Karnataka’s real estate rules leave many questions unanswered

REAL ESTATE REGULATORY AUTHORITY, KARNATAKA

RERA is not applicable to projects that have completed 60%, but the confusions prevail. Pic: Shree D N

Property buyers often fall victim to unscrupulous real estate developers; hence there is a need for real estate development to be regulated. This is what the Real Estate Regulatory Act (RERA) intends to do.

On Saturday, 19th August 2017, I attended an interactive Question and Answer session on RERA. IAS Officer Kapil Mohan, the Principal Secretary, Housing Board, Government of Karnataka, and also Interim Authority of RERA, was part of the panel. The event was organised by the National Real Estate Development Council (NAREDCO), Karnataka chapter, on  the Karnataka State Billiards Association premises. It was attended by many real estate developers and a few independent home buyers like me.

The Real Estate (Regulation & Development) Act, formulated by the central government, was rolled out in Karnataka last month. RERA aims to bring transparency and accountability into ongoing projects. Under RERA, activities like plan deviation, construction without clearances, selling of property not registered with RERA, construction delays, pre-launch offers, collecting huge payments from buyers before starting construction, or diverting money from one project to another are punishable offences. Thanks to RERA, it’s expected that the real estate market will come to the aid of the hapless buyer.

Around 1200 projects have been registered under RERA in Karnataka. Complaints or enquiries can be submitted on the RERA website. The regulatory aspect of RERA has already kicked in. Mohan mentioned that some projects have already been served notices for non-compliance. It is important to note that it is the projects that have to be registered, not the landowners or promoters.

The three important parts of RERA are:

  1. The Act: Specified by the Central Government, the Act is the final word in cases of  conflict regarding rules and regulations.
  2. The Rules: Specified by the State Governments, the Rules elaborate the Act for state-specific requirements.
  3. The Regulations: These are procedural in nature and describe how RERA will be implemented.

The Act can be studied online but it is only lawyers who have the expertise to explain it. Advocate Arvind Raghavan spoke about the various grey areas within the Act. Later, Kapil Mohan commented that not explaining everything in the Act was intentional. Otherwise, RERA would be a book as thick as the Income Tax Act. Grey areas will be addressed by the judicial courts on a case-by-case basis. In fact, law is not only an Act but also comprises judgements that set precedence. Nonetheless, real estate dealers are interested in these grey areas for obvious reasons, he explained.

Mohan and the advocates on the panel highlighted the following aspects:

  1. The word “promoter” is not properly defined in the Act. While it may be common knowledge what the terms “landowner”, “builder”, “developer” and “promoter” mean, a clear definition would have been useful. I believe this point was brought out because in Bengaluru, many projects are Joint Development projects. In some cases, landowners could also be promoters of the projects.
  2. Joint Development (JD) is itself a wrong phrase. Actually, it’s nothing more than a barter of land in exchange for flats. RERA has not looked into JD in great detail but Mohan said that a separate section will be added for JD. In particular, even a landowner can be treated as a promoter if he/she engages in developing or promoting the project. If there are multiple promoters, each one will have a separate account with RERA.
  3. Sale of carpet area is one of the areas where RERA diverges from current practices. Promoters can only sell by carpet area, not super built-up area. No doubt developers will revise the sale price to include all costs. What it means for the buyer is that common areas, private balconies, private terraces and even covered car parks cannot be registered to the buyer. The only saleable area is carpet area. Common areas are conveyed to the Association. This is inspired by practices in Mumbai where Associations purchased the land, developed it, and allotted it to the members.
    Some questions remain: When common areas are conveyed to the Association, will stamp duty be charged? What happens if some flats are unsold when this happens?
  4. Following from the point on carpet area, the concept of undivided share of land is also affected. Since land is now owned by the Association, it will not be reflected in the sale deeds of individual flats. How does the buyer account for this for the purpose of taxation?
  5. A promoter can start advertising the project only after obtaining a Commencement Certificate from RERA. But in the interim period a plan sanction may be enough, said Mohan.
  6. A promoter cannot accept more than 10% of the sale value from a buyer unless a sale agreement is registered, but a sale agreement is not really required under the RERA Act. Other points of conflict between RERA and existing Acts may come up, which can only be be resolved in time. A proposal to revise the Karnataka Apartment Ownership Act in light of RERA is also being considered.
  7. The confusion between Completion Certificate and Occupancy Certificate was clarified. When a construction is completed, a Completion Certificate will be issued. An Occupancy Certificate will be issued after utilities (water, power, sewage lines) are provided. The Act applies to ongoing projects only; projects that have obtained Completion Certificates before RERA was implemented, are exempt.
  8. RERA will not apply to projects that are already 60% registered and construction is complete. Some argued that this 60% rule is diluting the Act. There is no relief for the remaining 40% of buyers whose flats have not been registered and the builder is creating trouble.
  9. A promoter is liable for defects for up to five years after handover. Defects can be structural or due to workmanship. The scope of these defects is not clear but would be interpreted on a case-by-case basis.
  10. On the topic of title insurance, it was said that no title can be traced back to the very beginning. Some information is likely to be missing. This is certainly not a comforting thing for buyers. Perhaps, technology such as Blockchain could help in the future when multiple government systems will have been integrated.

I believe RERA is pro-buyer and rightly so.Developers can no longer deviate from plans under the excuse that these deviations will be regularised when akrama-sakrama comes into effect. Private developers are covered but so are public ones such as KHB and BDA.

Since most people at the meeting were promoters, some aspects of RERA did not appeal to them: Why should a broker be charged a penalty of 5% if the developer stops construction or goes bankrupt? This clause implies that brokers will have to do due diligence before marketing a project.

Likewise, any voluntary consumer association can raise a complaint against a promoter even though the association has nothing to do with the particular project. This is important because a promoter may engage in unethical practices in multiple projects and buyers usually become aware of them when it is too late. Someone with a bad experience in one project can use this section to warn prospective buyers in other ongoing projects.

Complexities increase when projects are part-commercial and part-residential. Aspects of RERA have to be updated in light of Goods and Services Tax (GST). A model agreement is being prepared but the current drafts still refer to VAT and Service Tax. Policies are easier made than implemented. However, clear and simple guidelines, single-window processing, and online submissions and tracking can help. Hopefully, RERA will weed out small promoters, particularly those who are cash-strapped and engage in unethical practices.

Full video of a RERA discussion can be seen here:

More videos: http://www.karnaredco.org/kapilmohan/

Author: Arvind Padmanabhan

arvindpdmn@gmail.com

This article was first posted by the author on Medium.com on 20-Aug-2017, and republished here after minimal editing.

5 Comments

    • May be, for that matter, to take the suggestion to its logical conclusion,- that is, to have those also kept in the loop,- in the RERA portals itself, should be created an in-built mechanism for automatic tracking, the other no-less concerned authorities such as, the Registrar of Stamps and the Registrar of Co-operative societies ; for, also those have a crucial role to play in the eventual but most essential formalities of formation/formal registration of ‘CHS’ and lawful execution of effective ‘conveyance’ of the building complex.
      For an appreciation, in proper light, may look up the binding statutory provisions and implications of the governing special state enactments-e.g. in Maharashtra, for short, called ‘MOFA’ and ‘MAOA’.

  1. To Add: On the points of discussion, selectively wrt the aspects gone into by learned experts, and covered under items – 6,7,8 above, may i draw to the kind attention of one and all whomsoever concerned,and if interested, personal viewpoints as shared over my Timeline on Facebook and LinkedIn; so also in the personal Blog @http://vswaminathan-swamilook.blogspot.in/2017/09/rera-central-coderules-v-state-rules.html (Refer. ‘TAIL Piece’ therein). Hope the referred Feedback Input will serve the intended altruistic purpose- the common good !

  2. IMPROMPTU (to share instant reaction)
    It stands to be readily gathered from the write-up,RERA- Centre v State – Varying Defn. of “Ongoing Projects” for registration – All In A Mess ?!

    In other words, briefly stated, the following two points of dispute could arise, even at the inception. That is, Whether, for meeting the requirement of registration, the project has to be taken as an ‘ongoing project’ or not.

    Better stated :

    1. Whether promoter has to act in accordance with what the Central RERA provides; or what the state enactment says, in case the respective conditions are at variance or materially incompatible /divergent ?

    2, Should the promoter (or authorized external certifier, as may be) be faced with genuine ambiguities or inadequacies in the Rules , posing difficulty in understanding and complying with the state enactment, what is the possible expeditious recourse open,for an acceptable and satisfactory resolution of the stalemate!

    Similar problems could arise even after the registration, in respect of compliance with some of the other procedural requirements gravely wanting clarity; for example, issuance of phase-wise OC / CC as envisaged, The concept of OC/CC by itself, mandated as a sine quo non, is, even otherwise, if critically viewed, a shallow or hollow formality, -from a strict practical /utility viewpoint-, suffering from inherent infirmities; in other words, going by wisdom gathered in hind sight /past experience, that has proved to be nothing but a socio-economic /-psychological ploy of its kind, foisted upon, simply for the heck of it, serving no real purpose of the buyers-consumers’ benefit.

  3. “…rules leave many questions unanswered..’- One is provoked to raise a very fundamental question , to which no satisfactory answer could honestly be expected to be forthcoming from any eminent or other quarters, within or without the governmental portals – that is, in short, ‘imponderable'(?) !

    For instance: Is not the requirement of ‘CC’ OR ‘OC’,- mandated and prescribed as a ‘sine quo non’ , not only for RERA purposes, but also for others such as, GST levy on ‘deemed’ ‘works contract’, if critically viewed, nothing but a shallow concept- a socio – economic /-psychological ploy , of its kind, foisted upon the consumers-public, with no real objective / purpose eventually expected to be served ?

Leave a Reply

Your email address will not be published.


*


Please solve this *