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.
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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:
- The Act: Specified by the Central Government, the Act is the final word in cases of conflict regarding rules and regulations.
- The Rules: Specified by the State Governments, the Rules elaborate the Act for state-specific requirements.
- 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:
- 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.
- 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.
- 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?
- 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?
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
This article was first posted by the author on Medium.com on 20-Aug-2017, and republished here after minimal editing.