The Real Estate (Regulation and Development) Act, 2016: Key Provisions and Regulatory Framework

Introduction

The Real Estate (Regulation and Development) Act, 2016 aims to improve transparency and accountability in the real estate sector. The Act provides mechanisms for regulating transactions relating to both commercial and residential projects, ensuring timely project completion by promoters and greater protection for both allottees and real estate brokers. It mandates registration of projects with the regulatory authority, thereby addressing several concerns in the real estate market, including fraudulent practices, delayed deliveries, and lack of transparency.

Key Provisions of the Act

1. Project Registration and Financial Management

• Separate Accounts for Projects:
  Each project must have a separate bank account maintained by the promoter. A minimum of 70% of the funds received from buyers must be deposited in this account. These funds can only be used for construction and land costs.

• Withdrawals Linked to Project Completion:
  Promoters can withdraw funds from the separate account only in proportion to the project’s completion. Withdrawals must be certified by an engineer, architect, or a chartered accountant to confirm that the funds are being used in line with the project’s progress.

• Audit and Certification:
  Every financial year, the promoter must have the accounts of the project audited by a practicing chartered accountant. The auditor will verify that:

  • Funds have been used exclusively for the project.
  • Withdrawals are in line with the percentage of completion.

2. Carpet Area and Transparency in Sales

• Carpet Area Definition:
  Builders can sell units only based on carpet area, defined as the net usable floor area. This excludes areas such as external walls, exclusive balconies, and service shafts, but includes the area covered by internal partition walls.

• Disclosure Requirements:

  • Developers must inform buyers about other ongoing projects.
  • Original approved plans and alterations made to the plans must be submitted to the regulatory authority.
  • Developers are required to disclose revenue collected from allottees, along with how the funds were utilized and timelines for construction, completion, and delivery.

3. Liability and Penalties

• Penal Interest for Delays:
  Both developers and buyers will incur a penal interest of SBI Marginal Cost of Lending Rate + 2% in case of project delays.

• Liability for Structural Defects:
  Developers are liable for structural defects for five years from the date of possession.

• Penalties for Violations:

  • Developers can face up to 3 years imprisonment for violations of tribunal or regulatory authority orders.
  • Agents and buyers can face up to 1 year imprisonment for non-compliance with orders.

Regulatory Framework

Regulatory Authorities

Each state and Union Territory (UT) must establish its own Regulatory Authority within one year of the Act coming into force. Meanwhile, an appointed officer may serve as the temporary regulatory authority.

• Quorum and Decision-Making:
  • Regulatory authorities must make decisions either by consensus or, in case of a tie, by voting, with the Chairman casting the deciding vote.
  • Members of the authority must declare any conflicts of interest and refrain from participating in related discussions.

Appellate Tribunals

States are required to set up Appellate Tribunals to address appeals from aggrieved parties.

Registration Process for Promoters

• Promoters must register their projects with the Regulatory Authority before offering or selling any units.
• Projects promoted in phases will require separate registration for each phase.

Which Projects Are Covered?

Existing Projects

• The Act applies to existing projects where buyers have not yet received possession, provided the completion certificate was not issued before the Act’s commencement.
• Developers have 3 months from the Act’s start date to register ongoing projects.

Exemptions and State Variations

• Some states, like Uttar Pradesh and Gujarat, have excluded ongoing projects from coverage under the Act.
• Haryana’s draft rules exclude projects where builders have applied for occupancy certificates or part-completion certificates, provided such certificates are granted within 3 months of application.

The Real Estate (Regulation and Development) Act, 2016 aims to bring much-needed transparency, accountability, and timely project completion to the real estate sector. The Act introduces several key provisions that protect homebuyers, ensure fair business practices, and regulate project funding and construction. However, its impact varies across states due to differences in implementation and exemptions.

By mandating the registration of projects, disclosure of financial details, and the creation of Regulatory Authorities, the Act has set a path toward increased regulation in the sector, benefiting both developers and buyers. It is important, however, for the states and UTs to implement the provisions uniformly for the Act to achieve its full potential.