The Real Estate (Regulation & Development) Bill, 2013 (“Bill”), a central legislation applicable to the whole country is on the cards. It attempts to ensure a planned, efficient and transparent development of the real estate sector. The bill has been positioned as a Central initiative to protect the interests of consumers and to promote fair play in real estate transactions.
The bill also seeks to help speedy adjudication of disputes and encourage domestic and foreign investment into the industry, in line with the Government’s objective of “Housing for All by 2022”.
It regulates transactions between buyers and promoters of real estate projects. It also establishes state level regulators called ‘Real Estate Regulatory Authorities’ (RERAs) and Appellate Tribunals.
The bill has gone through revisions and amendments, and is currently pending with the Rajya Sabha Select Committee after having been passed by the Cabinet.
Why do we need such a law? How will it actually impact consumers?
Once enacted, it will affect millions of flat purchasers. It aims to regulate the entire process of development, from registration of real estate projects to the delivery of possession to the purchaser.
For example, promoters are required to a register project with the State RERA before marketing it or taking any bookings. Prior to registration, they are also required to make detailed disclosures with respect to the layout, carpet area of units, date of completion of project, declaration as to title to the land, etc.
The Bill attempts to bridge the gap between promoters who have superior knowledge of market practices and thus more bargaining power, and first time home purchasers who may be a little green behind the ears. These comprehensive procedural requirements will bring transparency, uniformity and organization into an otherwise unorganized sector. Strong penalties for promoters, such as imposition of a fine up to 5% of the project cost, and deregistration of a project, will ensure compliance with the Bill.
So, only all residential projects need to be registered?
Not quite. The bill was originally proposed to cover only residential properties; it now covers both residential and commercial real estate.
However, no registration is required for any project where the land proposed to be developed doesn’t exceed one thousand square meters, or the number of apartments is twelve or less. This significant exclusion is puzzling, as purchasers in smaller projects equally require protection under the Bill. Incidentally, projects which have already commenced prior to the enactment of the Bill, and renovation projects also don’t need to be registered.
You mean there is a lengthy process for registration?
The Bill aims to increase transparency, not red tape.
A promoter needs to apply to the relevant RERA for registration of a new project in a truncated process. Along with the application, the promoter is required to enclose several documents, including sanctioned layout plans, commencement certificate, details of his enterprise, and a declaration relating to title to land, that the land is free from encumbrances, likely time period for completion, etc. The RERA is then required to grant or reject registration within a quick turnaround period of 15 days. If the RERA doesn’t grant or reject the application, the project is deemed to have been registered.
On registration, the promoter is required fill in details of the project on the RERA website. The website will thus form a central repository of all information relating to real estate projects. If a promoter circumvents registration, for example, by allotting a flat to a consumer prior to registration of the project, he will be subject to the penalties prescribed in the Bill.
What about brokers? Can they piggy-back on the disclosures of the promoters?
No, they can’t.
Real estate agents are also required to register themselves and also have certain obligations under the Bill, including to sell only registered properties and to maintain books of accounts and other records and documents. So far, brokers have escaped any regulation; however this new provision, added on the recommendation of the Department of Revenue, Ministry of Finance, seeks to make them more accountable as professional agents.
The provision, while positive, will be difficult to implement. Take, for instance, the definition of ‘real estate agent’, which includes any person who negotiates or acts on behalf of one person in a transaction of for sale of real estate with another person and receives remuneration for his services. It includes a person who merely introduces prospective buyers and sellers to each other for negotiation for sale of real estate. This is an impractical proposition given the tens of thousands of people, having regular jobs, who sometimes moonlight as middle men for a small commission. That being said, dealing with a registered broker will definitely bring comfort to a home purchaser. Staggered implementation of this provision may be considered.
Is the Bill good for promoters? If the provisions are too rigorous, won’t the industry stagnate?
While the Bill will help prevent unfair trade practices and bring in transparency, in certain urban markets, provisions of the Bill may be impractical to enforce and may even hinder fast development of the sector.This primarily due to constraints on raising capital for projects.
For example, the amended Bill prescribes that fifty percent of all amounts realized for every project should be deposited by promoters in a separate bank account to cover the cost of construction, and such amounts can be used only for such purpose (prior to amendment, this stipulation was even higher – seventy percent). This poses difficulties, as the sector is already going through a liquidity crunch. This may make it very difficult for developers to acquire additional land if their capital is locked up in a single project. In metros like Mumbai, New Delhi and Bangalore, cost of construction can be as low as 5-10% of the cost of acquisition of the land.
Similarly, a promoter can’t sell flats until he has registered the project, which can only happen after approvals have been received. This provides consumers with some comfort in knowing that at least the commencement approvals have been obtained.But, the nature of the business is such that promoters require large amounts of funds to be able to acquire land, to obtain permissions and to pay interest until they can begin selling. Financing in the form of bank loans aren’t available for purchasing land and only limited loans are available for construction and development. Any large investor or lender requires security in the form of flat bookings. Therefore, this provision too will make raising capital for new projects difficult.
The Bill prescribes punishments for various offences. Punitive provisions include de-registration of the project and penalties in case of contravention of the provisions of the Bill or the orders of the RERA or Appellate Tribunal. However, an amendment to bring about more stringent penal provisions, including imprisonment for major offences by errant builders, is in the offing. Whether imprisonment as a punishment is necessary, when there are other penalties, remains to be seen.
Who is a ‘promoter’?
Under the Bill, the term ‘promoter’ is synonymous with builder or developer. Significantly, the Bill seeks to club bulk buyers who buy for the purpose of investment and intend to resell, with promoters. Bulk buyers would then be liable for construction defaults, delays and have all the obligations of promoters under the Bill. This will have the effect of drying up the ‘investor’ or ‘bulk buyer’ market. If bulk buyers aren’t the ones who are paying for the land, obtaining approvals and appointing contractors; but are merely purchasing units; why are they on the same footing as promoters? Yet, as it stands today, bulk buyers have the same obligations as promoters under the Bill.Bulk buyer or investors need to be differentiated.
That’s great – but how does the Bill protect against fly-by-night promoters?
The Bill protects consumers even apart from the registration and disclosure requirements of promoters.
Typically, promoters take bookings for apartments in an under-construction project by taking an advance payment and executing an allotment letter with the purchaser. Now, under the Bill, a promoter can’t accept more than ten percent of the cost of the flat, without first entering into and registering a written agreement for sale with the purchaser. This provision is salutary and will better protect consumers (in Maharashtra, for example, the Maharashtra Ownership of Flats Act, 1963 and the new Maharashtra Housing (Regulation and Development) Act, 2012 set a higher limit of twenty percent, and not ten percent).In such agreements promoters also need to specify the likely date of possession of the apartment.
A promoter needs to adhere to approved plans and project specifications. A promoter can’t change or amend plans without consent of two-thirds of the allottees, after disclosure. Also, minor additions and alterations are permissible due to architectural and structural reasons. This is beneficial to flat purchasers, however, it is less stringent than several State laws which require consent of all the allottees prior to amendment of layout.
The promoters also have duties relating to the veracity of advertisements for sale, rectifying structural defects, and are required to refund money with interest in case of their default in handing over possession within the time specified under the agreement.
The Bill is great for consumers. But what are the remedies? Won’t it take forever to get any relief in court?
The Bill establishes a fast-track dispute resolution process, where adjudicating officers appointed by the RERA will hear and dispose of matters expeditiously. Appeals from the adjudicating officers will be heard by the Appellate Tribunal. The adjudicating officers and Appellate Tribunal will have the powers of a civil court. The Bill bars the jurisdiction of civil courts and goes further by providing that no injunction may be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Bill. This will circumvent protracted litigation for simple relief in overburdened civil courts. However, the jurisdiction of consumer courts are not expressly barred, so technically, one can still proceed before a consumer court for relief under the Bill.
That’s amazing! The Bill seems to be quite comprehensive
No, the Bill doesn’t cover some topics which ought to be covered in such a watershed legislation on the topic.
For example, under the Bill, the promoter is required to register a conveyance deed in favour of the allottee along with the undivided proportionate title in the common areas of the building and plot. However, there is no ‘deemed conveyance’ provision in the Bill,i.e. a provision permitting allottees to take unilateral conveyance in their favour in the event the promoter neglects or refuses to register a conveyance deed.
Similarly, the concept of utilization of floor space index (FSI) or floor area ratio (FAR) to the extent of the unsold premises has been omitted, though it finds place in certain State laws.
The Bill also doesn’t bring within the purview of the RERAs, other parallel bodies in individual States which have comparable objects, which deal with issues such as slum clearance, redevelopment of tenanted premises, town planning, etc. Since the RERAs are to be nodal agencies to co-ordinate efforts regarding real estate development, all these bodies should ideally come under a single umbrella.
Wait, aren’t there already State laws on the same subject?
Yes, that’s correct.
The Parliament is empowered to legislate on ‘Contracts’ and ‘Transfer of property’ which are listed on the Concurrent List of the Seventh Schedule to the Constitution. However, so far, laws regulating the real estate development have been enacted at the State level, since ‘Land’ is listed as an item on the State List.
So, laws regulating real estate development vary from State to State. For example, in Maharashtra, the Maharashtra Ownership Flats Act, 1963 and the Maharashtra Apartments Ownership Act, 1970 largely regulate the housing industry.
The Maharashtra Legislative Assembly has also recently passed the Maharashtra Housing (Regulation and Development) Act, 2012, which has substantially the same objects as the Bill. Similarly, in Karnataka, the Karnataka Apartment Ownership Act, 1972; and in New Delhi, the Delhi Apartment Ownership Act, 1986 (not yet enforced), and a new proposed Bill, regulate real estate development.
Under the Constitution of India, in case of an inconsistency between a Central law and a State law, the Central law will prevail. Therefore, technically,the Central Bill will nullify State laws which are inconsistent with it. This is an important question of Constitutional law.
The Maharashtra Government has already said that it will strongly oppose any move by the Centre to repeal in totality the new Maharashtra Housing (Regulation and Development) Act, 2012.
The Bill will be discussed in the monsoon session of Parliament
Yes, however it is unlikely to be finally passed in the monsoon session. Let’s hope that all stake holders can come together and suggest relevant changes, to enable Parliament to enact the Bill soon.
Anirudh Hariani is a solicitor at Hariani & Co., Advocates and Solicitors.
Hariani & Co., as part of its silver jubilee celebrations, is organizing a lecture series on Real Estate Laws, held at the Indian Merchants’ Chamber, Mumbai, from the 3rd to the 5th of August. For more information on the lectures, and registration, visit www.hariani.co.in/lectures .