Real Estate Act comes into effect: 10 things you need to know about new law
The Real Estate (Regulation & Development) Act, 2016, the landmark realty law to protect home buyers from unscrupulous developers, will become operational from Monday, nine years after it was conceived.
The act was cleared by Parliament in March last year. Under the act, states had to notify the realty rules and set up Real Estate Regulatory Authority (RERA) by April 30. Without notifying the rules, the law will not become operational.
However, as on April 30, just 13 of the 32 states and Union territories, including Gujarat, Uttar Pradesh, Madhya Pradesh, Maharashtra, Odisha, Delhi, and Andhra Pradesh have notified the rules.
Only one state – Madhya Pradesh – has set up RERA while 9 others including Kerala, Maharashtra, Punjab, Rajasthan, Haryana, and Delhi have set up interim regulators.
Housing ministry officials maintain that remaining states have been directed to notify their rules at the earliest.
Here’s all you need to know about the new realty law:
• It makes it mandatory for all builders - developing a project where the land exceeds 500 square metre - to register with RERA before launching or even advertising their project. Developers have been given time until July 31 to register.
• Not doing so will invite up to a maximum imprisonment of 3 years or fine of up to 10% of the total project cost.
• Developers will have to submit as well as upload project details, including approved layout plan, timeline, cost, and the sale agreement, that prospective buyers will have to sign to the proposed regulator.
•Only developers who fulfil this disclosure clause would be permitted to advertise their project to prospective buyers.
•Real Estate Appellate Tribunals to be set up in every state.
•As of now, the real estate sector was largely unregulated in India. If a consumer had a complaint against a developer they had to make rounds of consumer or civil courts. Now, in case of any grievance, the consumer can go to the real estate regulator for redressal.
• Developers will have to put 50% of the money collected from a buyer in a separate account to meet the construction cost of the project. This will put a check to the general practice by developers to divert buyer’s money to start a new project instead of finishing the one for which money was collected. This will ensure that construction is completed on time.
• The law is likely to stabilise housing prices. It will lead to enhanced activity in the sector, leading to more housing units supplied to the market.
• It will weed out fly-by-night operators from the sector and channelise investment into it.
• Builders will also benefit as the law has penal provisions for allottees who do not pay dues on time. The builder can also approach the regulator in case there is any issue with the buyer.
How it works in other countries
Real estate in the US is regulated at numerous levels. There is no single regulatory body, but a series of bodies that regulate different ownership and usage aspects. To safeguard the interest of the end-users, the US department of housing and urban development (HUD) has rules under the real estate settlement procedures act to protect consumer interests pertaining to residential properties.
If a buyer enters a contract with the developer, and the developer does not deliver on the terms agreed upon in the contract, the developer can be taken to court for breach of contract. In the US, there are state real estate licensing laws and a code of ethics in place.
There is no regulator to monitor development. The financial services authority (FSA), which is now part of the Bank of England, regulates almost all investments in real estate. The Property Misdescriptions Act, 1991, prohibits making false or misleading statements on property matters in the course of estate agency business and the property development business.
(Source: Realty decoded: Investing across borders by Ernst & Young and Ficci)