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Realty bites - RERA Era has begun
The real estate sector in the country is set for a major change. The Real Estate Regulatory Authority (RERA) will come into force in each State, as mandated by the law passed by Parliament in 2016.
Finally, the Real Estate (Regulation and Development) Act came into force across the country on May 1, to the immense relief of homebuyers and investors alike. This will usher in a new era of transparency in the real estate sector in the country and, perforce, corporatise the operations of all developers.
Once the Real Estate Regulatory Authority (RERA), mandated by the Act, is established by every State, experts expect projects covered under RERA to be completed on time, that too without any deviation from the original proposed plan. This is likely to improve the confidence of buyers in the system and entice them to buy in projects under construction.
Uttar Pradesh and Maharashtra have already notified RERA rules. Karnataka and Haryana are likely to notify the rules soon, so that it is implemented on time. A government source said the Union government has asked State governments to include all current projects, where completion certificates have not been given out, under the ambit of RERA. All current projects have been given three months up to July 2017 to comply with RERA regulations.
A senior government official said that even those States which have not notified the RERA rules and appointed an authority will be required to do so before July 2017, so that all the current projects may be registered as required by the law.
RERA does not permit developers to launch new projects before registering them with the regulator. This will be a major shift from the current practice where developers sell a part of their project through a soft launch or pre-launch activities, said CRISIL, the credit-rating agency.
Developers will now have to refund or pay compensation to allottees for any delay in projects, with an interest at the State Bank of India's highest marginal cost of funds based lending rate plus two percent, within 45 days of its becoming due. This will come to around 11-12 percent.
According to the rules, which the central government is pushing all State governments to follow, developers of current projects should deposit 70 percent of the amount collected and unused for the completion of these projects within three months of applying for registration of a project with RERA in a separate bank account.
The rules also makes it mandatory for developers to disclose project-related details, including project plan, layout, and government approval-related information to buyers like sanctioned FSI, the number of buildings and wings, the number of floors in each building etc. However, buyers will pay only for the carpet area of an apartment which does not include the common area of a condominium, on a pro rata basis. This will force developers to quote higher rates per square feet for the carpet area. In almost all the State government rules, consent of two-thirds of the allottees is a must for any major addition or alteration in a project.
Effective implementation of RERA will improve transparency and timely delivery of residential units. RERA is also expected to put an end to fund diversion, and transform the realty sector into a more organised and trustworthy industry, instilling confidence in end-users, CRISIL said in a report. Developers also say that RERA will bring back buyers into the market.
From now on, developers will have to work under an onerous mandate with 70 percent of all the money collected from the sales of units in a project to buyers transferred into an escrow account, which will be used for the construction and meeting the land cost of the project.
Withdrawal from the account will be in proportion to the completion of the project and must be certified by the engineer, architect, and a practising chartered accountant. So, any diversion of funds from a project is not possible.
Any structural defect, or any other obligations of the promoter as per the agreement of sale, brought to the notice of the promoter within five years from possession have to be rectified free of cost. The rules also provides for buyers to comply with the payment schedule mentioned in the model sale agreement.
Manoj Gaur, Vice President, CREDAI National, said that RERA will bring transparency in the system. But, until the time that authorities are not made responsible for timely approvals, the cost of real estate may go up, Gaur said. Every developer will have to remodel his business processes now. At the CREDAI level, the apex body of developers is holding training sessions for developers to educate them on the changes expected in the new business environment.
Gaur said that as a project can now be launched only after securing all the approvals, it should make buyers confident to buy in projects under construction. To that extent, it is a welcome move