Real estate has been one of the unorganised sector in India. It has witnessed tremendous love and loyalty from people since a very long time. Having real estate properties in form of land, house, office or godown is naturally seen as wealth. A common statement can be heard, “Mr. X has 3 houses, 4 acres of land and 5 offices most of which are on rent. Hence, son of Mr. X doesn’t really need to work in his life. He can enjoy fruits of his father’s hard work.” For the generation that was born in 1940s to 1960s, an ideal retirement would be having a certain number of real estate which can generate rent income for them after they stopped working.
However, owning a real estate is not as smooth a ride as it is perceived to be. For years, it was perceived as a safe heaven for parking unaccounted money which would result in lower taxation. Yet, those downsides to owning a real estate have been overlooked.
- History of a real estate property cannot be easily ascertained.
- Complete reliance on broker for price as well as negotiation.
- Finding an appropriate buyer.
- Lengthy documentation process.
- Legality of documents signed.
- Allocating cash component while making payment.
- Rate structures based on carpet area, super built up, etc.
To regulate this unorganised sector of real estate, government has finally come out with Real Estate (Regulation And Development) Act, 2016 (“RERA”). RERA has fully come into force as on May 1, 2017. It was first introduced in 2013 and finally the bill got approved in March 2016. Although, it being a central law, implementation will depend on state governments, as real estate is a state subject. Here are a few points which highlight how RERA will be beneficial.
Each state will have to setup regulatory bodies as appellate tribunals to solve the disputes between buyer and builder within 120 days. Being a state subject, no central link is available for appellate tribunal. It needs to be awaited till states have fully adopted RERA and started functioning on the same.
Opening of an Escrow Account
Developer will have to put 70% of the money collected from a buyer in a separate account to meet the construction cost of the project.
Compulsory Registration of Projects
It is now mandatory for all commercial and residential real estate projects where the land is over 500 sq. mt. (think of a 100×50 ft site or more), or eight apartments will have to register with the regulator before launching a project
Timely Completion of Construction
Imposition of strict regulations on the promoter and ensure that construction is completed on time.
Calculations based on Carpet Area
Carpet area has been clearly defined in the bill to include usable spaces like kitchen and toilets imparting clarity which was not the case earlier. The buyer will pay only for the carpet area (area within walls). The builder can’t charge for the super built-up area, as is the practice at present.
Clauses for Repair on Developer
A developer’s liability to repair structural defects has been increased to 5 years from the earlier 2 years.
Clearances and Registrations
Developers will be able to sell projects only after the necessary clearances. Under RERA, builders and agents will have to register themselves with the regulator and get all projects with more than eight apartments registered before launch.
First hand information
To enable informed decisions by buyers, authorities will ensure publication on their websites information relating to profile and track record of promoters, details of litigations, advertisement and prospectus issued about the project, details of apartments, plots and garages, registered agents and consultants, development plan, financial details of the promoters, status of approvals and projects etc.
As a thumb rule, all ongoing projects whether commercial or housing projects that don’t have a completion certificate, have to be registered within 3 months. However, there can be some other reasons for which each state can choose to include or exclude some projects. State of Uttar Pradesh and Gujarat has excluded ongoing projects under the purview of RERA based on a certain criteria.
Along with listing benefits, there are few questions that crop up.
Will calculation under carpet area method make any difference?
Previously, developers would talk about different prices based on different methods. Too many terms had surfaced as to built up area, super built up area, usable area, carpet area and what not. These calculations were extreme and so complex that usually buyers would just go by the rates which were prevalent in the area and not bother too much.A single method of calculation will bring clarity across the country. So no more intellectual terminology henceforth.
Should I buy a house now, since builder is offering lucrative property rates?
If property rates being offered are more lucrative then being true. Then, it’s better to beware. A buyer should wait for a completion certificate from builder and if the building is under construction then wait for the builder being registered under RERA. There maybe a strong chance, that builder / developer might be wanting to just sell the property which might not be as per RERA standards. Since, the law is in favour of the buyer, it makes more sense to wait and let the authority do it’s own due diligence and provide valuable insight to the buyer.
Will the builder / developer be able to divert funds as he used to?
On the face of it, the answer is straight away NO. As 70% of buyers money needs to be parked in a separate account while 30% of money will be utilised in paying daily labourers and buying things such as sand, stone, etc. to match any shortage in cash. This will leave very little room for builders to divert funds and start a new project while not worrying about ongoing one. This is what most builders did, while buyers lost huge money, builders bought themselves some nice goodies. As some wise old men say, this is India, builders will divert funds anyway.
Will I have to buy additional parking space for my car?
Parking space will now be directly included in cost of house, there will be no need to pay extra money in cash or cheque for the same. Earlier, builders would get away by not registering compulsory parking spaces with authority. This has changed now. Even recreational tools such as club house, pools, etc. will now have to be registered and it’s cost will be added for the buyer while buying that real estate. This will actually spike up the prices of real estate.
This is a step forward for regulating real estate. There would be issues in implementing the same by the government as coffers of some developers / builders run deep in the system. Yet, it’s a winning situation for the buyer.
– Jinay Savla
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