Birth of RERA
The Real Estate Regulation and Development Act, popularly known as RERA came into force on May 1, 2017. RERA provided the much needed relief for home buyers from the unorganised real estate sector. It was a much awaited piece of legislation which brought about sweeping changes in the real estate sector and also regularised the home buying process with proper checks and balances.
RERA when enacted was to be a real estate regulator. State real estate regulators have the duty to ensure that any new real estate project which has more than 8 units or is bigger than 500 sqm in size has to be RERA compliant after making proper enquiries and then register the project with the concerned state RERA authority.
RERA has changed the real estate scene for the better with accountability and transparency being the pillars of the Act. RERA has addressed several hurdles that any home buyer would face in the pre and post home buying exercise. Access to any project information like master plans, floor plans, area of project etc., financial and legal details of the developer, maintenance of standards of construction, a check in delay of projects by mandating a corpus fund, providing legal remedies to buyers and developers are some of the significant highlights of RERA.
The redressal mechanism contemplated under the Act consists of penalties and even imprisonment for developers and buyers in cases of non-compliance of orders by the RERA authority, non registration with the concerned authority, giving false information etc.
RERA Report Card
RERA has been in existence for about a year now. RERA has been deemed as the biggest reform undertaken by the government to regulate the unstructured and unregulated real estate market. However all the promise and hope that were anticipated with the passing and enforcement of the Act have been weighed down by the dismal implementation of the Act.
Recent statistics show that out of the 28 states where the Act was to be implemented only 20 have notified the rules and only 14 have a functional RERA website. Only 3 states – Punjab, Maharashtra and Madhya Pradesh have a permanent regulator as mandated by RERA.
Maharashtra has been the frontrunner in the implementation of RERA and in also setting an example for other State authorities to follow. A large number of projects have come under MahaRERA and Maharashtra is also one of the first states to introduce a RERA conciliatory authority for speedy disposal of cases. The conciliatory authority aims at settling disputes through a process of conciliation between the buyer and developer before the MahaRERA authority takes up the case. If both or even one of the parties are not satisfied with the outcome at these proceedings, they can always seek relief from MahaRERA. MahaRERA and its Appellate Tribunal came out with some landmark judgements in real estate that have had an overreaching impact on the industry.
Major states like West Bengal have still not notified the rules and states. States like Haryana which has seen a real estate boom owing its proximity to the national capital, Kerala, Telangana and Orissa are yet to have a proper website for buyers to view project related information. This information includes details of documents that have been submitted by the developer to obtain a RERA number. Even states that do have a website, the information available on them is highly unsatisfactory and inadequate. A home buyer cannot rely on this information to invest in a project.
Current Status of RERA
|STATES||Notification of Rules||Web Portal|
|Andaman and Nicobar||Yes||Yes|
|Dadar and Nagar Haveli||Yes||Yes|
|Daman and Diu||Yes||Yes|
In addition to the above only eight states and union territories have established a permanent real estate regulatory authority – Andhra Pradesh, Gujarat, Madhya Pradesh, Maharashtra, Odisha, Punjab, Dadra and Nagar Haveli and Daman and Diu. 19 states and Union Territories have established an interim real estate regulatory authority.
Only three states and union territories – Gujarat, Tamil Nadu and the Union Territory of Andaman and Nicobar have established the regular appellate tribunal. A total of 13 states and union territories have appointed interim appellate tribunal under the Act.
These dismal numbers show a lack of will on the part of the state governments to strengthen the real estate ecosystem which is grappled by various issues. As a result of the poor functioning of the RERA machinery, home buyers are faced with the prospect of not getting relief in cases of legal disputes in the home buying exercise. RERA shall remain a ‘paper tiger’ if steps are not taken for stringent implementation of the Act.
A Mix Of Hope And Gloom
Last one year since the enactment of RERA has proved to be a mix of hope and gloom. Home buyers had anticipated significant developments and some sweeping changes in the real estate sector with the passing of this Act and many were not disappointed. However at the same time certain developments also left many home buyers in a tight spot as they could not seek a satisfying relief from the RERA authorities. Let us briefly look at some important developments.
1. Lack of clarity on ongoing projects
A major cause of concern for many home buyers has been the lack of clarity as to whether ongoing projects shall come under the ambit of RERA. Ongoing projects refer to projects that commenced either before the passing of RERA (1 May, 2017) and did not receive an Occupancy Certificate(OC) by then or commenced after this date. Not all projects that commenced prior to RERA passing date have been RERA registered and home buyers who invested in these projects are left stranded without timely possession and no RERA protection. The Bombay High Court while upholding the constitutional validity of RERA, clearly included ongoing projects under its ambit. However, certain states like Uttar Pradesh, Haryana, Andhra Pradesh, Uttar Pradesh have moved away from the Centre’s definition of ongoing projects and excluded projects for which lease deeds of either 50 percent or 60 percent of the apartments have been executed or for which partial completion or Occupancy Certificates have been obtained by the developer.
This is a sad state of affairs as many buyers are left stranded due to lack of clarity and uniformity needs to be ensured in the definition of ongoing projects for the benefit of all homebuyers.
2. Redevelopment not covered under RERA
A significant decision from MahaRERA was that reconstruction activities shall not be covered under the ambit of RERA. This has wide reaching implications in cities like Mumbai where redevelopment is a common activity and also an important one owing to the fact that many buildings in Mumbai are beyond the state of maintenance and repair, and redevelopment is the only way out. MahaRERA had specifically ruled that delay in redevelopment activities do not violate any provisions of RERA and the civil court was the best forum to seek relief in such kind of situations.
Thus as a result many projects would be out of the purview of RERA and it would be best that instead of a blanket ban on not considering redevelopment projects, RERA could take into account reconstruction projects on a case to case basis.
3. Long Term Lease
Another issue that was not given consideration initially under MahaRERA was about long term leases. In this backdrop it is important to mention that MahaRERA in the Lavasa Township case had ruled that long term/perpetual leases of 999 years were outside the scope of RERA. The authority was of the view that RERA concerned itself with allottees and not lessees in the legal sense. This was a major setback for many home buyers who had invested their hard earned money in this township. The development of this township had been stalled due to some lack of environmental clearances and thus possession was delayed for the same.
However in a recent development, the RERA Appellate Authority has overruled the decision of MahaRERA and was of the view that lease involves a transfer of ownership and that RERA does have the authority to cover matters of transfer of ownership. This decision comes as a major relief for many homebuyers who have entered into a lease agreement with the developer.
4. Formation of society
Another important and impactful decision has been on the formation of Housing Societies(also called welfare association). It has now been mandated by a MahaRERA ruling that once 51% of a project is booked or allotted, the builder has to form a housing society for residents. This a significant ruling as this allows transfer of common areas, recreational amenities, maintenance charges/corpus funds and thus letting the Society oversee the developmental work. The society so formed will be a collective body to take decisions pertaining to any activity in and around the project. These bodies also have the right to form rules and regulations regarding parking in society, security, use of recreational amenities etc.
5. Government Housing Development Agencies
In yet another significant development in the one year of enactment of RERA, state run housing development agencies in Bangalore have been directed to register their projects under RERA. Housing development agencies like Karnataka Housing Board(KHB) and Bangalore Development Authority(BDA) have to comply to the timelines set by RERA for completion of projects. Even private layouts approved by Bruhat Bangalore Mahanagara Palike(BBMP), BDA, Bangalore Metropolitan Regional Development Authority(BMRDA) have to registered under KarRERA. This is a very welcome step as it brings in accountability and transparency in even government bodies and thus ensuring projects are completed on time.
6. Insolvency and Bankruptcy Code and RERA
The Insolvency and Bankruptcy Code(IBC) was enacted in August 2016. While RERA protects home buyers and provides them with relief against erring developers, the IBC provides relief to creditors and lenders. Both RERA and IBC have been understood by many industry experts to be in direct conflict with each other. Under the IBC, home buyers are deemed as ‘unsecured creditors’, which means they can only be compensated after the other creditors who have lent loans to the developer have been satisfied.
However in a latest move, the government may treat home buyers as ‘financial creditors’ which implies home buyers can then equally participate with other creditors in the insolvency resolution process. According to a Ministry of Corporate Affairs(MCA) appointed Insolvency Law Committee(ILC), home buyers should be treated as ‘financial creditors’ owing to the unique nature of financing in real estate projects and the treatment given to home buyers by the Supreme Court in ongoing cases like Jaypee, Amrapali, Unitech etc.
The real test on the effectiveness of RERA would be when developers become fully RERA compliant and deliver projects on time without delay. RERA though still in its stages of infancy, has tried to make a mark in the real estate sphere. But RERA still has a long way to go to instil buyer confidence. It will remain a mere Act with no teeth, if its provisions are not implemented in the right spirit.
It should begin with ensuring that all RERA websites contain relevant information pertaining to developers and their projects. This step will ensure that the buyer is confident in what project he is going to invest in and this in turn boosts confidence of the market as a whole. RERA authorities should step up and discharge their duties as a real estate regulator in the right spirit.
A home buyer in the long run can reap long term benefits from RERA. With constantly evolving RERA authorities across the country and with the quality and insightful judgements coming from such authorities, home buyers can be rest assured that better times can be foreseen for the real estate market. Home buyers have several legal options available under the Act for delay or denial of possession for which they can be duly compensated. With the right political will and attitude in implementing the provisions of the Act in the right spirit, home buyers can expect positive changes in the days to come.