What home buyers must know about RERA

The Real Estate Regulatory Act (RERA) has taken effect from May 1, promising a friendlier regime for home buyers. But with the regulations differing across States, it is important for home buyers to understand the implications of the Act on their purchase.

Most of the differences from the Central Act largely relate to what kind of projects fall under the ambit of the Act. Bihar, for instance, has chosen to include all projects that have not been issued completion certificate. Others such as Uttar Pradesh, Maharashtra have excluded ongoing projects which have been completed, but the issuance of the occupation certificates is pending from the government. Rajasthan excludes projects where sale/lease deeds or possession letter of a minimum of 60 per cent of the units have been executed.

Kerala has excluded all projects where requisite approvals/permits were given prior to commencement of the Act; also, projects of less than 1,000 sq m and those where the units proposed to be developed do not exceed 12 are excluded.

Knowing what properties are covered in their respective States is important for home buyers for a few reasons. One, if a nearly completed project needs to be registered, there is a risk that it may delay property hand-over. Two, if the State has excluded an ongoing project, you may want to consider waiting a bit and safely opting for a new launch.

That said, excluding ongoing projects may not always be a big negative as it is a temporary phase. Kalpesh Maroo, Partner, Direct Tax, BMR & Associates LLP, notes that applying any law retrospectively may be unfair. Parveen Jain, President of National Association of Real Estate Development Council (Naredco), says that there are practical difficulties if the broader definition is used for incomplete projects.

In many States such as Maharashtra, there are many housing projects which have been handed over and occupied by owners for many years. Still, Government authorities have not given occupation certificate due to various issues. Bringing them under the RERA coverage can create a lot of uncertainties and issues for home owners, he notes.

Another significant difference is with regards to the money to be deposited in the escrow account. RERA requires that 70 per cent of the project cost be deposited in an escrow account to avoid deviation of funds.

State rules differ on how they account for the 70 per cent, especially for ongoing projects. For example, Odisha requires that builders deposit 70 per cent of the amount already collected from the allottees, which has not been utilised for land or construction cost, in a separate bank account. This must be done within three months of applying for registration of the project.

Other States such as Kerala have introduced ambiguity by indicating that the amount to be deposited may be 70 per cent or less, as notified by the Government. Reducing the escrow account holding percentage is certainly a negative for buyers as it may lead to fund diversion and hence delays in completion.

A third aspect that home buyers must be aware of is that not all States have notified the rules. For example, the final rules for Tamil Nadu have not been published. Without rules on registration provisions and appointment of the regulatory authority, registration of housing projects remains stalled and the situation is quite chaotic. But it does not mean that buyers are left in the lurch. “Most substantive provisions of the Act are in effect from May 1, 2017 notwithstanding the status of the implementation of RERA in different States”, says Maroo. The Central Act has delegated the rule making powers only on certain aspects; so, it is not required that the rules framed by the State government address all aspects.

Also, in terms of punitive provisions, there are differences. The Act allows builders to prefer compounding of offences to avoid imprisonment and, accordingly, most States have prescribed compounding fines, says Maroo. There are differences in the amount of fine to be paid across States. Most States require 10 per cent of project or the apartment cost (based on the type of offence) as fine. Rajasthan, however, has lowered it to 5 per cent for compounding. While leniency to errant developers does not send the right signal, home buyers need not fret too much about these as the implication is not very direct.

Despite the variations, home buyers can seek comfort from the Act. Developers all along could get away from the rigour of the law by adopting tactics such as slipping in fineprint disclaimers or obtaining waivers from unsuspecting buyers. This may become a thing of the past. Buyers can opt for RERA adjudication for any dispute that they may face with developers, even in respect to completed projects. Hence, builders may worry about litigation before RERA which may damage their reputation and shut them out of business, says Maroo. Besides, RERA also requires that a standard agreement be used to avoid home buyers waiving off their rights, notes Jain.