Drawbacks and Shortcomings of Real Estate (Regulation and Development) Act, 2016

Aditya Pratap is a lawyer practicing in the Bombay High Court. He can be reached at aditya@adityapratap.com

Introduction of The Real Estate Regulation Act, 2016

The Real Estate Regulation Act (RERA) was introduced on 1 May, 2016
and implemented on 1 May, 2017. It act mainly focuses on the consumer’s major issues related to incorrect information of projects by the promoters,
maltreatment of funds and delays in completing of real estate projects.

The real estate has a catalytic role in fulfilling the demand for housing for the various socio-economic classes. The cumulative effect of these demands are placed on the real estate and construction sector, providing an excellent opportunity for conferring social benefits which could act as a major vehicle for initiating a goodwill for the economy.

Limitation and Shortcomings of RERA, 2016

Following are some pointers explaining the impediments of RERA,2016 namely-

  • Hike in property price: Due to various extrinsic and intrinsic factors in the sector it leads to lack of cash. Builders have to look for other sources for money thus, leading to rise in the price of the property. This variation affects to demand and supply condition in this sector.
  • Stagnant growth: Due to 70% investment in escrow account there will be cash flow hindrances leading to delay in projects. This step is taken to stop the developer from diverting their mind repeatedly to new projects and complete the running project.
  • Supply-demand imbalance: Compliance to all the aspects will delay the project and as there won’t be pre-selling of the property. Big builders can develop two to three project within 2 years it will lack economies imbalance due to the project duration and small builders cannot able to earn money with lack of techniques band resources.
  • Strong penalty: If a builder fails to fulfill any provision, he will be liable for imprisonment up to 3 years or 10% of the total cost of the project. This situation put the buyer in trouble and keep them away from their houses till the matter get solved. This creates stress in their lives and badly effect on their financial crisis.
  • No cover on rental: RERA doesn’t include any rental agreements it totally depends upon the buyer to maintain the rental agreement which denotes the agreed and disagreed part clearly to save the property and make a proper use of it.

Key Challenges regarding RERA, 2016

RERA,2016 seeks to establish symmetry of information between the promoter and purchaser, transparency of contractual conditions, set minimum standards of accountability and a fast-track dispute resolution mechanism. But the hurdle in the system are listed below-

  • There is still a dichotomy in the time table followed by states in enacting the RERA Acts. While final rules have been notified by just 15 states, others are still in the process of finalizing the same.
  • There is this important task for setting up the RERA authority in each state which will function as the central nodal agency for real estate transactions in the state. Most states are yet to appoint the RERA authority even as other states are lagging behind in the creation of RERA website for uploading all relevant information to become RERA compliant.
  • There is also a high degree of confusion among brokers and distributors on the aspect of marketing of projects to customers. Aspects like restrictions on creation of builder micro-site, restrictions on selling, KYC etc, are still not too clear.
  • There is also the major uncertainty over the re-execution of the agreements in case of projects where the deed is already signed. While some states are calling for all such documents to be re-executed under the RERA, other states are exempting existing agreements from this requirement. This inconsistency across states is proving to be a major source of confusion for buyers of property.

Current Issues in India concerning RERA, 2016

  • The government is planning to bring tenanted or ceased buildings and tenants of such buildings under the Real Estate (Regulation & Development) Act, 2016 providing for the first time the same protection to these consumers as those available to other home buyers. The tenanted or ceased buildings that dot the landscape of many cities, especially Mumbai, house people who have been living for several decades and paying cheap and artificially depressed prices. Known as the ‘Pagdi system’ in Mumbai, tenants are not covered under the authority.
  • The appellate tribunal of MAHARERA has asked the secretary of the regulatory body to initiate action against an architect for issuing factually incorrect certificate to a project. While hearing an appeal, the tribunal found out that a builder during a hearing in MAHARERA had said that building has occupation certificate. However, it was found by the tribunal that the amenities, lift, staircases and other facilities were yet to be completed.
  • The Maharashtra Real Estate Regulatory Authority has also asked various planning authorities in the state to act against 293 real-estate projects that are being developed without requisite permissions, said a top official of the authority. Interestingly, the regulator has gathered information about these projects through emails sent by various people on a specific email id floated to find out about projects that need registration but have not been registered.
  • Magic bricks reports says that around 74 per cent home buyers in India are unaware about the online process to check a realty about the project’s status under the Real Estate Regulatory Act, also respondent does not know whether the projects are registered or not on the website. Respondents lack with all the necessary information with regards to carpet area, payment modes, registration number of the builder etc. Many projects were due to register on websites also to mention flyers to showcase the exact details of the builders.

Suggestions extended by Ministry of Housing and Urban Affairs pertaining to the Improvement of RERA, 2016

  • The definition of force majeure may be widened to include the non-availability of ‘construction materials’ and labor due to unavoidable circumstances, delayed approval from government bodies or due to judicial order or stay.
  • Real Estate Agents may be relived from its liability upon execution of agreement between developer and home buyer.
  • PAN India registration for Real Estate Agent instead of state wise registration, which is presently been done under RERA.
  • Penalty of 5% on Real Estate Agents in case of default, may be decreased, as the commission is not more than 2% in most of the cases.
  • The registration of Sale Deed, registration of Agreement to Sale etc. should come under the ambit of RERA.
  • Regulatory Authorities may be given powers similar to Appellate Tribunal as given under Section 53 of RERA.
  • Regulatory Authority may be empowered to issue directions to all the stake holders including the government organizations under Section 35 to 37 of RERA.
  • Under Section 79 of RERA, jurisdiction of consumer forum may be expressively barred like civil court to avoid conflict of order.
  • RBI may be requested to issue the clarifications on stressed assets notification to help enhanced funding to the stalled projects.
  • The Government of India may organize a national workshop to prepare a template for Stress Asset Projects before going to National Company Law Tribunal.

Suggestions pertaining to Real Estate Regulatory Authorities

  • All the States or Union Territories including Tamil Nadu, Karnataka, Andhra Pradesh, Telangana and Puduchery need to take suitable action to re-notify their state rules under RERA in line with central Act.
  • Authority to ensure the strict compliance of 70% amount in escrow account provision by developers in letter and spirit.
  • Pending cases under RERA, which are being adjudicated by Regulatory Authority, Adjudicating officer and Appellate Tribunals may be expedited .
  • The ‘Conciliation Forum’ may be established by all states to resolve the issues of consumer and the developers at initial stage.

About the Author – Aditya Pratap

Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at aditya@adityapratap.com.

Cases argued by Aditya Pratap can be viewed here.

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