, “The difficult area of implementation will be tackling the ongoing under-construction projects where the developer has already collected some money.” According to Manju Yagnik, Vice Chairperson, Nahar Group, a real estate developer,there is apprehension that the registration of such projects could involve delays.

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