RERA Act Explained for Beginners

What is RERA (Real Estate Regulation Authority) Act and why is RERA important: Explained

Brief introduction about RERA

RERA is a regulatory authority between the buyer and seller of real estate assets for promoting ethics and transparency in the transactions between both the parties. This act was prepared with the intention of protecting the interest of the investors and to meet the growing demand and standardize the real estate.

The need for RERA

RERA has regulated the real estate industry which has increased the trust of the investors to now consider real estate as an investment opportunity. All the data is now properly documented and taken care by RERA. If any investor faces issues of any kind in property transactions, they can approach RERA with their concerns and get them rectified. RERA will also act like a legal binding authority to take statutory decisions on the disputes and conflicts created between the buyer and the seller.

Looking at the growing demand of the real estate sector, it was the need of the hour to have the systems regulated for consumer protection.

Status of the Act

The Real Estate Bill was passed in the Rajya Sabha on 10th March 2016 and the Lok Sabha on 15th March 2016. The Bill was passed by the parliament and was assented to the President on 25th March 2016 which then came into effect on 1st May 2016.

The construction industry before RERA

Before RERA, the construction industry was highly deregulated. There were a lot of loop hopes and the builders used to take advantage of it. There was on entry barrier as such and anyone with a surplus capital could become a builder. If there were any disputes or conflicts, the buyers had to approach the traditional judicial system, which usually takes years to give a decision.

There was no registered authority on the builders who used to take booking amount from the investors. They used to take any amount of money in the name of advances. The builders usually failed to deliver the project on time despite. This led to losing of opportunity cost for the investors. People started losing interest in real estate investment as they were not sure if guarantee of returns.

Imagine a scenario: You are currently living on a rent and you decide to buy an apartment. You have managed for a home loan and paid all the money to the builder and you have planned to shift in your new home after six months. But due to the carelessness of the builder you don’t get your apartment on time. And since you have taken a loan on the apartment you are now paying the interest on the loan in addition to the rent where you are currently staying.

There were many such cases in the past where the builder used to take advance money from the buyers by promising early occupancy dates, but always failed to complete the project on time.

Delivering the project on time to the investors was a serious concern, but the builders didn’t bother to deliver the project on time. The builder also didn’t have a mechanism to ask money from the investors and they used to take this advance.

Another concern the investors used to face before RERA is that before buying and taking the booking amount, the builder used to make a lot of promises in terms on property benefits and used to fail to deliver the same.

There was a case where a builder promised a buyer for underground parking facility and in that expectation, the buyer accepted the offer. But when the building was completed and the occupancy was given, the buyer received surface parking which was along the playground. When the buyer went to the builder for compensation he wasn’t entertained.

There were also questions raised on the advance money the builder collected from the investor. Does the builder used the money in construction or does he divert the money to other investments or other project? The investors has no data regarding the same.

Objectives of RERA

• To ensure accountability towards the investors and protect their interest.
• To create a right system using transparent and fair practices to reduce frauds and delays.
• To introduce professionalism and create a common standardization for the country.
• To promote flow of information from the builder to the investor, so that the investors can take informed decisions.
• To impose duties and responsibilities on the builder and the investor.
• To establish a fast track dispute resolution mechanism.
• To promote good governance in the real estate sector.

How has RERA benefited the buyer

Introducing RERA to the real estate industry has not only protected the interest of the buyers but has helped the ethical builders in boosting their sales. It has also created an entry barrier for new developers/builders.

Standardized carpet area

Initially different builders had their own different definition of carpet area, thus comparing different properties on the basis of the carpet area was not becoming the right way to compare properties. Some builders used to consider the

RERA has given the definition of carpet area. As per RERA Act, carpet area is defined as:
“the net usable floor area of an apartment, excluding the area covered by the external wall, areas under service shafts,exclusive balcony or verandah area and exclusive open terrace, but includes the area covered by the internal partition walls of the apartment”

Advance booking for purchase of apartment

The process of giving the advance money to the builder is become more regulated and transparent. The builder is obliged with some rules are regulations which he needs to abide at all times.The builder

Delays in occupancy

The investor is protected under RERA if there are delays caused by the builder in case he is not able to deliver the project on time. The builder is now liable to pay interest on your investment for every delay incurred by him. This will keep the developer in a strict obligation to deliver the project on time to avoid there circumstances.

Investors have access to all the information

Investors who have invested in a real estate property under any developer or a builder has access to all the information of the building, the historical data of the builder and the current situation of the construction.

Based on those data, the investor can take informed decisions. Access to information also helps the investor to manage his risk and the possible downfall.

A different RERA for a different state

RERA is divided state wise, which means there is a different RERA body for different state. This has been done to facilitate the ease between the investor and the developer. Also, different state RERA have also been given the right to change/add some clauses depending on their geographic conditions.

Personally, I am from Goa, thus I will be explaining the concepts from RERA-Goa, but all the other processes remain the same for all other state RERA as well.

Some clauses under RERA Act every investor should know

Download the RERA Act for complete set of RERA clauses.

How to raise a complain against a builder on RERA portal

As mentioned before, different states have different RERA body and they all will have different websites. All you have to do is fill the online form for complaint registration, you may be asked to create a login for you (depending on the state RERA guidelines) and pay the applicable fees. The fees for RERA-Goa is Rs. 5000/-.

Complaint portal for RERA-Goa

Complaint procedure for Maharashtra RERA [PDF]

Penalties under RERA

As an investor you can raise a complaint with RERA on a particular builder/developer. Based on the degree of the misconduct the builder is liable for certain penalties in case they found guilty.

1. Builder have to compulsorily get their project registered under RERA before taking advance money from the buyers/investors. If they fail to do so then they will be charged with a penalty of 10% of their estimated project cost.
2. If the builder is found to make fake promises to the buyers to promote sale of projects and if found guilty for the same, he will be liable to pay 5% of the project estimated cost as a penalty.
3. Real estate agents will be penalized with Rs. 10000/- per day up to 5% of the project cost if they are found conducting sale of properties that are not registered under RERA.
4. If the builder fails to comply other clauses from the RERA act and not abide to the rules and regulations, the builder will be charged with a fine of 5% of the project estimated cost or imprisonment for up to 1 year or both.
5. If the builder fails to deliver the project to the buyer on time, he is liable to pay the interest to the buyer.

Functions and duties of the builder

The builder is required to update all the information to the investors like the project progress, project time line and other data requested by the investor on the website of the authority at least once in every quarter. The builder are supposed to make the required disclosures to the investors before collecting advances.

All the advertisement hording and brochures should have the RERA registration number at all times.

The promoter is not entitles to transfer his rights and liabilities to any third party or make changes in the project plan without obtaining the written consent of two-third of the investors and the regulatory authority.

the builder is required to take an insurance of the real estate project towards the title of the land and towards the construction of the project.

About the writer

I am Atish Lolienkar, MBA (construction project management) / BE (civil engineering) by education, holding key interest on the topics of finance, contracts, construction law, valuation and real estate.

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