Analysis of RERA

-Shrinithi. S.R

Abstract:

Real estate is a globally recognized and regulated industry. Over the last few decades
this sector has grown significantly in India making it the world's second-largest player.
Up till 2016, only the general consumer laws and property laws governed this sector
and there was no specific statute to regulate it. Therefore, the RERA (Real Estate
Regulating Act), 2016 bill was passed by Rajya Sabha followed by Lok Sabha in the
month of March in 2016 and then act came into force in May 2016. The act was
established with the goal to ease the process of buying a property, protect the interest of
the buyers, to encourage investment in the real estate sector and to do all of that in a
transparent manner. This article has attempted to analyze the Act's inception,
importance, objectives, provisions and the impacts and finally, the various details that
the legislature failed to address, as well as the various loopholes in this legislation, will
be discussed.

Introduction:

A house is a person’s basic need and everyone desires to own one of their own. While
buying it involves a huge investment there are other risks stringed to it like that of
establishing a relationship with the seller who has his very own term and conditions.
Previously, transactions in the real estate sector was one sided mostly favoring the
developers and there was no checks and balances in the sector. The lucrative market
size and demand in the real estate sector attracts malpractices and fraudulent activities.
There has never been a drop in demand for real estate in India. The pandemic could
also not result in a reduction in demand, as the market is showing signs of a positive
rebound, with the Indian economy opening up and a steady flow of income being
restored. For a sector that is so important to a country's economy, it is only natural that
it be regulated in such a way that its economic contribution is not hampered for any
reason. After agriculture, it is India's second most populous industry. In the words of
Franklin D. Roosevelt, "Real Estate cannot be lost or stolen, nor can it be carried away,
purchased with common sense, paid in full & managed with reasonable care, it is the
safest investment in the world”1 which is the reason it draws in the most capital and has
demonstrated to be a long haul. With so much reliance on a single sector, it is only fair
that a mechanism be put in place to ensure that business runs smoothly; thus, the Real
Estate Regulation (Development and Authority) Act, 2016 (hereinafter referred to as the
"Act" for brevity) was enacted.

Importance of RERA:

The introducing of RERA was a decisive move favoring one of the leading revenue
making sector of the country. RERA acts as ground for both the developer and the
buyer and lowers the risks faced by them. The act has mandated a great deal of things
like the obligatory enlistment of undertakings and Real Estate Agents, , relevance for in
excess of 76,000 organizations2, In new projects 70% of the assets gathered from
purchasers are to be saved in a different bank, and in the case of an ongoing project ,
70% of the unused sum is to be kept in a different bank. The purchaser has absolute
rights to be aware of the subtleties of the project and has the option to get every

1Aly J. Yale, 33 Real Estate Investment Quotes to Keep You in the Real Estate Game , (21.10.202)
https://www.millionacres.com/real-estate-basics/investing-basics/33-real-estate-investment-
quotes-to-keep-you-in-the-real-estate-game/
2Tunia Cherian, New realty Law in force from today, the India business line (30.04.2017),

https://www.thehindubusinessline.com/news/real-estate/new-realty-law-in-force-from-
today/article64269506.ece
document related to it. 3 Therefore, we needed RERA to re-establish trust in our
country's real estate sector. According to the report of the Standing Committee on
Urban Development (2013-14), despite multiple schemes, the government was unable to
meet the country's increasing housing and infrastructure demands. This raised a
number of concerns like firstly the fact that the market's private players profited
enormously from their arbitrary practices and consumer exploitation, and thus became
the undisputed kings of this sector. Secondly, despite the easy loans from public and
private banks, the high interest rates and EMIs imposed an additional burden on people
in this unregulated sector. Finally, in the absence of an effective mechanism, neither
accountability nor information could be obtained from builders and developers by
consumers. 4

Key objectives:

The main goal of the RERA is to restore buyer confidence in the real estate sector and to
increase transparency in real estate transactions. RERA aims to protect buyers' rights by
establishing the Real Estate Regulatory Authority (RERA), which will provide a
grievance system in the real estate industry. It also aims to boost the credibility of the
Promoters, Real Estate brokers, and agents, which will help to avoid unnecessary delays
in the completion and delivery of the projects. The RERA Act mandates the
establishment of an Appellant System for Grievance Redressal as well as the imposition
of penalties and charges on defaulters. Prior to the Act's implementation, there were no
uniform rules and regulations that had to been followed, which resulted in conflicts

3Arpit Srivastava, Importance of RERA (Real Estate Regulatory Act) and its possible effect on Real Estate sector,
(12.05.2017), https://blog.ipleaders.in/importance-rera-real-estate-regulatory-act-possible-effect-real-
estate-sector/

4 Mahima Shah, Real Estate (Regulation and Development) Act, 2016: A critical analysis, (06.08.2021)
https://articles.manupatra.com/article-details/Real-Estate-Regulation-and-Development-Act-2016-A-
critical-analysis
between developers and buyers, and there was no proper redressal mechanism to
adjudicate the disputes. Some of the malpractices, as well as the remedies provided by
the Act, are listed below:

1) Delayed Process:

Buyers face the issue of lengthy delays in obtaining possession of a property, as builders
frequently exceed the deadlines stipulated in the sale agreement. Buyers face financial
difficulties as a result of such delays because the entire transaction involves a significant
sum. Section 18 of the Act provides a remedy for the builder's unnecessary and
arbitrary delays in giving over possession.5 The provision states that if the builder fails
to deliver possession of the plot, apartment, or building by the date specified in the sale
agreement, the buyer has two options:

A. If the buyer decides to withdraw from the project, the promoter (builder) is obligated
to return the money received as consideration for the property, plus interest as
specified.

B. If the buyer does not withdraw from the project, the promoter (builder) is obligated
to pay interest for each month until possession is handed over to the buyer.

2) Deviation of Funds:

Builders frequently run multiple projects at the same time and are notorious for
diverting funds collected for one project to another, leaving the buyer(s) dissatisfied
with their money stuck in the project and long delays in the handover of possession to
them. Section 4(2)(I)(D)6of the Act provides a remedy for this. The Act requires the
promoter (builder) to sign an undertaking stating that 70% of the amount received from

5
Real Estate (Regulation and Development) Act, 2016), S. 18.
6 Real Estate (Regulation and Development) Act, 2016), S. 4(2)(I)(D).
buyers must be deposited in a separate Escrow Account7 and that this corpus can be
used only for the project and no other purpose.

3) Lack of Transparency:

Buyers frequently struggle in the real estate industry because unanticipated surprises
await them at every turn. The sector is known for its lack of transparency and
accountability. Potential buyers are wary of investing in any project until they are
completely satisfied with the credibility of the promoter, as unethical behavior is
common in this industry. The Act aims to change this attitude by establishing buyer
rights and establishing the promoter's liability and responsibility. Buyer’s rights include
the following:

A. Right to Information:

Buyers have the right to request information, and their request cannot be denied.

B. Schedule:

The buyers have the right to inspect the construction site to see how the project is
progressing. It is the promoter's responsibility to notify buyers when each stage is
completed.

C. Documents:

When the buyers take possession of the property, they have the right to the custody of
the documents.

D. Refund:

Buyers have the right to a full refund if the project is not completed within the time
frame specified.

E. Possession rights:

7Dhawan, S, Will India become a home buyers' heaven? All you need to know about RERA. Economic Times,
(30.04.2017) https://economictimes.indiatimes.com/news/economy/policy/will-india-become-a-
homebuyers-heaven-all-you-need-to-know-about-rera/all-you-need-to-know-about-the-rera-
act/slideshow/58442444.cms
After full payment of the consideration for the property, the buyers have the right of
possession and can make decisions regarding the property.

4. Definitional Ambiguity:

There was ambiguity concerning the definition of the word 'carpet area,' and promoters
and their agents took advantage of the general public's lack of understanding of the
term to offer built-up areas as carpet areas. However, Section 2(k)68 of the Act
specifically defines 'carpet area,' stating that "carpet area refers to the net useable area
and excludes the space covered by the exterior walls, service shafts, balcony, or
verandah but includes the area occupied by the internal partition walls of the unit." 9

This precise description has made it easier for the buyer to properly appraise the
property before making a purchase. Based on the above provided information, we can
observe that some of the objectives of the Act is to govern the real estate industry by
preserving transparency in the transactions that take place in the sector and by
clarifying the rights, duties, and liabilities of the parties engaged in the transaction in
order to create a consumer-friendly marketplace10, to create the 'Real Estate Regulatory
Authority,' an adjudicating body that will ensure customers have faster access to
remedy. It also establishes an Appellate Authority, which will hear challenges against
the RERA's rulings, to establish the norm of creating a separate Escrow Account for
each project undertaken by a builder to ensure that money obtained from the buyer for
one project is not syphoned off and used to construct another project and to The Act
establishes sanctions and punishments for promoters, developers (builders), buyers,
and agents that commit malpractices.

8
Real Estate (Regulation and Development) Act, 2016), S(k)6.
9Vinay Thyagaraj, Carpet Area under RERA, Tax Guru, https://taxguru.in/corporate-law/carpet-area-
rera.html. (19.06.2021)
10
Sharma, S. Impact of RERA on Indian Economy: A Critical Analysis, International Journal of Law
Management & Humanities, 1-7 (2018).
Impact of RERA:

Three important policies were introduced at the same time. Firstly, demonetization
followed by the and later the enactment of RERA and later implementation of GST.
Demonetization gave a major hit to the cash-run sector, and gradually as the industry
began to recover from the effects of Demonetization, the Act was implemented, further
complicating the situation for the builders as they now had to adhere to stringent
guidelines that included clauses such as the maintenance of an Escrow Account with
70% of the project's receipts, which was practically impossible as various projects were
stuck and the cash flow had to be maintained, which was practically impossible as
various projects were stuck and the cash flow had to be maintained. Soon after, the GST
Act went into effect, sending the industry into a tailspin as there was a paradigm shift
in the country's indirect taxation structure, completely altering the structure as we
know it. In reality, the middle and lower classes were the hardest hit by the
demonetization, which meant that the industry lost a large potential customer base.
Buyers' purchasing power was severely harmed as a result of demonetization. The
seller was unable to sell at lower prices due to increased liability and lower incentives,
and the buyer was unable to purchase the property because his income was impacted
by demonetization, which impacted their liquidity. The Act's guidelines, in some ways,
became barriers to entry in the market, and many small developers exited the market
because they were unable to keep the projects running due to non-registration with
RERA, which also resulted in the un-employment of construction workers. Since its
inception, the RERA Act has hampered the sector's growth. The COVID-19 Pandemic
and the lockdowns it brought with it were the final nail in the coffin. It pushed India's
already-tumbling economy even lower, affecting all sectors severely, including the real
estate sector. The lockdowns meant that all projects were halted, and all business
activities were halted, which meant that all sources of income were paused, leaving
people to rely on their savings to survive. People did not have enough money to
survive, let alone invest in Real Estate Assets. The pandemic struck at a time when the
Real Estate Sector was already in disarray due to the poor implementation of the GST
Act, the RERA Act, and the Demonetization policy, leaving the industry in a dismal
state. Only recently has there been a slow but steady improvement in the industry,
raising hopes for a recovery in the country's economy, which will put the country's
development back on track.

The lacunas:

There exists an issue pertaining to the registration of a project on an online platform as

not everyone is accustomed to the electronic world and the hop from the offline
platform to that of the online platform is huge. It has been a while since RERA has been
introduced, but its operational status varies from one state to another. In many states,
websites have been set up and are working efficiently while in some states builders
have to physically go to the RERA offices to check the status. Many states have not set
up something as basic as a website for it. Magicbricks conducted a survey in which 74%
of the buyers were not aware of the fact that if a project has to be registered with RERA
or not. 11

Conclusion:

The Act intends to extend transparency and accountability within the land sector. The
existence of RERA not only protects the interests of home buyers but also benefits
builders due to increased transparency. The concept of RERA is flawless if implemented
as is, but due to non-compliance with the rules by some states and developers, it
becomes extremely difficult to fulfill the exact purpose of RERA. It provides various
machineries to facilitate and regulate the transactions in commercial as well as

11A year after RERA Act introduction, changes in realty sector negligible , Newindianexpress,
http://www.newindianexpress.com/business/2018/may/01/a-year-after-rera-act-introduction-changes-
in-realty-sector-negligible-1808532.html ( 01.05.2018)
residential projects and ensures timely project completion by the promoters.
However, this is able to happen providing there's an efficient implementation by the
State Government. Therefore, the foremost important challenge is to successfully
establish the Real Estate administrative unit in all the states within the time span of
1 year to bring uniformity and standardization. Apart from the above-mentioned
lacunas there is an enormous scope for the amendment. The Act promotes well-planned
urban real estate development and simultaneously protect the interest of innocent
consumers who invest their hard-earned money.