Introduction to RERA: Part (1/3)

Introduction to RERA

The real estate sector has grown in the recent years but has largely been unregulated mainly from customers perspective. The provisions and law which were available were not much of preventive. It had affected the potential growth of the sector.

The Real Estate (Regulation and Development) Act, 2016 (RERA) became effective from May 1, 2017 and has been established for regulations and promotion of the real estate sector and to ensure functioning in efficient and transparent manner. According to RERA, each state and union territory will have its own regulator and set of rules to govern the functioning. The objective is to protect consumer interest in the real estate sector and to establish a proper mechanism for speedy dispute redressal. RERA seeks to bring clarity and fair practice from builders that would protect the consumer and impose penalties on errant builders.

Delays in projects, price, quality of construction and other changes are some of the major issues faced by the consumers. RERA seeks to address these issues. Some of the important rules set up in RERA are:

1. Booking amount: RERA brings in the constraint on the booking amount the builder can ask for at the time of registration to 10% of the cost of the property. It cannot accept more than 10% as an advance payment without first entering into a registered agreement for sale.
2. Flow of funds: The main reason for delays in projects or poor quality of construction include diversion of funds to other projects. Builders would use funds on a project received from various other projects, leaving some of the them under construction for decades. Under RERA the promoter of a real estate development firm has to maintain a separate escrow account for each of their projects. A minimum of 70 percent of the money from investors and buyers will have to be deposited in that account which could be used for that project.
3. Registration of projects: RERA brings in various provisions for registration of projects which ensures safety of consumer interest.
4. Carpet area has been clearly defined in the bill imparting clarity which was not the case earlier.
5. Online information: To enable informed decision by buyers, Real Estate Regulatory Authorities will ensure publication on their websites information relating to litigations, advertisements and prospectus issued about the project, details of apartments, financial details, status of approvals, etc.
6. Interest on default: The state RA has to specify the rate of interest on a default. Payment of which has to be made within 45 days of it becoming due.

Conclusion: Bad construction quality, delayed delivery of projects, etc. were some of the common problems faced in the industry. Till now there was no regulatory authority with set rules and regulations, the homebuyers were at the mercy of the builders. RERA is a huge step forward to frame the rules and regulations with respect to the interest of the buyers and not dilute them in builders favour.

Buyers will look forward to promoters falling in line and sharing all information as required by the authority, transparency by making the information available online and a robust feedback mechanism between the authority, promoter and buyer.

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