State of RERA implementation: Are home buyers really safe?

LOOPHOLES IN REAL ESTATE REGULATION

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When Chandra, in his late sixties, decided to invest his life’s savings in a house in Hyderabad, the builder promised to hand over possession of the new home in December 2018. But with the project nowhere near completion, Chandra has now been promised possession in March 2020. And lives in the hope that if even that date is not kept, the builder will pay him interest on the amount he has deposited, as the new Real Estate Regulation Act (RERA) mandates.

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Passed with much fanfare in 2016, RERA was supposed to protect home buyers like Chandra from unscrupulous builders, especially after all its 92 sections came into force from May 1, 2017. According to media reports, however, amendments likely to be introduced in the RERA act threaten to make the Act more builder friendly, rather than home buyer friendly as originally intended.

The Central government, in order to iron out the creases in this legislation, has asked for suggestions from various stakeholders, especially on a proposed order which will allow changes to be made in the Act without needing parliamentary approval.

The ministry argues that Section 91 of the RERA Act gives the Centre power to issue orders to make provisions to remove difficulties in implementing the Act. However, homebuyers associations who have made  representations to the ministry question this argument and fear that these changes will not offer them the same protection that RERA in its current form does, at least in theory. And make redressal of their grievances more difficult.

RERA boasted stringent regulations which builders were mandated to follow. Mandatory registration of all real estate projects with RERA was one such requirement. RERA also sought to put an end to builders changing building plans after taking the booking amount from buyers with the provision that changes in plans must have the consent of the buyer. The practice of levying extra costs and hidden charges was also curbed by RERA.

The key change brought about by RERA was imposition of monetary penalty on builders in case of project delays. The Act also clearly defined “carpet area” to ensure there was no confusion in calculating the area that the builder can show and charge for.

Among other provisions, the Act specifies the following:

  • Information: Developers will have to disclose the details of their project including the approvals from other government authorities, status of the land on which the project will be developed, layout plans, etc. Any change in the project design and layout will not be allowed without the consent of the buyers. If there is a mismatch in terms of what was promised by the builder and what has been delivered, the buyer is entitled to a full refund of the amount paid as advance.
  • Transparency in pricing and price once mentioned in the agreement is escalation-proof except any additional taxes, levy or other charges payable
  • Risk of insolvency of the builder is reduced: Developers will have to deposit 70% of their project cost in an escrow account. This is to make sure that the funds are not used elsewhere.
  • Defect Liability Period of five years and rectification of the defects within 30 days.
  • Grievance Redressal: Homebuyers have the right to approach consumer courts in case of any disputes or discrepancies. Penalties and punishments for the violation of the provisions of the bill. A fast track dispute resolution mechanism will be established for quick resolution of disputes among different parties via Appellate Tribunal and adjudicating officers.

See also: How a bunch of Bangaloreans helped the Real Estate Bill get passed

RERA mostly on paper

Unfortunately, nearly three years after the act was passed, RERA remains a toothless tiger, with home buyers like Chandra still at the mercy of builders who manage to ignore RERA provisions with impunity. In Telangana for instance, the implementation and roll out of RERA has been lacklustre.

The state did not implement RERA for more than six months since the first set of sections were notified. It took a long time for the Telangana Rules to be notified and the website too has only recently become active. Such delays in development of specified infrastructure has affected the implementation of the Act in the state.

Many real estate projects in Telangana are still not registered under RERA, as the authorities have been repeatedly extending the deadline for registration, the latest extension being granted this month. Further, the Telangana RERA Rules exempts from registration ongoing projects which have obtained occupancy. This gives a loophole to builders who are already under the scanner for inordinate delays. Some residential projects in Hyderabad remain incomplete even ten years after they were launched.

Implementation has been uneven at the state level. Many states have also tweaked some essential provisions which dilutes the effectiveness of the Act. In fact, as per the housing ministry’s report on status of implementation as on April 13 2019, while most states have notified rules under RERA, only 23 states have operationalised their RERA websites, 28 States have set up the permanent Real Estate Regulatory Authority and only 21 states have set up a permanent Real Estate Appellate tribunal.  

Meanwhile West Bengal totally ignored RERA and passed its own act, which is now being contested in the Supreme Court. However the ministry of housing has now asked it to frame rules under RERA.

Conflict with new Insolvency and Bankruptcy Code

Adding to the confusion is the recently enacted Insolvency and Bankruptcy Code (IBC) which flies against some of RERA’s provisions. IBC provides for liquidation of a defaulting company’s assets to pay off creditors. So in a situation where a real estate company goes bankrupt, IBC aims to pay off creditors like banks, while RERA’s provisions to protect the home buyer’s investment is ignored.

To clear this contradiction, amendments were made to both Acts, classifying homebuyers as creditors who are entitled to get back their investments in the insolvency proceedings. But the IBC process is a time consuming one, and most home buyers, especially those in Chandra’s age group, cannot afford to wait so long in the hope that the company will get liquidated and that they will get their money back. This is a real concern that RERA fails to address.

Going by experience of home buyers, RERA lacks the power and authority to protect them adequately. And complaints have been galore.

The housing ministry report states that nationwide, 39,684 real estate projects have been registered till April of this year, with Maharashtra (20,362) having the maximum. Other states with a significant number of projects registered are Gujarat (5268), Karnataka (2524), Madhya Pradesh (2139) and Uttar Pradesh (2653). However no official figures are available on the number and nature of complaints filed under RERA and their status.