The Real Estate Regulation Act – Confronting & Addressing Realties of the Property-sector in India

Last Updated at: Nov 23, 2020
In view of the COVID-19 disruption, the Centre has asked the states to reduce stamp duty on property registration. This is expected to boost the much-troubled real estate sector in India. As a response, in August, 2020, Maharashtra slashed the stamp duty by 3% for property registered between 1st September and 31st December this year.


‘Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it’s about the safest investment in the world’  

Franklin D Roosevelt

Till about three years ago, the real estate sector in India recorded an unparalleled growth in sale, investments, and prices. However, since time immemorial, there has been a growing lack of confidence between property-builders and buyers. An independent survey reported that more than 80 percent of building projects fail to meet initially committed deadlines. Moreover, almost 66 percent of civil litigation relates to property-disputes.

In the recent past, several factors such as demonetization, stagnation in prices, coupled with several government reforms reducing the disposable income contributed to creating a lackluster outlook towards the real estate sector. With an aim to bolster this sector and revive investments, the Government passed The Real Estate (Regulation and Development) Act, 2016 (hereinafter called “The Act”) which establishes a Real Estate Regulatory Authority (hereinafter called “RERA”) in each state for regulation of the real estate sector. The Act fully came into force on 1st May 2017, and most states in India have set up their own RERAs since then along-with notifying rules for the same.

Is the Real Estate Regulation Act the ‘real’ panacea to all buyers’ distresses?

A cursory glance at the Act is enough to give us a fair idea about its purpose- converging builder’s promises with buyer’s fair expectations, by alleviating the usual troubles like delayed possession and advancing an overall regime of transparency, disclosure, and trust in the real-estate sector. A unique feature aimed at protecting buyers is the aspect of control and quality management under RERA.

Now, for the first time an act in India provides an implied warranty to buyers of property for five years in the following words- In case of any structural defect or any other defect in workmanship, quality or provision of services or any other obligations of the promoter as per the agreement for sale relating to such development is brought to the notice of the promoter within a period of five years by the allottee from the date of handing over possession, it shall be the duty of the promoter to rectify such defects without further charge, within thirty days, and in the event of promoter’s failure to rectify such defects with.

The language employed by the legislature is fairly strict:  “any structural defect”, “any other defect”, leaving little scope for ambiguities for builder’s to exploit. However, the framing of rules by the State Government and the cases decided by RERA will shape the extent to which a consumer may be able to claim defects. It was also felt that the National Consumer Disputes Resolution Forum was largely inefficient in resolving property disputes, and thus, litigants can also withdraw cases pending under any consumer fora and bring it under the ambit of RERA.

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RERA: Is it a heavy cargo for builders?

The RERA will now act as a specialized central regulatory authority in every state for granting permissions for large building projects, functioning based on the organized rules that also bar instituting suits in any other civil court. All new developers of commercial as well as residential projects will have to register their project with RERA. However, small builders – making an apartment with 8 or fewer units, or covering an area less than 500 square meters are exempted from the registration requirements. If a builder fails to get the project registered, a penalty of 5 percent of the estimated project-cost can be imposed along with maximum three-year imprisonment.

Every builder commencing projects after the RERA has been set-up in the State is under an obligation to deposit 70 percent of the amount paid by buyers of the property in a separate account. This account is especially ear-marked, for its funds can only be utilized for meeting developmental costs.

What it ensures is that developers will no longer be able to cross-utilize funds received for one project towards meeting expenses of another project. The proceeds of this account also need to be certified by a professional, such as a Chartered Accountant. The Act also covers ongoing projects, bringing those existing projects where possession has not been handed over yet under its ambit. Projects for which completion certificates have been obtained are outside the purview of the Act.

There are other additional disclosure requirements at the onset of the project such as the types of homes being sold, blueprints and maps with detailed layouts, payment schedules, and details of every promoter of the project coupled with a mandatory quarterly report on the project completion status. Although amends to the layout and project are allowed after taking consent of 2/3rd buyers, a pre-disclosure of the promises made would aid the RERA in taking prompt action and resolving disputes.

The Act also imposes a warranty for defects for a period of five years from completion of construction, thereby necessitating greater oversight by builders on their workmanship and design. It would also be prudent to take insurance for indemnifying against future claims, in case of projects with heavy outlay. While the initial reactions of the builder groups were adverse towards the heavy compliance requirement and the mandatory “duty” owed by all developers towards registering their projects, in the last one year, several large building groups have expressed optimism towards the transparency and trust that the Act aims to build.

Although the dynamics of the success that the Act claims remain to be seen in the crucial months ahead, it is noteworthy that this Act exclusively maintains an oversight over real-estate projects from its pre-offer registration stage to post-possession warranties and defects. It is also expected that the improvised real-estate regulatory mechanism will generate better returns for the sector through increased investor confidence, reducing the multitude of permits/clearances required, improving financial discipline for promoters while also providing quick-resolution of disputes.