The Real Estate (Regulation and Development) Act, 2016 (ReRa)

Historical Background

Historical Background:
Housing is a basic human need. The Vastushastra and town planning is not new in this part of the world. It has traces even in cities of Indus Valley Civilization (Harappa & Moen-jo-daro). These are also visible in over 500 year old town cities of India e.g. Jaipur. Proper housing & town planning is also visible in Presidency Towns as also in civil lines developed by British in various cities of India. After Independence these houses were allotted to senior politicians & bureaucrats. The housing for other public servants also gained momentum after Independence. However, their development was marked by budgetary allocations e.g. for police lines, railway & army quarters, government employees housing schemes, refugee colonies etc. After Independence, the serious efforts in the direction of providing housing to general public are observed in 1960s-70s. It was the time when housing boards were established in most of the States in India and the concept of formal finance for housing developed. The modern progressive town planning in India has its roots in Municipal Corporations, Housing Boards, development authorities etc.

2. The industrialization in India post independence resulted in labour migration towards urban centers. This also boosted the demand for housing and housing finance. On supply side the housing boards, development authorities, cooperative sector tried to cope up with the demand of housing finance and planned development of habitats in India. Overtime, the private players started entering in the real estate sector to contribute in growth of the nation and their role also can’t be undermined. In Indian federal structure, finance is union subject and land is the state subject. Hence, the increasing real estate activity started fetching attention of Union as well as State governments inter alia for proper town planning, financing, revenue generation and maintaining supply of appropriate housing to meet the ever growing demand.

3. The land laws being local subject, they vary from State to State and within a State from place to place. The increasing transactions and varied land rights/ liabilities also resulted in increased social conflicts, in which the poor and gullible started suffering. In this process many Model Laws on various subjects were drafted central government e.g. apartment ownership, rent control, land ceiling, land use, land acquisition besides governance codes for municipalities, housing boards, urban development authorities, housing cooperatives etc. These Model Laws were backbone for adoption by state legislations, by desired modifications as per their local requirements. The control by such laws, by-laws, rules, regulations etc also resulted in increased bureaucratic hurdles in constructions. The unhealthy competition, corruption and delays and avoidance of law by unscrupulous market players started shifting the housing development on fringes of development areas/ cities. This culminated into the improper town development, litigations, land misuse, revenue misappropriations/ exploitation of public by land mafias, cheating by builders, developers, colonizers etc. It also started a) affecting future town planning; b) improper & hazardous constructions; c) increasing housing units devoid of demand; and d) improper growth of cities. The 2011 census suggests that in many Indian cities, on one hand the slum improvement is tardy; and on other hand the number of locked/ unoccupied dwelling units is surpassing the number of houseless families & pavement dwellers. The situation also suggested that supply of housing stock is also deviating from demand based construction to speculative investment and creation of land mafias.

4. The periodic census data suggests that in percentage terms the population of towns is increasing with each census. The major reason for it is suggested the industrialization and job opportunities are more in urban centers. The migratory population from rural to urban centers is in search of greener pastures i.e. better employment. Most of such migratory population consists of unskilled and semi-skilled laborers and they make the urban slums as their home. The urban slums have inherent problems of health, hygiene, employment opportunities, crime, education and tardy growth of human development for which the governments are making tireless efforts for slum improvements and providing self-employment to slum dwellers. However, the financing institutions are reluctant to provide credit to them due problems in their residential/ KYC verification, skill set certification, income status, repaying capacity, mortgagable immovable properties and fear of their migration back or to other places. In such circumstances, if an Affordable Housing Unit is provided to such economically weaker section in cities, it will not only provide them a proper shelter but will also make them creditworthy in eyes of financing institutions to get small credit for self-employment.

5. The real estate development is mainly governed by demand for personal requirements or for investing funds with an eye on present & future financial gains. The present stagnation in real estate is suggestive of peculiar demand and supply mismatch. The promoters are concentrating on effluence in construction for their brand value whereas demand of the market is for Affordable Housing for poor and for floating population. On one hand the banks and financial institution, due to falling real estate prices, are reluctant to fund the real estate promoters and on other hand the poor and needy are not getting even the minimum required shelter. On the more, the numbers of locked, half-constructed, dilapidated houses in cities are increasing. On one hand the investor or house/ property seeker is feeling cheated due to stalled projects, delayed delivery of unit, runaway promoters and falling prices, and on other hand, the promoters and developers are unable to get funding to complete the projects, deviating funds from specified projects and going into bankruptcy and litigations. Such situation requires government intervention, playing a catalytic role for developing housing which has demand, making such housing affordable, making Cities Smart, punishing unscrupulous developers, saving gullible public from losing their lifelong savings and ensuring that the money collected and meant for a particular real estate project are invested in that project only.

6. This was possible only by regulating the Real Estate Sector, channelizing public resources for affordable housing, slum improvements and Union supporting States which are ready to help themselves in these directions as also in controlling land mafias. The Real Estate (Regulation and Development) Act, 2016 and Pradhan Mantri Awas Yojana – Housing for All (Urban) are a step in that direction.

7. It is necessary to understand that the Real Estate involves the sale, purchase and development of land for residential, commercial and industrial purposes. As explained earlier, the different aspects of real estate are regulated by different levels of government. Real estate projects are currently regulated by state governments under their respective state town and country planning or apartment ownership Acts. Typically, town and country planning Acts regulate land use and development. Apartment ownership Acts regulate individual ownership of apartments in buildings with multiple apartments. Approvals for construction of real estate projects are primarily given at the local and state level. Certain approvals are given by the central government. Consumer grievances may be redressed through forums established under the Consumer Protection Act, 1986. Unfair trade practices may be challenged under the Competition Act, 2002. The applicability of such diverse laws to the land, confuse not only buyers/ sellers but, even to the legal fraternity. Several court cases have addressed issues in the sector such as unfair buyers’ agreements and illegal construction. In the absence of single regulator to regulate the relationship between various players, the gullible and cheated property buyers seeking justice has to run to various forums for redressal of their grievances. The absence of a single regulator for the real estate sector is partly responsible for poor grievance redressal.

8. The first Model ReRa was published by GoI (MoHUPA) in 2009 to mainly ensure consumer protection and also to some extent regulate real estate sector. The Model Bill provided a legislative framework which state governments could choose to adopt while enacting their own laws. However, due to the political situation and pressure lobbies, only few states had shown progress in this direction. In 2013, the Committee on Streamlining Approval Procedures in the Real Estate Sector recommended making the sector more transparent, with information on real estate projects made easily available. It also recommended strengthening the grievance redressal mechanism in case of non-compliance with building standards or contracts. On such recommendations Real Estate Regulatory Authority Bill was introduced in 2013 but not passed. In December 2015, the Cabinet again approved 20 major amendments to the bill on recommendation of the Rajya Sabha. The bill again went to Select Committee which submitted its report in July, 2015 with decent/ reservations of Congress, Left and AIADMK. However, with acceptance of amendments from the members the bill got approval of the Rajya Sabha on 10.03.2016 and of the Lok Sabha on 15.03.2016. The Act got President’s assent on 25.03.2016 and notified in Official Gazette on 26.03.2016.

Objects for enacting the Real Estate (Regulation and Development) Act

1. The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While this sector has grown significantly in recent years, it has been largely unregulated, with absence of professionalism and standardization and lack of adequate consumer protection. Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the real estate market, the recourse is only curative and is not adequate to address all the concerns of buyers and promoters in that sector. The lack of standardization has been a constraint to the healthy and orderly growth of industry. Therefore, the need for regulating the sector has been emphasized in various forums.

2. In view of the above is necessary to have effective legislation, for consumer protection and uniformity and standardization of business practices and transactions in the real estate sector. The legislation should also provide for the establishment of the Authority for regulation and promotion of real estate sector. Such Authority should also ensure sale of plot, apartment or building, as the case may be, is made in an efficient and transparent manner. The legislation should also protect the interest of consumers in real estate sector and establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Authority.

3. The legislation should ensure greater accountability towards consumers, and significantly reduce frauds and delays as also the current high transaction costs. It shall also attempts to balance the interests of consumers and promoters by imposing certain responsibilities on both. For that the legislation should also 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. The intent of legislation should be to induct professionalism and standardization in the real estate sector, thus paving the way for accelerated growth and investments in the long run.

4. The proposed legislation should also provide for the following, namely:-

To impose an obligation upon the promoter not to book, sell or offer for sale, or invite persons to purchase any plot, apartment or building, as the case may be, in any real estate project without registering the real estate project with the Authority;
To make the registration of real estate project compulsory in case where the area of land proposed to be developed exceed 500 square meters or number of apartments proposed to be developed exceed eight;
To impose an obligation upon the real estate agent not to facilitate sale or purchase of any plot, apartment or building, as the case may be, without registering himself with the Authority;
To impose liability upon the promoter to pay resonable compensation to the allottees in case if he fails to discharge any obligations imposed on him under proposed legislation;
To establish an Authority by the appropriate Government, to exercise the powers conferred on it and to perform the functions assigned in the legislation;
The functions of the Authority should, inter alia, include –
(i) To render advice to the appropriate Government in matters relating to the development of real estate sector;
(ii) To publish and maintain a website of records of all real estate projects for which registration has been given, with such details as may be prescribed;
(iii) To ensure compliance of the obligations cast upon the promoters, the allottees and the real estate agents under the proposed legislation;
To establish an Advisory Council by the Central Government to advice and recommend the Central Government on – (i) matters concerning the implementation of the proposed legislation; (ii) major questions of policy; (iii) protection of consumer interest; (iv) growth and development of the real estate sector;
To establish the Real Estate Appellate Tribunal/s by the appropriate Government to hear appeals from the direction, decision or order of the Authority or the adjudicating officer;
To appoint an adjudicating officer by the Authority for adjudging compensation under the proposed legislation;
To make provision for punishment and penalties for contravention of the provisions of legislation and for non-compliance of orders of Authority or Appellate Tribunal;
To empower the appropriate Government to supersede the Authority on certain circumstances specified in the proposed legislation;
To empower the appropriate Government to issue directions to the Authority and obtain reports and returns from it.

With a view of above the key features incorporated in the The Real Estate (Regulation and Development) Act, 2016 (ReRa) are as under:

1. Real Estate Regulatory Authority and Appllate Tribunal:
Under the Act, appropriate government/s shall establish Real Estate Regulatory Authority/ies for regulation and promotion of the real estate sector. The Authority shall strive to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector while protecting the interest of allottees, promoters and real estate agents. The authority shall also establish an adjudicating mechanism for speedy dispute redressal regarding registered real estate projects. The key responsibilities of the Authority shall be as follows:

Ensuring Disclosures of Real Estate Projects by Promoters;
Real Estate Projects Registration;
Real Estate Agents Registration;
Complaints Redressal; and
Provide recommendations to appropriate Government inter alia relating to
i) Single window clearance of projects;
ii) Encouraging affordable housing & investment in the sector;
iii) Grading of projects;
iv) Facilitate amicable conciliations;
v) Digitization of land records etc.

2. Registration of Real Estate Projects: All commercial and residential real estate projects will have to register except in projects where:

Area of land proposed to be developed does not exceed five hundred square meters
Number of apartments proposed to be developed does not exceed eight inclusive of all phases;
Promoter has received completion certificate for a real estate project prior to commencement of this Act for the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.

3. Registration for Real Estate Agents:
All Real Estate Agents should register under this Act. No real estate agent shall facilitate the sale or purchase of or act on behalf of any person to facilitate the sale or purchase of any plot, apartment or building, as the case may be, in a real estate project or part of it, without obtaining registration under this section.
If any real estate agent fails to register, he shall be liable to a penalty of ten thousand rupees for every day during which such default continues, which may cumulatively extend up to five per cent of the cost of plot, apartment or buildings, as the case may be, of the real estate project, for which the sale or purchase has been facilitated.

4. Filing of Complaints:

Any aggrieved person may file a complaint with the Authority or the adjudicating officer, as the case may be, with respect to any registered real estate project, for any violation or contravention of the provisions of this Act or the rules and regulations made there under. The Authority shall establish an adjudicating mechanism for speedy redressal of such complaints;
Any person aggrieved by any direction or decision or order made by appropriate authority or by an adjudicating officer may file an appeal before the Appellate Tribunal;
Any person aggrieved by any decision or order of the Appellate Tribunal, may file an appeal to the High Court.

5. Financial Discipline:
The Act strives to ensure greater financial discipline in the real estate sector. The major its provisions are as follows:

A promoter shall not accept more than ten per cent of the cost of the apartment, plot, or building as the case may be, as an advance payment or an application fee, from a person without first entering into a written agreement for sale with such person, and shall also register the said agreement for sale;
Seventy per cent of the amounts realized for the real estate project from the allottees, from time to time, shall be deposited by Promotor in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose
Withdrawal from such accounts shall be in proportion to the percentage of completion of the project, which shall be certified by an engineer, an architect and a chartered accountant in practice;
Promoter to compensate buyer for any false or incorrect statement with full refund of property cost with interest;
Project Accounts to be Audited and copy of audited accounts to be submitted to the Authority. There are provisions for Authority to freeze project bank account upon non-compliance;
There are provisions for Authority to impose financial penalties in case of non-compliances.

6. Transparency:
The Act shall drive great transparency in the real estate sector. For that the details of all the Registered Projects shall be available online for citizens including:

Sanctioned plans, layout plans, along with specifications, approved by the competent authority;
Proposed Plan, Proposed Layout Plan of the whole project and Floor Space Index proposed to be consumed in the whole project, as proposed by the promoter;
Proposed Number of building(s) or wing(s) to be constructed and sanctioned number of the building(s) or wing(s);
The stage wise time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation and electricity;
Periodic update of the list of number & types of apartments or plots, as the case may be, booked;
Periodic update of the list of number of covered parking, garages booked;
Periodic update of the list of approvals taken and the approvals which are pending subsequent to commencement certificate;
Periodic update of the status of the project; and
Such other information and documents as may be specified by the regulations made by the appropriate Authority;
The advertisement or prospectus issued or published by the promoter shall mention prominently the website address of Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority.

7. Benefits to allottees and their duties:

Citizens shall be able to view, on appropriate Authority’s website, all disclosures pertaining to registered projects to enable them making informed decision;
Promoter cannot make any additions and alterations in the sanctioned plans, layout plans and specifications and the nature of fixtures, fittings, amenities etc. without consent of at least two-thirds of the allottees, other than the promoter, who have agreed to take apartments in such building;
If the promoter fails to complete or is unable to give possession of an apartment, plot or building, in accordance with the terms of the agreement for sale, he shall be liable to pay interest for every month of delay. Further, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him with interest;
Promoter to enable formation of Legal Entity like Cooperative Society, Company, Association, Federation etc. within three months from the date on which majority of allottees booked their dwellings/ apartment;
Promoter shall execute a registered conveyance deed in favour of the allottee within three months from date of issue of occupancy certificate or earlier as specified in local laws.

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The Real Estate (Regulation and Development) Act, 2016 (ReRa)

Historical Background

Objects for enacting the Real Estate (Regulation and Development) Act

With a view of above the key features incorporated in the The Real Estate (Regulation and Development) Act, 2016 (ReRa) are as under:

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