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This Act is an effort to tighten the real estate sector and make unscrupulous developers pay for their false promises as well as give hope to consumers about their dream homes


~By Ramesh Menon

While the country celebrated Labour Day on May 1, real estate developers in India were apprehensive and restive as the Real Estate (Regulation and Development) Act, 2016, kicked in. This will make it more difficult for developers to operate as they were used to booming property prices, buyers who had no say in hidden costs, ad hoc increases in prices and undue delays which could take years. But under this Act, they will have to spend time behind bars if they violate the law.

For once, the real estate business does not seem to be the sunshine industry it was as builders will be forced to recalibrate their business practices to stay alive. While ethical developers have nothing to fear, fly-by-night operators will sink into oblivion. And the consumer will at last be king as the landmark law secures their interests for the first time.(See Box)

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  • Real estate development firms to maintain a separate escrow account for each project where 70 percent of the money from investors and buyers will be deposited. This can be used for construction
  • Developers to keep buyers informed of their other ongoing projects
  • Builders to submit original approved plans for ongoing projects and the alterations made later. Also, furnish details of revenue collected from allottees, how funds were utilised, timeline for construction, completion, and delivery that will need to be certified by an engineer, architect or a chartered accountant
  • Each state regulator to register real estate projects and real estate agents under RERA and put registered projects on a website
  • The regulator will ensure protection to buyers in case of badly constructed flats, defects or provision of services for five years from the date of possession and will get the builder to rectify it within 30 days
  • Unless they register with the regulatory authority, developers cannot invite, advertise, sell, offer, market or book any plot, apartment, house, building or invest in projects. Every ad will have to carry the unique RERA registration number
  • Once the project is registered, developers will have to furnish details of their financial statements, legal title deed and supporting documents
  • If delivery is delayed, the promoter will have to return the entire money to the buyer along with interest mentioned in the contract. If the buyer chooses not to take the money back, the builder will pay a monthly interest on each delayed month to the buyer
  • After registration, the regulator will create a website for the developer on its site. The developer will upload information regarding its registered projects. The number, type of apartments, plots and projects and their completion status will be updated every four months
  • Developers will not be allowed to ask for more than 10 percent of the property’s cost as an advanced payment booking amount before actually signing a registered sale agreement
  • The regulator will have the power to fine and imprison errant builders based on a case-by-case basis. The imprisonment can go up to a period of three years for each project.
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Under RERA, developers will have to carve out a new work culture where they will have to respect deadlines for delivery of property and be more transparent, something they did not care for before. Developers will now have to post updates on the website of the real estate regulator about their project’s progress every quarter.

Under RERA, developers will have to carve out a new work culture where they will have to respect deadlines for delivery of property and be more transparent, something they did not care for before.

Under the new law, developers will have to spend about 70 percent of their revenues from sales to complete residential projects. Earlier, they were mostly siphoning off the money which came from selling their properties even before they were constructed to other business ventures. This left the buyers stranded without their dream home. But now, developers can only start pre-selling their apartments after approvals are clear-ed. In case they do not, a three-year jail term has been imposed.

There have been many instances where top builders have constructed skyscrapers without getting the necessary permissions as they presumed that they would be able to influence government officials once the construction was over. There have been court orders stopping the construction of such towers which were pre-sold. In the recent past, many such builders were arrested or jailed for not delivering on time. We might see more of this in the months to come.

Buyers of the towers illegally constructed by Supertech in NOIDA demonstrate following the Allahabad High Court’s order to demolish them
Buyers of the towers illegally constructed by Supertech in NOIDA demonstrate following the Allahabad High Court’s order to demolish them

As the real estate industry was largely unregulated, developers used it to create a system where consumers had to give in to unfair and lop-sided contracts that gave an upper hand to real estate players. Hopefully, things might change now. Only strong and clean operators will be able to flourish if RERA is implemented the way it should, said a prospective buyer.

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While the centre moved aggressively to come out with the Act, many state governments have not shown that urgency and are yet to ratify it. Surprisingly, only 13 states and six Union territories have taken the initiative to implement it. Only UP, Gujarat, Odisha, Andhra Pradesh, Maharashtra, MP and Bihar have notified the rules.

It is estimated that nearly 30 percent of housing projects run at least a year behind schedule. Ultimately, it is the buyer who took loans and put aside his life savings for the property who lost out, while the developer laughed all the way to the bank. Observers feel that the new law will boost the stock of some of the good builders as home buyers will now have new faith in what they are investing in. The racketeers will have to close shop. One of the reasons for the slump in the sector was the growing trust deficit between seller and buyer.

Many developers got into serious trouble as they pulled out the money they got from pre-selling one project to kick-start others. The end result was that all of them collapsed. A property consultant who did not want to be named said that both big and small real estate players were cheating consumers not only with delays but sub-standard buildings. This law should have come in long back, he said. “A lot of what was promised to the buyer was not delivered in the way it should have been,” he said.

Under the new law, any defects found within five years will now have to be repaired without any charges within a month by the developer.

Entrepreneur Sanjay Sawhney who booked a flat in Noida and had to incessantly fight to get possession of it, told India Legal: “RERA might stop unethical practices by builders. There are scores of instances where builders took money in advance and then rolled it into other project to expand their business at our cost. Many of us have got possession of uncompleted flats, buildings and amenities that we paid for. Builders had earlier managed to get completion certificates by paying bribes to officials but RERA will now stop that.”

As builders will now have to make clear disclosures to get registration for their projects, they would be inclined to make more realistic commitments on amenities and timelines. They will adopt the best practices in the industry to avoid running afoul of the law.

M Venkaiah Naidu, Union housing minister, said that the Act would not only benefit home buyers, but developers too as there would be more sales as confidence rises in the market due to a better regulated environment.

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Rajeev Talwar, chairman, National Real Estate Development Council, an autonomous self-regulatory body under the Ministry of Housing and Urban Poverty Alleviation, told India Legal: “RERA is an excellent measure to enforce transparency and accountability on the builder. However, RERA must ensure that it revives the industry, as many well-established names are struggling. If they all get jailed, who will complete the projects? The Act must also ensure that states give funding to restart projects, restore faith of the buyer and ensure that they get the apartment they were promised at the same rate.”

After Prime Minister Narendra Modi’s demonetisation move in November 2016, sales of property had plunged as most purchases involve black money. Many were investing this cash in property and not showing it in their books to escape tax. But in the first quarter of this year, it was slowly picking up. Now, with RERA looming large over the sector, it might just reform, leading to a cleaner, transparent and more efficient industry.

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