Real Estate (Regulation & Dev.) Act, 2016

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By Girish Rao, Advocate & Solicitor (For Lex Consultus)

It is argued that the Real Estate (Regulation and Development) Act, 2016, which strives to protect consumers’ interest, will actually harm competition in real estate sector and ultimately harm a consumers’ interest. How correct is this argument, read on.

Real Estate Industry is estimated to be around $180 billion by 2020, that would be around 6-7% of GDP, but it still does not have a status of the industry. Despite various regulations in many states, there is no uniform standard business practice. In many countries like Dubai has ‘Law No. 16 of 2007’, UK has ‘Consumer Estate Agent and Redressal Act 2007’ and Germany has a Condominium Act of 1951. In US and Australia every state has different regulations. Similarly, to protect the rights of the consumer and to standardize business of real estate sector, central government has enacted the Real Estate (Regulation & Development) Act, 2016 (RERA or said Act). This act will be in addition to state laws, like in Maharashtra, The Maharashtra Ownership Flats (Regulation of Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA).

Under the said act it is mandatory to register real estate project and provide details viz particulars of the promoter, sanctioned plan, time period, amenities etc, to enable the consumer to take informed decisions. The act also provides for the grievance redressal system to address grievances of the consumers and also promoters. It also provides for penalty and damages for violation of the various acts.

I am not dealing with those provisions, but only analyzing certain provisions, which are counter-productive to the object to be achieved. Some of the provisions are as under:

  1. Lapse of registration of the project – after the completion of the period for which the registration was granted the registration automatically lapses which can only be extended on ground of Force Majeure. However, what happens to the unsold inventory of the promoter, which remains unsold, this situation seems to have not been taken into consideration in the entire act.
  2. It seems, there is presumption that only the promoters indulge in malpractice, which is far from true. In reality it is experienced that even consumers also indulge in malpractice by paying only 20-30% of the cost and getting agreement registered and thereafter defaulting in payment. In such situation promoter is left only to file suit for getting agreement declared as void and cancelled. The act has not taken such eventuality into consideration.
  3. Conveyance – whether apartment along with the undivided will convey to the purchaser or Conveyance will be in favour of the association of the purchasers, seems to be ambiguous as can be seen from the reading of various provisions, particularly sections 4 (2) (g), 11 (4) (a), 11 (4) (f) and 17. It seems conveyance has to be granted to the consumer of the apartment along with undivided interest in the common amenities. That means undivided interest in the property is created in favour of the consumer and in the case of redevelopment of the said property may be 20-30 years down the line even one person, who has undivided right will successfully obstruct the whole redevelopment project as he being the owner of undivided property, the decision of the majority will not be binding on him. (In Maharashtra under MOFA conveyance is granted to the society, therefore society becomes owner).
  4. Time frame for completion of project – it is mandatory for promoter to give a time frame within which the delivery of the flat will be given to the consumer, including external development work as defined u/s 2 (w), which includes roads, road system, and water supply. However, no responsibility is fixed on any of the local authorities within what period they will give various permissions which are required to provide those essential supplies. The accountability must have also been fixed on local authorities and the authority ought to have been empowered to pass any such direction against the local authority. These circumstances are beyond the control of the promoter and it is common knowledge how local authorities behave.
  5. Under section 18, consumer is entitled to damages in a defect in title for infinite time because under section 18 (2) the claim for compensation, will not be barred by the limitation, which means, technically consumer can file a complaint and demand compensation even after 100 years.
  6. Award of damages is 5 or 10% of the estimated cost of the project as the case may be against the promoter, but on the contrary for any violation the award of damage is 5 to 10% of the cost of the apartment which is totally unfair and maybe even unconstitutional.

This is just brief critical analyses of RERA. Appropriate measure needs to be taken to amend the said act, which would further promote the object of RERA.

About the author: IE&M Team
IE&M Team
Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

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