Institutional Changes in Real Estate Sector
The New Economic Policy of India was launched in the year 1991, new Economic Policy refers to economic liberalisation or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country. It is a well-known fact that housing is one of the basic needs of humans. Access to adequate housing can be a precondition for the enjoyment of several human rights, including the rights to work, health, social security, vote, privacy, or education. Safe, secure, and adequate housing is a fundamental need of human beings. Realizing the gravity of the problem of the housing, the right to housing has been recognized under international as well as regional human rights law as it is the basic right of the individual. In the line with the international human rights law, various States have also carved their legal system to encompass the right to housing as the fundamental right of the citizens.
India, has seen major scams in various sectors and it real estate is an old horses of the game. Major Builders (Promoters) and agents have always been in the preview of scams, earlier sector was not very organised. It was and is still is governed by Big Sharks of the game, but over the course of time a lot has changed which includes the Buyers and Promoters (Builders).
The Real Estate Up Roar :-
After the New Economic Reform of year 1991, a lot had changed meaning that the General Public’s spending power had increased by good share of margin. As the money was being pumped through the Economic Reform of 1991, various sectors had seen major boom, as public were willing to spend extra money and increase their standard of living. During the course of time, Real Estate had seen a major jump, people were buying more properties. The government through its Economic reform really helped people to increase their standard of living, but they failed to regulate various sectors and which includes the Real Estate sector. The problem of not having proper regulation in the sector, resulted in many big scams in Real Estate.
- Emaar Properties Scam, the alleged scam started back in 2003 The actual plan was to develop an ultra-luxury township including villas, golf course and a hotel on 535 acres of land in Gachibowli. But in 2006, another Dubai-based infrastructure company, MGF got involved in the partnership and due to which the stake of APIIC reduced to 6.5 percent. The top-notch figures including politicians and celebrities had come under CBI scanner for buying villas sold at 5000 per square yard, whereas the actual market value was no less than 60,000 per square yard. This had brought huge loss to the government,
- Noida Land Scam, in this scam, top scientists of the Indian Council of Medical Research (ICMR) have transferred the government land worth around Rs.70 crores to the name of a private group to develop society flats by spending just a small part of its actual market value.The scam started way back in March 1992 when the tract of government land was allotted to develop staff quarters for ICMR affiliated ICPO (Institute of Cytology and Preventive Oncology) at sector 39. The ICPO spend around Rs.2 crore to get possession of the land but failed to develop the quarters till March 2006, due to which the penalty amounted to almost Rs.2.28 crore. And from this stage, it is to be believed that officials started using the plot of land for different purpose.
- Adarsh Housing Scam was one of the Biggest housing scams in India. This housing scam started way back in the year 2002 when a request for the construction of housing complex was put forward to the Chief Minister of Maharashtra. The request was to allot land for housing complex for “the welfare of serving and retired personnel of the Defence Services," in the city of Mumbai. Surprisingly, over the period of ten years, top politicians, bureaucrats and military officials have come under the scanner for violating several norms including land-use rules and environmental laws and misusing the houses originally built for martyrs' widows and Kargil heroes.
Various Method of Scams:
- False Promise, with increasing competition in real estate, builders are trying to lure as many buyers in the initial phase of a project to meet their funding requirements. Advertisements with false promises are part of it.
- Assured Rental Returns, many builders market their projects by assuring a fixed rental income from properties. Some builders even publish fake rental listings of various projects over the internet. If the prospective buyer does not conduct his own research, he may actually believe that the property once bought can be easily rented out for a fixed monthly income. But, in all reality, once the purchase is over, rentals are hard to come by, leaving the investor in a lurch.
- Title Fraud, this happens with both individual sellers and developers. There have been cases where scammers have duplicated title deeds of vacant or disputed projects and sold them to innocent buyers.
- Deliberate Delay, project delays and disappearing builders are another common occurrence in real estate fraud. One strategy unscrupulous builder’s resort to is to delay project completion deliberately until they get requisite number of buyers. Yet others divert the money pooled from one project to another, delaying both projects in the process.
- Delayed Aprovals: There are many cases reported where buyers are left wringing their hands in despair even after possession, since several sanctions for utilities like electricity connection, water connection, etc, were pending. Issues like plot in unauthorized layout or sub-divided land, building with land use violation, setback violations, floor area violations, etc.
As mentioned above India has seen its share of scam, which has led to many major reforms in the Real Estate sector. As the general public was aggrieved with the given situation in hand, due to that the major changes in law has come up.
in India, RERA has been enacted and implemented in 28 states as well as Union Territories and in November 2018, it was confirmed by the six north eastern states Nagaland, Arunachal Pradesh, Meghalaya, Manipur, Mizoram, and Sikkim have finally agreed to implement Real Estate Regulation Act. The only states to not have implemented RERA are Jammu and Kashmir where Jammu and Kashmir Real Estate (Regulation and Development) Bill, 2018 has been approved by the State Advisory Council under the chairmanship of the J & K Governor and is under the process of establishing the Real Estate Regulating Authority and the Real Estate Appellate Tribunal for efficient and effective. regulation of the real estate sector and West Bengal which has notified its own real estate law — the Housing and Industrial Regulation Act, 2017 (HIRA) instead of RERA.
The key objectives of the Act are:
- Ensuring Translucency in the real estate sector concerning the sale of flats, apartments, plots, buildings, or any kind of real estate project.
- Establishing an adjudicating mechanism for speedy dispute redressal.
- Protecting the interest of buyers/allottees in the real estate sector.
- Establishing a bridge of trust between buyers and the promoters, using authority as a medium.
With the rise in disputes between buyers and the promoters, the Real Estate Regulatory Act notification by the Government of India has led to some guidelines which the promoters have to fulfill as to legally build a project or sell it.
RERA has brought some milestone changes in the real estate sector of India. The unflinching promise of the government into a private sector like real estate maintaining fair play in the property business has come as a big solace for the buyers. Apart from the buyers, the promoters and the real estate agents who go by the government norms, but suffer from some loss because of some ill practices by some promoters, real estate agents also will feel happy and pleased.
Why RERA Act?
The home buyers have grumbled for so long that real estate transactions were laboriously in the esteem of the developers. RERA and the government's model code, focus to design a more rightful and fair transaction between the seller and the buyer of properties, substantially in the primary market. RERA will make real estate purchase effortless, by bringing in superior accountability and translucency, provided that states do not weaken the provisions and the soul of the central act.
The RERA will bestow the Indian real estate industry its first regulator. For each state and union territory, the Real Estate Act makes it obligatory, to form its regulator and draft the rules that will govern the functioning of the regulator.
IMPACT OF RERA:
Initially, a lot of work is to be done to get the existing and new project registered. Details such as the status of each project executed in the last 5 years, promoter details, detailed execution plans, etc., need to be prepared.
With the advent of RERA, specialized forums such as the State Real Estate Regulatory Authority and the Real Estate Appellate Tribunal will be established for the resolution of disputes about home buying and the aggrieved party will have no recourse to other consumer forums and civil courts, on such matters. While the RERA sets the groundwork for fast-tracking dispute resolution, the litmus test for its success will depend on the time setting up of these new dispute resolution bodies and how these disputes are resolved expeditiously with a degree of finality.
- Impact of RERA on the buyer
RERA has been introduced to protect the rights and interests of property buyers. To increase translucency in project completion status, the developers must disclose the construction status on the official website of the Authority. This has to be done every quarter i.e. in every 3 months after getting the registration number from the authority. In case of any malefaction by the promoter/ builders, the buyer/allottee can file a complaint to the Authority online. The complaints of the buyers/allottees are mandated to be resolved within 120 days. Builders/promoters cannot change anything in the structure of the building without prior assent from all the buyers. All these measures, in addition to those mentioned in the sections of the Real Estate (Regulation and Development) Act 2016, is expected to boost the confidence of the investors.
- Impact of RERA on promoter/ builders
Under RERA the builders must register critical statistics regarding the project. This includes:
Details of the promoter,
Status of the land a title should be undisputed,
Status of statutory approval from the concerning authorities,
Agreements followed by all the schedules mentioned in the RERA act,
Details of the brokers,
Architects and contractors,
Certificates from Engineer and C.A.
In case of failure to register this information, it will lead the promoter/ builders to heavy penalties. The builders are bound by a five-year agreement with the buyer for quality affirmation of the building and these 5 years are calculated from the date of possession. This means that within five years of selling a property if construction quality or any other structural issues arise they (builder/promoter) will have to repair it or compensate for it. They also have to ensure the formation of the Resident's Welfare Association within three months of the project completion. According to section 18 of the RERA act, 2016 buyers can affirm a refund in case of delay or dissatisfaction with property puts developers in a fix.
Advantages of RERA Act 2016
- RERA has brought uniformity in the real estate sector related to carpet area, common areas which will prevent malpractices like changes in layout, area, agreement, specifications, details about the broker, architect, and contractor, etc.
- Developers need to make timely delivery of the booked office spaces or homes. If not strict compensation and imprisonment can be taken against the developer.
- The same features promised at the time of registration need to be delivered at the time of handover. If not then the builder can be penalized.
- Specifying the carpet area and not the built-in area which is more than the former by at least 20 to 30% is mandatory.
- Completion of clearance from the government departments is compulsory before selling any house or office space.
- A separate bank account should be opened for each of the projects promoted by a developer.
- The buyer can approach the developer for any defect in the building within a year of the handover and get it rectified free of charge.
Disadvantage of RERA Act 2016
- The rules and regulations passed in the new bill do not apply to the ongoing projects or projects that are held up due to some clearance issues.
- Government agency delay in approval and clearance may hinder the timely delivery of products.
- Small developers with projects less than 1000 sq. m. do not come under the purview of this act and registration with the regulator is not mandatory for these.
- Without clearance, projects cannot be launched and so the launching of new projects may get delayed.
- The advantages are heavier than the disadvantages and this is a good step to help the commoners get the delivery of his dream home on time and be able to buy them at reasonable prices.
There have been major changes in the sector of Real Estate, in order to protect the rights of both buyers and sellers and other parties to the transaction and promote the dissemination of Information to the parties, the Real Estate (Regulation and Development) Act 2016, was implemented with a purpose for controlling and promoting the unregulated real restate market. India’s regulatory index scores low due to a lack of proper compliance mechanisms in the real estate market. It also aimed to create a separate adjudicating process as introduced under the bill, to settle conflicts more rapidly between the promoter and the purchaser or the purchaser and the agent.
The concept of RERA is flawless if implemented as it is but because of the non-compliance of the rules by some of the states and the developers, it becomes very difficult to fulfil the exact purpose of RERA. The introduction of RERA Act is a huge step forward that is why the state Regulatory Authority needs to frame the rules according to the Act and not divert them in builders favor.
By: Siddhant Singh
M/s Aura & Co.
Date: 8th. March. 2021