RERA to protect home buyers comes into force; only 13 states on board yet

The new Real Estate (Regulation and Development) Act (RERA) comes into force today to regulate the real estate sector, protect home buyers, help ensure timely execution of projects and stamp out illegal practices.

The new rules are applicable to residential and commercial developments and make it mandatory for all projects and brokers to be registered with the real estate regulator who will oversee transactions and settle disputes.

So far, however, only 13 states (including Maharashtra) have moved to implement the new rules. Being a model law, the centre can recommend RERA adherence but it is up to the states to formulate and pass their own laws, since land is a state subject.

The union housing ministry had last year notified the rules for the five Union Territories and for Delhi National Capital Region.

The Centre has described RERA as the beginning of a new era where the consumer will be king. Union housing minister Venkaiah Naidu said rights and obligations of buyers, developers and real estate agents are clearly defined in the Act and any aggrieved party can seek redress for violation of terms of agreement by the other party.

On reports that some states have diluted key provisions of RERA, Naidu said that the states have assured his ministry that these will be corrected.

Under RERA, real estate developers and agents have to register with their respective state regulatory authorities by 30 July. They must also deposit 70 per cent of the funds collected from buyers in a separate bank account to be used only for the construction of the project, to prevent diversion of funds. New projects must have all approvals before launch.

Promoters must have the consent of two-thirds of the buyers in a project before making any change in the number of units or other structural changes. RERA prescribes penalties, including imprisonment for developers who delay projects or do not deliver on promises. Developers are required to disclose their project details on the real estate regulator's website, and provide updates on construction progress.

The Act also states that any structural or workmanship defects brought to the notice of a promoter within a period of five years from the date of handing over possession must be rectified by the promoter.

For delayed possession, developers will have to pay interest at the rate of 2 percentage points above State Bank of India's lending rate.

A developer can sell only on the basis of carpet area, which will help home buyers understand what they will be paying for each square foot they will get for use.

In the last few years, sluggish economic growth and delays in getting approvals have stalled several projects, leaving buyers waiting for their homes and developers holding high debts. It also put a strain on investors such as banks, private equity firms and non-banking financial companies.

Analysts say the real estate sector will now be able to attract higher institutional funding as the Act will bring in transparency in the sector, which contributes about 9 per cent of India's gross domestic product.