8/13/2020 Application for registration of real estate projects under Real Estate (Regulation and Development) Act, 2016

Act, 2016 (RERA). (Section 4) - Law …

INTRODUCTION
The Real Estate (Regulation and Development) Act 2016 (RERA) was enacted by the Government of
India on 26th March 2016. The act came into effect from May 1, 2017. This is a central Act and
based on the conclusive provisions of this Act, The State Governments need to make Shadow Acts
and Rules and also set up authorities that will look after the implementation of and give effect to the
provisions stated in this Act.( Eg: MAHARERA for Maharashtra, HIRA for West Bengal etc)

The Real Estate Sector in India has always been a focus of attention. In a country like ours which is so
thickly populated, there is always ‘on the rise’ demand for residential and commercial spaces and this
served as a singular opportunity for the promoters and developers to heavily exploit and cheat the
innocent home buyers by diverting funds to other ventures or utilizing them for personal needs or
harnessing Capital. This is the major reason for delay in Allotment (physical) to the allottee i.e, The
Home Buyers of the Project.

Therefore, the main reason why RERA was enforced was to seek transparency in the development of
Real Estate Projects and to provide the much awaited security to the Home Buyers by protecting them
from the Shark Lobby of the Builders and Promoters. By the enforcement of RERA the following
objectives are sought to be met:

1. Ensurance of accountability towards allottees and protection of their interest

2. Infusion of transparency and fair play and thus a fall in the rate of Fraud and delay in providing
physical allotment.
3. Introduce professionalism by Pan-India Standardization
4. Imposing certain responsibilities on both promoter and allottes and establishing regulatory bodies
to enforce such obligations.
5. Establish fast-track dispute resolution mechanism on a Pan-India basis

All of the above mentioned issues are reasons why all Real Estate projects should be registered with
the Real Estate Regulatory Authority. Now, there is a strict process provided by RERA for making an
application for the registration of a real estate project and it must be adhered to by the promoters and
builders to carry on any real estate project.

APPLICATION FOR REGISTRATION OF REAL

ESTATE PROJECTS
First let us point out the exceptions to the provision
about the registration of Real Estate Projects.
According to Section 3 of RERA all Real Estate projects need to be registered with the Real Estate
Regulatory Authority by the promoter/Developer. The exceptions to such registration is if the Land
proposed to be developed or which is under development, as the case may be, is less than 500 (five
hundred) Square metres or if the number of apartments proposed to be developed does not exceed 8
(eight) inclusive of all phases of the real estate project It is important to note that any of the following
conditions should be established in order to be exempted from registration.

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8/13/2020 Application for registration of real estate projects under Real Estate (Regulation and Development) Act, 2016 (RERA). (Section 4) - Law …

Process of Registration and list of documents to be

submitted by the promoter
Section 4 of the Act provides the process of registration of Real Estate Projects. An application is
to be made to the Real Estate Regulatory Authority by the promoter in such form and manner and
within such time as may be prescribed by the Authority. Further, documents providing brief details
of the enterprise (including its name, registered address, the type , proprietorship, partnership etc)
and names and photographs of the promoter is to be provided.
The promoter must also give brief details of the past projects launched by him in the five years
prior to such an application and specify whether the said projects have been completed or are still
under development. If the projects are pending or delayed he must also disclose such facts.
The authenticated copy of the approval and commencement certificate from the competent
authority should be provided along with the sanctioned plan, layout of the project under
development or proposed to be developed.
The facilities like fire, water, drainage etc should be specifically mentioned. The location details of
the project with clear demarcation of land and the specification of the type of land must be
provided.
The number , type and carpet area of apartments for sale in the project along with the area of
exclusive balcony/veranda or open terrace , if any, is to be provided.
Total number of garage spaces for sale must be provided.
The promoter must also provide the names and address of the real estate agents , if any, for the
proposed project and also the names of architects, contractors, engineers, structural engineers,
and any other person concerned with the development of the proposed project or the project in
context.
The promoter is required to give a declaration supported by an affidavit regarding his legal title on
the land along with legally valid documents or the authenticated title if the land does not belong to
him. The declaration must be unambiguous in stating that such land is free from all
encumbrances or details of encumbrances must be provided which would include right, title,
interest, etc thereon.
The promoter must specify the time period within which he undertakes to complete the project in
context or the completion of each separate phase.

An Escrow Account or Self Maintained

Account?
A striking feature of this Act is that the promoter in addition to all the above mentioned documents
must make a declaration supported by an affidavit that 70% of the funds realised for the Real Estate
Project from the buyers, from time to time, shall be deposited in a separate account maintained at a
scheduled bank and shall be utilized only to foot the bill of construction and land costonly. It is
important to mention that the account need not be an Escrow account (contrary to what was
discussed during the introduction of the Real Estate Bill) but a ‘Self maintained account’. The promoter
has to maintain a separate account for every separate project. The withdrawal from the self
maintained account has to be in proportion to the percentage of completion of the project after it is
certified by an engineer, chartered account and an architect. In an escrow account the bank and the
account holder enters into an agreement and appoints a trustee for the account. The RERA act
provides that the bank itself shall act as a trustee. To avoid any manipulation of funds, the promoter is
required to have his account audited within 6 months after the end of every financial year. This has led
to better fund management and has almost removed the conundrum of diversion of one project’s fund

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8/13/2020 Application for registration of real estate projects under Real Estate (Regulation and Development) Act, 2016 (RERA). (Section 4) - Law …

to another. The promoters/ developers will now have to manage funds more judiciously and under
constant scrutiny.

As already mentioned this Act provides under the ‘application for registration’ that 70% of the funds
realised from the home buyers need to be deposited in a self maintained account and must be used
only and only for the purpose of covering land and construction costs, it has definitely stopped the
siphoning of funds but it wasn’t apparently very impactful in protecting the interest of the home buyers.
Firstly, RERA says that the withdrawal must be in proportion to the percentage of completion of the
project (This is now known as the proportionality clause) but it does not have any proper set of
guidelines as to how the proportion of completion of the project will be calculated. While the intention
of this clause is laudable and commendable, it fails to stand on a clear coast of unambiguity and
further creates a liquidity crunch for the small and medium promoters/Builders/Developers. Land is the
primary requirement for the establishment of a real estate project and the promoter has to mobilize the
fund for buying the land, obtaining the necessary approvals, carrying out pre-developmental works on
the land etc. The pre construction cost itself forms a considerable portion of the total estimated cost of
the project and applying the proportionality clause would thus restrain the promoter from withdrawing
the cost already incurred. There is a stoppage in the circulation of cash that hampers the overall
growth of the project and contributes to the delay in handing over the apartments to the allottes. The
promoters/developers running on a small scale are petrified by this clause and this is leading to
promoters being submerged in debt waves with high rates of interest or shutting down of the project
altogether.

To overcome the practical issues , several State Governments have passed rules diluting such
stringent provisions. For example, The Maharashtra Government has issued rules, vide Circular No. 7
of 2017 dated July 4th, 2017, which provides for a certified Chartered Accountant to provide the
amount that can be withdrawn from the RERA required separatea ccount, by working out the actual
cost incurred by the promoter towards acquiring land, and the cost incurred on construction, in
proportion to the total estimated cost of the project. The total estimated cost of the project divided in
such proportion determines the maximum amount which can be withdrawn by the promoter from the
RERA Account. Similar notifications have been issued by the Gujarat Real Estate Regulatory
Authority vide Circular No. 2/ 2017 dated July 29, 2017, for the State of Gujarat, and by the
Maharashtra Real Estate Regulatory Authority vide Circular No. 10/2017 dated August 4, 2017, for the
Union Territories of Dadra and Nagar Haveli and Daman and Diu.

CONCLUSION
With the changing legal scenario after the introduction and implementation of RERA, home buyers
and developers can look forward to a speedy remedy for disputes and redressal of grievances like
compensation for delay or omission or negligence or lets say waiving of cancellation charges by the
allottee etc.

This law still has a lot of ambiguity and a lot of loopholes but with the orders and judgements coming
from a lot of states, mostly Maharashtra, one can be assured that RERA is indeed a very necessary
introduction into the field of Real Estate law. The grey areas will come into light with time and of
course further legislations will make their way.

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