Indian Real Estate Industry faces a new Phase : New Laws to regulate 


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By- Dr Chandrika Subramaniyan ( Solicitor )

Real Estate is a booming industry in India with NRI funds in particular. However, there are no regulatory efforts until this year. To regulate the industry, the Indian Rajya Sabha recently approved the Real Estate (Regulation and Development) Bill that promises to protect home-buyers as well as help boost investments in the real estate industry. The Act came into force from 1 May 2016 which aims to transform India’s residential and commercial conveyancing market by increasing transparency and improving accountability.

The Act contains a number of requirements aimed at regulating project promotors, a term widely defined under the Act to include developers, government authorities, builders and any other person who constructs any building or apartment for sale to the general public (“Promotor”), and real estate agents. The Act also contains several provisions to address the issues in the current real estate market, mainly by way of establishing a disclosure framework and setting strict liabilities for promoter irregularities. Under the Act, Indian Government will establish an authority as regulatory body, namely Real Estate Regulatory Authority (“RERA”).

In the interim period, the Government may designate a regulatory authority to fulfil the prospective function of RERA. The Act also creates a Real Estate Appellate Tribunal (the “Tribunal”) to hear appeals originating from RERA decisions, directions and orders. The Tribunal has powers to pass such orders as it thinks fit in response to an appeal of a RERA decision, with the appellant having the opportunity to file a further appeal with the High Court if aggrieved by a decision of the Tribunal.

Some of the salient features of the Act are

– All projects to be registered with the regulatory authority before selling

– At the time of registration, the developer will have to disclose all relevant information       including promoter details, project plans, implementation schedule, land status, layout, – approvals and agreements among others, thus empowering buyers with the information they need.
– It also mandates that builders deposit 70% of money collected from buyers in an escrow account that will be utilized only for construction and paying for land, thus putting an end to the widespread diversion of funds to other projects.

– Homes to be sold only on carpet area.

–  Builder and buyer pay same rate of interest if there is any delay

The other highlights include:

Regulatory Authorities to be set up: The Act mandates setting-up of real estate regulatory authorities (RERAs) and real estate appellate tribunals in all states and union territories (except Jammu & Kashmir) within 1 year of its notification.

Registration Requirements:

The Act requires mandatory registration of real estate projects with the RERA where the total area of land proposed to be developed exceeds 500 square meters or where more than eight apartments are proposed to be developed inclusive of all phases (where phase-wise development is proposed).

The Act also requires every phase of a project to be registered separately as a standalone project.

Projects cannot be advertised, booked or sold in any form prior to registration and obtaining the necessary construction approvals. The RERA is required to either grant or reject registration applications within 30 days.

Disclosure Requirements: Publicly accessible disclosures of the project and promoter details, along with a self-declared timeline within which the promoter is required to complete the project, are compulsory. Quarterly project related disclosures are also required. The disclosures are to be made available online.

Standardization of definitions: The Act defines key terms such as ‘apartment’, ‘carpet area’ and ‘(rate of) interest’, which will help in homogenizing sector practices and prevent abuse of consumers due to biased classifications such as ‘super built-up area’ etc.

Accounting for project receivables: Promoters must park 70% of all project receivables in a separate account. Drawdown from such account is permitted for land and construction costs only, in line with the percentage of project completion (as certified by an architect, an engineer and a chartered accountant). Further, a promoter can accept only up to 10% of the apartment cost prior to entering into a written agreement for sale with the consumer.

Declaration Requirements: The promoter is required to declare that it has legal title to the project land or authenticate validity of title, if such land is owned by another person. The promoter is also required to obtain insurance for title and buildings along with construction insurance.

Consumer Protection related to encumbrances: The promoter is prohibited from creating any charge or encumbrance on any apartment after executing an agreement for the same. In the event such charge or encumbrance is created, it will not affect the right and interest of the concerned consumer.

Structural Defects and Liabilities: The promoter is responsible for structural defects or other deficiencies for a period of 5 years from the date of delivery of possession.

Agents: The Act prohibits real estate agents from facilitating any sale or purchase of plots/apartments in projects without obtaining registration with the RERA. The agents are required to facilitate access of project information to consumers at the time of booking and refrain from making false statements, misleading representations and indulging in unfair trade practices.

Legal Action: The Act provides for time bound resolution of complaints and disputes by the RERAs and the real estate appellate tribunals. The Act also provides for refund of amounts paid by consumers (along with interest and compensation) for promoter’s failure to give possession of the apartment in accordance with the agreement for sale, or any breach of such agreement.

Existing projects: Existing projects which have not received completion certificate as on the date of commencement of this regulation will be required to obtain registration with the RERA within 3 months of such commencement.

Penalties: The Act imposes monetary penalties on the promoter of up to 5% of the ‘estimated cost of the project’ (as determined by the RERA) for disclosure related defaults, and up to 10% for other defaults, along with a maximum imprisonment of 3 years. Consumers are liable to a fine of up to 10% of the apartment cost or imprisonment up to 1 year for non-compliance with orders of the real estate appellate tribunal.

Conflicting state laws: The Act expressly repeals the Maharashtra Housing (Regulation and Development) Act, 2012 and will have over-riding effect on conflicting state laws.

The new Act expect to improve consumer confidence by putting measures into place which tackle project delays, prevent the misapplication and diversion of purchaser’s funds, dissuade Promoters from providing misleading information and changing project plans and from transferring projects to alternative Promoters without first obtaining the consent of purchaser


This article above is provided for general information only. This should not be considered as legal advice.

The Indian Telegraph Sydney Australia

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