Real Estate Regulation and Development Act 2016 Overview
The Real Estate (Regulation and Development) Act, 2016 aims to ensure accountability, transparency, and professionalism in the real estate sector, protecting the interests of allottees. With 92 sections and 10 chapters, it focuses on nationwide implementation, state rules, and the status of RERA in Karnataka. The Act enforces various rights, duties, and penalties, promoting good governance and investor confidence in the industry.
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Presentation Transcript
The Real Estate (Regulation and Development) Act, 2016 Presented by
Session CA. Vinay T B.Com., LLB Partner Venu & Vinay Chartered Accountants Bengaluru Online / Web Session on RERA on Wednesday, 20th March 2019 For IBM India Private Limited Finance
Presentation Overview - Contents 1. Overview of the Act / Statute 2. RERA Nationwide View 3. Central Act, State Rules, Present KA Status 4. Applicability of the Act, Rules and Prior Registration of Real Estate Projects 5. Change in Practice Pre and Post RERA 6. Professional involvement 7. Offences & Penalty, Authorities, Adjudication etc 8. Allottees Rights and duties 9. Q & A / Open House
Statement of Objects and Reasons of the Act 1. Ensure Accountability Towards Allottees and Protect their Interest; 2. Infuse Transparency, Ensure Fair-play and Reduce Frauds & Delays; 3. Introduce Professionalism and Pan India Standardization; 4. Establish Symmetry Of Information between The Promoter And Allottee; 5. Imposing Certain Responsibilities On both Promoter And Allottees; 6. Establish Regulatory Oversight Mechanism to Enforce Contracts; 7. Establish Fast- Track Dispute Resolution Mechanism; 8. Promote Good Governance in the Sector which in turn would create investor confidence;
RERA Nationwide View 1. 21 States and 7 Union Territories (UTs) have implemented RERA [framed rules as required under Section 84 of the Real Estate (Regulation and Development)Act] 2. Out of these, 23 states / UT s have a fully functional online RERA portal 3. Out of these only 18 States KA, AP, Gujarat, Maharashtra, Madhya Pradesh, Rajasthan, Punjab etc., have established permanent Real Estate Regulatory Authority, while 10 States/ UTs have set up interim authorities 4. Few States/ UTs have named the Appellate Tribunals under the Real Estate Act, Few States have begun the online enlistment under the Act 5. Maharashtra has seen the maximum response in project registrations (~20,000 project registrations) with its real estate regulatory authority 6. Uttar Pradesh ~2,600, in KA 3000 , Gujarat 4962, and Madhya Pradesh 2109 7. While deviation from the model Act is the main cause for concern, slow progress of states in operationalizing 8. Regulators imposed fine on Promoters for delayed registration 9. Maharashtra has a conciliation forum (which has representation from Builders' and Consumers' Associations) to speed up dispute resolution between buyers and property developers
RERA Act and Karnataka - Snapshot 1. Central Act came into force with effect from May 1, 2017 2. Karnataka Real Estate Regulation and Development Rules, 2017 was approved by Government of Karnataka and notified on July 10, 2017 3. Government of Karnataka appoints Principal Secretary to Government of Karnataka, Department of Housing as the Interim Authority - Section 20 (1) 4. To appoint one or more adjudicating officers to settle disputes and impose interest and computation 5. Government of Karnataka appoints Karnataka Appellate Tribunal as Interim Appellate Tribunal - Section 43 (4)
RERA - Karnataka - Snapshot 1. Online Applications for Registration of projects accepted through website from 24th July 2017 2. Online Applications for Registration of Agents accepted through website from 24th July 2017 3. Made mandatory filing for ongoing project within 3 months from 1st May 2017 i.e., by 31st July 2017
RERA - Karnataka So far Indias Top 3 Approved 3000 + Under Process 400 + Registration time for completion lapsed - 1000 Rejected 160 + Projects Under Investigation- 1100 Agents Approved 1300 Under process 278 Judgment by RERA KARNATAKA 700 + Judgment by Appellate Tribunal - 10 Mumbai High / SC - Court Judgment - 1
Applicability of the Act where the area of land proposed to be developed does not exceed five hundred square meters (5382sft) or the number of apartments proposed to be developed does not exceed eight inclusive of all phases. where the promoter has received completion certificate for a real estate project prior to commencement of this Act; for the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project. where the real estate project is to be developed in phases, every such phase shall be considered a stand alone real estate project, and the promoter shall obtain registration under this Act for each phase separately.
Ongoing Projects KA RERA Rules Inclusions Exceptions / Exclusions Layouts - Streets and civic amenities sites and other services have been handed over to the Local Authority for maintenance Development is going on for which completion certificate has not been issued Apartments - Common areas and facilities have been handed over to the registered Association of Allottees Projects all development works have been completed and 60 % sale deeds have been registered / executed Projects all development works have been completed and application for CC / OC is filed (completion / occupancy) Projects in Phases - Partial occupancy certificate is obtained in case of projects are in phases All ongoing projects shall be registered within 31st July 2017
Prior Registration Section 3. Prior registration of real estate project with Real Estate Regulatory Authority Promoter shall not advertise, market, book, sell or offer for sale, or invite persons to purchase without registering the real estate project with RERA Authorities
Post RERA Business Cycle 1 Due Diligence of Land and Project 7 PREAPRE ALL DOC FOR RERA APPLICATION 6 Sanction Plans 2 Feasibility of the Project / Market Study etc 5- Apply for Noc clearances 8 RERA REGISTRATION 9 LAUNCH / ADVERTISEMENT ETC 3 Enter MOU with Land Owner 4 DA / JDA / GPA
Post RERA Customer Transactions 6 - Complete development and Obtain OC 7 - Conveyance deed within 3 months of OC 1 - Booking Form 5- Formation of Association of Allottees once majority of units are booked 8 Title Insurance / Defect Liability for 5 years 2 - Allotment Letter 4 - Register Agreement for Sale if promoter collects > 10 % of total cost 3 - Enter Agreement for Sale 9 Handover to Association
Post RERA Change in Practices - Transformation Same Rate of Interest for the default by promoter or Allottee Consent of Allottes incase of changes Price is escalation free (except of govt (levies) Quarterly update of progress to authorities PRIOR registration of Real Estate Project for launch Obligation of promoter on veracity of advertisement Formation of Association once major units are booked Defect Liability towards the Structure, workmanship or Services for 5 Years 70 % of money collected can be drawn based on % of completion of development Title guarantee for Lifetime - forever Agents are liable and penalized for wrongdoings Shall be in Carpet Area (against super builtup) Single Agreement for land and construction Compulsory registration of Sale agreement Stringent penalties Title Insurance is mandatory
Post RERA Change in Practices - Transformation Banks shutting out Builders without RERA Registration Online mechanism of lodging complaints Agents are liable and penalized for wrongdoings Conciliation forums Obligation of promoter on veracity of advertisement Consent of Allottes incase of changes Detailed written agreements Stringent Lending Refund to Allottees with interest and compensation Builders getting more cautious about new launches Transfer of Common Areas to Association Regular update on development of project Veracity / Advertisement shall carry RERA Reg No Professional Certifications - Checks and balances Disposal of complaints with in 60 days RERA Annual Audit
Key Differentiators Functions of Real Estate Agent Sec 10 Real Estate Agent Functions and Duties of Promoters Sec 11 Promoter Rights and Duties of Allottees Sec 19 Allottees
Professional Opportunities - Registration of RE projects with RERA (CA/ CS/ CWA/ Legal Practitioners Structuring of Real Estate Project under RERA Section 3 Details there on based on Structuring CA Certification for withdrawal of funds Based on POC Section 4 Audit under RERA Annual Audits Section 4 Representation Services Before AO, Tribunal Section 56 General Consultation Training, Impact Study etc
Professional Opportunities - Training / Education / Aware of provisions including penal consequences to All departments in an organization Communication and Compliances - Documentation Operation, DLP, Customer conversations, Agreements - Development, Vendors, Customers Review / Outsource
Professional Opportunities - Compliances 1. Added cost of compliances may also indirectly impact pricing: Disclosures and Transparency Registration costs Insurance Construction and Title Structural defect liability period 5 years Ongoing compliance costs Restricted utilisation of funds to specific projects Certifications and Audits
Initially, a lot of work is to be done to get the existing and new projects registered. Details such as status of each project executed in last 5 years, promoter details, detailed execution plans etc. needs to be prepared. Initial Backlog Increased Project Cost Registration, regular update with RERA and insurance cost for construction Land and approval costs to be meted out of internal accruals as pre launch concept may end . It may lead to a shift in equity financing from debt financing prevailing currently Tight Liquidity The cost of capital may go up as developers may now have to fund the land, the approval cost through equity. With frequent delay in obtaining approvals, debt funding may not be an ideal route for project Rise in Cost of Capital With entry in the sector made difficult, the sector may witness consolidation. Strong financial and execution capability is required to launch a project. The development model/agreement may gain prominence Consolidation The project launch time may increase since a lot of time will involve infinalizing finer details before launching a project. Details such as structuring of project, financials, risk mitigation, complete drawings utilities layout, etc. Needs to be finalized before project starts. Increase in Project Launch Time
Offenses and Penalties Provision Promoter Agent Allottee Non-registration of project/agent with RERA and continue to do so Up to 10% of project cost and imprisonment of 3 years for continuous default Penalty of INR10,000 per day during default tenure up to 5% of property cost False information while making an application to REM Up to 5% of the estimated project cost Non-compliance with any provision of the Act Up to 5% of the estimated project cost Up to 5% of the estimated project cost Up to 10% of cost and imprisonment of up of up to 3 years or both Up to 5% of the property cost Non-compliance with the aforesaid order of REM Non-compliance with the aforesaid order of the Appellate Tribunal Up to 5% of cost property cost Up to 5% of cost property cost Up to 10% of cost and imprisonment of up of up to 1 years or both Up to 10% of cost and imprisonment of up of up to 3 years or both
Allottees Rights and Duties Right Details / Explanation Entitled to obtain Information relating to - 1. sanctioned plans 2. layout plans 3. Specifications of project 4. such other information as provided in the Act or the rules and regulations or the Agreement for Sale Stage-wise time schedule of - 1. completion of the project, 2. including the provisions for water, 3. sanitation, 4. electricity and 5. other amenities and services as agreed to in the agreement for sale Entitled to know
Allottees Rights and Duties Right Details / Explanation Entitled to claim The possession of apartment, plot or building, as the case may be, and The association of allottees shall be entitled to claim the possession of the common areas, as per the declaration/Affidavit given by the promoter, Refund to allottee (a) amount paid (b) interest ( c) compensation if the promoter - 1. fails to comply or is unable to give possession in terms of agreement for sale 2. discontinue his business 3. Suspension / revocation of registration by RERA Authorities under the Act necessary documents, plans, common areas plan and documents, after handing over the physical possession Entitled to have
Allottees Rights and Duties Duties Details / Explanation shall be responsible 1. To make necessary payments in the manner and within the time as specified in the agreement for sale 2. shall pay at the proper time and place, the share of the registration charges 3. municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, if any 1. The Promoter shall periodically intimate to the Allottee, 2. the amount payable as stated in agreement (including taxes) 3. the Allottee shall make payment within 30 (thirty) days from the date of such written intimation. make necessary payments (Agreement Clauses)
Allottees Rights and Duties Duties Details / Explanation shall be liable To pay interest, at such rate as may be prescribed - for any delay in payment towards any amount or charges to be paid Rate of Interest As specified in respective State Rules E.g., TN Repo Rate + 2 % MH SBI highest Marginal Cost of Lending Rate + 2 % KA - SBI highest Marginal Cost of Lending Rate + 2 % Reduction of Interest may be reduced when mutually agreed to between the promoter and such allottee
Allottees Rights and Duties Duties Details / Explanation shall participate every allottee of the apartment, plot or building shall participate towards the formation of an association or society or cooperative society of the allottees, or a federation of the same shall take physical possession of the apartment, plot or building, within a period of two months of the occupancy certificate issued for the said apartment, plot or buildings shall participate towards registration of the conveyance deed of the apartment, plot or building, within three months from the date of Promoter obtaining occupancy certificate or with in such period as specified in sanction plans as provided under local laws
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