From decades, the Real Estate,a major market, was facing a lot of irregularity, including anti-social practices.During the stage of advertisement lots of promises from the developer used to be shown including swimming pool, LED lights in the apartment Complex, guard facility, large garden for elderly parents and kids, luxury home, modular kitchen but after securing all the payments that also more than as shown in the brochure developers or their promoters were disappeared landing the innocent home buyers cursing their decision. If developers and promoters were there then they couldn’t fulfill their promises like not giving possession within the requisite time, not even providing proper electric wiring of the Apartment. Sometimes doors of the flat were found infested with white-ants, ill-fitted windows that were also made up of poor quality iron. Once what used to be an opportunity of investment, now turned a place of unethical behaviour and cheating and losing hard earned money.All this not only shattered the trust of the public but also forced the State to find a robust solution to tackle this menace otherwise it may lead to decay of the economic fabric of our country.
This article is focussed to study the Real Estate (Regulation and Development) Act, 2016(RERA) in light of the rising fraud scenario in the Real Estate both residential and commercial sectors since the last few decades. Earlier there were no checks on the Land and Building Matters. This article is motivated by deep study concerning fraud, its meaning, some theoretical analysis then applying these theoretical foundations to the Real Estate sector.
This Article aims at understanding the real scenario in the real estate sector and awareness among stakeholders regarding the Real Estate (Regulation and Development) Act, 2016 and threats related to real estate. In addition, the Article also aims at suggesting remedies to stay safe from such malpractices.
Conceptual Framework
Before diving deep into real estate fraud and the impact of RERA, let’s go through the concept of fraud and various situations which give rise to fraudulent activities.
Concept of Fraud
Fraud is an act of extracting money by false promises or by enticing advertisements. It may include depriving the victim from his rights. It is different from an opinion where the statement may be untrue but it is the personal view of the narrator. For Example, if any promoter says that “this flat is best as it has stronger walls and large built-up areas than a high rise Apartment”. But actually A High Rise Apartment may be suitable for the buyer as it is near to his office even if the built-up area is lesser than the proposed apartment by the promoter. Fraud includes trickery to cause someone to part with their belongings or valuable securities or valuable assets. Remedy for fraud can be civil or criminal.
Classification of Fraud
Following are the most popular types of fraud:
- Bank Frauds: When money is extracted by dishonesty or deception through a bank personnel.
- Ponzi Schemes: It involves enticing investors to double up the invested money by paying out from the investments of new investors to the earlier investors, but there is no real profits.
- Insurance Fraud:Insurance frauds can be done by the underwriter, agents, or the insurance policy holder. It includes not telling the real benefits of policy, forcing someone to take policy, false claims, etc.
- Real Estate Fraud: It includes deceptive or dishonest practices while selling and buying property.
- Corporate Fraud: Frauds committed by the companies on their executives, shareholders, and public.
- Accounting Fraud: It is manipulation of financial records or statements to evade liability or tax.
- Cyber Fraud: Frauds committed using computers, digital spaces, websites to extract money or any benefit.
Criminological perspective on Fraud
1) Theory Of Crime Triangle
First of all, fraud itself suggests dishonest intentions. It is a planned deception to secure wrongful gains by making the others to undergo wrongful loss.It is a crime in simple terms as it disturbs peace in the society, creates fear and sense of insecurity in the minds of the public.This form of crime is based on making use of situation or opportunity.
There is a theory which explains the occurrence of crime in terms of opportunity. This is known as CRIME TRIANGLE.
Crime Triangle has three vertices namely, victim, accused and opportunity. A victim is one who has suffered a loss recognised under the law time being in force. Accused is that stake-holder in crime who has been charged under the law to which he is a subject. Opportunity is a breeding ground which provides the accused with the confidence to do anything forbidden to secure pleasure or economic advantage.It is a set of situations which are favourable for the criminal to do anything forbidden.
If we remove any of the three vertices, then the occurrence of crime may be zero. However, victims and accused are human beings, they cannot be removed from society. They are unidentified also. We cannot predict who can be the victim or who can do a wrongful act But opportunity can be curtailed by using any crime-prevention technique.
In this crime triangle only the opportunity can be curtailed. Such measures should be taken that reduces the opportunity. Such ways may take any strategy or removal of the target.
2) Theory of Fraud Triangle
There is another theory called FRAUD TRIANGLE theory. Donald Cressey in the year 1953 propounded the theory, the Cressey Hypotheses, or popularly called “FRAUD TRIANGLE”.
According to this theory fraud has following three elements:
1) Motivation
2) Opportunity
3) Rationalization
The Donald Cressey has explained these three elements as follows:
Motivation
Here Motivation means any unshared financial problem that may be a desire to lead a standard life, expectation of family or providing good education to children. It may include providing costly education to children, purchasing a villa for his wife, dreaming of a world tour with family or chasing anything beyond the financial means.
Opportunity
Opportunity means lack of self-control. Whenever circumstances are giving favourable situations to take advantage one is making use of them without thinking morality or righteousness.The opportunity also provides a breeding ground to commit fraud. Here, in “Real Estate” this opportunity may be due to:
a) Un-informed home- buyer,
b) Lack of proper legal set-up,
c) Collusion among various stakeholders like banks, builders etc.
d) Lack of proper paperwork/ documentation
Earlier this sector was highly unregulated, as real estate consultants were not having any proper ID, so sometimes his family members used to sit at his place. This was also the major concern. If any other person has access to the office and documents, that fellow may forge any document or even a cheque.
Rationalization
Rationalization means giving any reason to his act to convince himself that ” I know, I am right”. These rationalizations may take many forms like:
i) Everybody does so;
ii) It is business;
iii) Business has no emotions;
iv) I had to compensate my loss;
v) He had told me;So, rationalization is a way to convince one’s own mind, that I am right. This is a way to win at all costs.
The first time fraud offenders seek rationalization to view themselves as good and a person of integrity.
3) Theory of Fraud Diamond
The “Fraud Diamond” theory was presented by Wolfe and Hermanson in 2004. This theory presupposes four dimensions of fraud.
Incentive
A pressure or motivation which may be family expectation, children welfare, goal regarding personal or shared goals. It can be marriage expenses, debt, gain that forces or drives an individual to commit fraud.
Opportunity
An opportunity is a mistake, lapse, error, or oversight which resulted in fraud done by the motivated person.
Rationalization
It involves asking, “who doesn’t do?”. It is an act of providing reasons to support unethical behaviour, making it acceptable by others. That the wrongdoer was right in doing it.
Capability
Capability is the talent, knowledge, skill,position, and confidence which motivate them to exploit the opportunity of fraud along with concealing it from detection.
This theory says, apart from all the elements of fraud triangle the perpetrator must have capability to commit the fraud.
In short, capability is the potential of any person which comprises education, skills, position, stubbornness, or any situation which is helpful in committing fraud.
Legal framework governing Frauds in India
Indian Contract Act, 1872
Indian Contract Act, 1872, provides general principles of contract and recognizes fraud as a factor which vitiates consent and thereby affects the enforceability of the contract.
Section 17
The Indian Contract Act, 1872 in section 17 attempts to define “Fraud” as any act where intention is to deceive another party or to his agent to make him enter a contract by doing anything like telling incorrect information, active concealment of any material fact, to make a promise only to deceive not to perform it, or doing any act which law declares to be fraudulent.
The Companies Act, 2013
Section 36
Section 36 of the Companies Act, 2013 says that if any person any promoter of the company, any agent or shareholder of the company who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or guiding to wrongdoing, or deliberately withhold any material facts, to cause another person to enter into, or to offer to enter into,
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting securities; or
(b) an agreement to secure a profit to any of the parties from the yield of securities; or
(c) an agreement for, or with a view to obtain credit facilities from any bank or financial institution, said to have deceived the other party and shall be liable for action under section 447.
Section 447
Section 447 of the Companies Act, 2013 provides for the punishment for fraud from six months imprisonment to ten years. A fine may also be imposed which shall not be less than the amount involved in fraud and may rise to three times of the amount involved in the fraud, if the fraud in question involves public interest. In cases of frauds involving public interest, the minimum term shall not be less than three years. Fraud in relation to a company or body corporate can be any act, omission, concealment of fact or abuse of position committed by any person using the internet to deceive to gain undue advantage.
Section 448
Section 448 of the Companies Act, 2013 provides for false statement(s) in any return, report, certificate, financial statement, prospectus, statement or other document required shall be punishable under Section 447 of the Companies Act, 2013.
Real Estate Fraud Landscape in India
Expansion of the real estate sector in India has led to fraudulent practices which adversely affected the homebuyers and investors. An understanding of the fraud landscape is helpful in understanding the mischief or necessity behind introduction and enactment of RERA.
Deceptive Practices in the Real Estate Sector
The real estate sector is continuously growing, and so are the frauds associated with it. Nowadays, consumers are more educated but still easily cheated due to the necessity of accommodation. Home buyers who are coming from far off areas need a proper place of dwelling and because of their full time jobs they don’t get much time for due-diligence as well.
Frauds include cheating , diversion of funds, false promises, enticing schemes to buy one and get something assured.
The developer promises for many things like covered parking, LED night lights, even some claims for luxury apartments, but after receiving money either full amount or some installments, they turn down the home buyers.
Project delays and disappearance of promoters were also common occurrences. Some even deviated from the approved plan. Earlier they used to manage the said plan in terms of a super built-up area which later on come to know to the buyer includes balcony, parking, stair-case and other agreed amenities.
The Real Estate (Regulation and Development) Act, 2016 was passed in order to curb above mentioned issues.
Now the Act has specific provisions to deal with the above mentioned fraud scenario.
Fraudulent practices against Homebuyers
- Misrepresentation and false/ fake promises that these flats belong to our project, but in actual fact those flats were not part of their plan.
- Some flats were booked by more than one person and the developer committed fraud on both the parties.
- Inaction of some bankers.
- Non completion of projects on time.
- In many projects the construction has not even begun after the passage of the mentioned period of delivery of possession.
Frauds against Financial Institutions in the Real Estate Sector
Every bank has non performing assets (NPA). This cannot be termed as fraud. It is always expected. But in real estate matters banks grant loans to all like developers, promoters and home buyers. Earlier there was no legislation for home loans and building projects. There was either full compliance with the bank or wilful default by the borrower. But after the passing of The Real Estate (Regulation and Development) Act, 2016, it has become mandatory to check whether the project is registered with the RERA. The same can be ascertained by visiting the state RERA website. Without this compliance the bank cannot pay loan to the developer. But since the provision of escrow account is there in which 70% money has to be kept safe, the builder cannot pay for their other expenses and this leads to non payment of loan and leads to NPA. So this is purely situational default or may be as an excuse a wilful default.
Same is with the homebuyers there are only wilful defaults. It means provisioning an escrow account is to ensure money of the home buyer is safe and it’s not used for any other purpose. It is not sufficient to curb NPAs.
Impact of the real estate Fraud on Home Buyers
Such real estate frauds impact the financial health of any individual. Due to these frauds the borrower undergoes the dilemma. They are not having possession of their booked home as well as current rent of the accommodation. Due to this there may be any situation:
- Borrower are paying rent as well as loan;
- Borrower are paying rent but not repaying bank loan;
- Borrower are neither paying rent nor repaying bank loan;
In the last two scenarios their account is becoming Non Performing Assets and thereby affecting their CIBIL score. This led to difficulty in applying for further loans.
According to home buyers it affects their financial condition with respect to other family arrangements like marriage. The money so gone leads to all round loss. It also creates mental frustration and pathetic life conditions.
The Real Estate(Regulation And Development) Act, 2016 (RERA)
Overview of RERA
The need for housing has been increasing for the last one decade due to huge migration from rural areas to urban areas in search of employment and academic opportunities.
Compliance with the Real Estate (Regulation and Development) Act, 2016 seeks to assure the prospective buyers that the project will not only be completed on time, but also meet quality standards due to the oversight of a Regulatory Authority.
After being passed by both the houses of Parliament, the draft rules for the Real Estate (Regulation and Development) Act, 2016 are being framed at the State level for the implementation of the same.
The Real Estate (Regulation and Development) Act, 2016 aimed at ensuring transparency and giving rules and norms for the various contracts between the parties. It can be a potential game changer. The Preamble to the Act entails within its ambit the above mentioned motive.
This Act establishes a Real Estate Regulatory Authority (RERA) in each state for regulation of the real estate sector and also acts as an adjudicating body. This Act was passed by both houses of Parliament and received the assent of the President on March 25, 2016. It came on the Statute Book as THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016 (16 Of 2016).
The Real Estate (Regulation and Development) Act, 2016 comprises 92 sections which seeks to standardize business practices and transactions in the real estate sector. It seeks to ensure consumer protection as well. The Real Estate (Regulation and Development) Act, 2016 establishes Real Estate Regulatory Authority at state level to be approached for redressal of grievances with respect to any stakeholder. It is intended to regulate transactions related to both residential and commercial projects and ensure their timely completion and delivery of possession.
This Act makes it obligatory for developers to post all information on issues such as project plan, layout, government approvals, land title status, name list of sub-contractors to the project and completion schedule with the Real Estate Regulatory Authority of the state.
This Act also provides for imprisonment of up to three years in case of promoters and up to one year in case of Real Estate agents and home buyers for any violation of orders of Appellate Tribunal.
Under this Act the STATEMENT OF OBJECTS AND REASONS , it is clarified that this Act will ensure towards consumers greater accountability, and reduction of frauds and delays and high cost of transactions.
Salient Features of RERA
Under section 2 of the Act various terms have been defined such as advertisement, agreement for sale, allottee , apartment , Appellate Tribunal , architect , Authority , Building, Carpet area , commencement certificate, common areas, company, competent authority, completion certificate, development , development works , estimated cost of real estate project, garage , immovable property , occupancy certificate , person, planning area, promoter, prospectus.
Chapter II of the Act discusses the registration of Real Estate Project and Registration of Real Estate Agents.
Section 3 prohibits the advertisement, marketing, booking, selling or offering for sale or inviting persons to purchase in any way any plot, apartment or building by any promoter, without registration of real estate projects with the Real Estate Regulation Authority.
Section 5 talks about grant of registration.The Real Estate Regulatory Authority shall grant registration within a period of thirty days. And also provide a registration number, including a Login ID and password to the applicant for accessing the website of the Authority.
For refusal of grant of registration the Real Estate Regulatory Authority has to record reasons and the applicant shall be given opportunity of being heard.
Section 9 prescribes the process of registration of real estate agents.
The promoter has to mention prominently the website address of the Real Estate Regulatory Authority in their advertisement or prospectus.
Section 12 makes the promoter responsible for his statements and their veracity.
Section 13 prohibits deposit of more than 10% of the total cost of the apartment, plot or building from any person without first entering into a written agreement for sale.
Under section 14 the promoters have to adhere to sanctioned plans and project specifications.
Under section 15 the promoter shall not transfer his rights or liabilities without the consent of two third allottees, to the third party.
Under section 16 the promoter is under obligation to draw insurance of real estate projects as may be notified by the Appropriate Government.
Rights and duties of allottees
Rights and duties of allottees are given under Section 19. An allottee is one who has applied for property, paid the first premium, obtained an allotment letter and agreed to pay other installments or lump sum as per the agreement. He is not a mere home-buyer.
Following are the rights of allottee(s):
- The Allottee is entitled to obtain information regarding sanctioned plan, layout, agreement to sale signed with the promoters to ensure transparency with the buyers.
- The Allottee is entitled to know stage-wise time schedule of completion of project, provisions of water, electricity, other amenities as per the agreement for sale signed.
- The Allottee is entitled to claim the possession of the Apartment or plot or building as per the agreement.
- If the promoter or company fails to provide the possession of said Apartment, Plot or building then the allottee is entitled to claim the refund of money deposited as per the clauses of the agreement.
- The Allottee is entitled to receive necessary documents or plans after taking possession by the promoter.
Following are the duties of allottee(s):
- It is the responsibility of the allottee to pay at or before the due date and proper place like bank or office counter , registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, lease rent or any other charge agreed upon while entering an agreement for sale under the Section 13.
- If the allottee makes any delay in spying any of the charges he is bound to pay interest on it.
- It is the duty of the allottee to participate in forming a society or co-operative society or federation of allottees.
- After the receipt of Occupancy Certificate it is the duty of the buyer to take physical possession of the said premises within two months.
- It is the duty of the Allottee to participate in the registration of the Conveyance deed of said property.
Establishment and Function Of Real Estate Regulatory Authority
The major objective of the Authority is to regulate and promote the development of the real estate sector so as to bring transparency in the real estate development and business by insisting on mandatory disclosure of project details by the Builders/ promoters to the property buyers.
It is stated under section 20 that the Real Estate Regulatory Authority shall be established within one year of the date of execution of the Act. The Real Estate Regulatory Authority can be established for two or more states or Union territories. Also the Real Estate Regulatory Authority can be established more than one in a State or Union territory.
For members the knowledge and professional experience in the above fields should be 15 years.
Under section 23 The tenure of the chairperson and member shall be not exceeding five years from the date of first entry of their office or up to the age of sixty-five years, whichever is earlier.
Under section 32 functions of Real Estate Regulatory Authority for promotion of real estate sector like Protection of interest of the allottees, promoter and real estate agent.
Under section 33 The Appropriate Government seeks the opinion of the Real Estate Regulatory Authority while formulating policies on the real estate sector including review of law. But this opinion is not binding upon the Government.
Further the Real Estate Regulatory Authority is vested with the task of creating awareness and imparting training and advocacy about laws relating to the real estate sector and policies.
Under section 35 the Real Estate Regulatory Authority has the power to call for information and conduct investigations either on complaint or suo motu.
Also, the Real Estate Regulatory Authority has the same powers as that of civil court in respect of following matters, while trying a suit.
- The discovery and production of books of account and other documents, at such place and at such time as may be specified by the Real Estate Regulatory Authority.
- Calling and mandating the attendance of persons and asking them questions on oath.
- Civil functions like Issuing commissions for document verification and cross of witnesses.
- Any other matter which may be prescribed.
- Under section 36 the Real Estate Regulatory Authority has the power to issue interim orders for contravention of this Act, rules regulations to the promoter, allottee or real estate agent.
- According to section 38 the Real Estate Regulatory Authority shall be guided by the principles of natural justice. The Real Estate Regulatory Authority has the power to regulate its own procedure.
- Under Section 41 the Central advisory is established where the Union minister of Housing and Urban affairs shall be the ex-officio chairman. It shall have representatives of various union ministries, NITI Aayog, the National Housing Bank, the Housing and Urban Development Corporation (HUDCO), five State Governments on rotational basis, five representatives of the Real Estate Regulatory Authorities on rotational basis, or any other Central Government department by notification. In addition, it may have ten members from the real estate industry, consumers, real estate agents, construction labourers, NGOs, academic and research bodies in the real estate sector.
- Under Section 43 an Real Estate Appellate Tribunal has established so that any person aggrieved by any direction or decision or order made by the Authority or by an adjudicating officer under this Act may prefer an appeal before the Appellate Tribunal having jurisdiction over the matter
Role of Appropriate Government in Real Estate Regulation
Real estate means land and building ,Land is a state subject under entry 18 of list II of the Seventh Schedule which is the State list. Further entry 6 of List III or Concurrent list of the Seventh Schedule provides for transfer and registration of property other than agricultural land where both the Center and State can legislate over transfer and registration of property other than agricultural land. Also, entry 7 of the concurrent list provides for contracts.
It can be seen that since land and building is a State subject only the State Government can legislate. Act has chapter V exclusively for State Authority i.e. Real Estate Regulatory Authority(RERA). This Real Estate Development Authority is a sole regulatory authority to ensure control and regulation in the Real Estate Sector. It is comparable to the Reserve Bank of India for banking sector, or Securities Board Exchange of India for securities in India.
Transfer of property other than agricultural land can be legislated by both the center and state.Here Parliament of India , the Supreme Legislature, derives its power to legislate the Real Estate(Regulation and Development)Act, 2016.
The word used in the Act is Appropriate Government, neither central Government nor State Government. Appropriate Government means the Government time being in force.
Offences And Penalties under RERA
Under Section 59 punishment for a promoter of a company is provided for non-registration of the Real Estate Project with the Real Estate Regulatory Authority (RERA), which may extend to ten percent of the cost estimated by the Real Estate Regulatory Authority (RERA).
If the promoter of the company violates the provisions of Section 3 then maximum punishment of three years or with fine in addition to the fine stated earlier shall be imposed. This fine shall also be ten percent of the cost estimated by the Real Estate Regulatory Authority (RERA).
Section 60 provides punishment for contravention of Section 4 or providing false information which may extend up to five percent of the cost estimated by the Real Estate Regulatory Authority (RERA).
Section 62 provides for non-registration of a real estate agent with the Real Estate Regulatory Authority. If the agent is found contravening any of the provisions of section 9 and section 10, then he has to pay a penalty up to five percent of the total cost of plot, apartment, building.
Section 63 says that if the promoter fails to comply with the orders of Real Estate Regulatory Authority (RERA), he shall be liable for a penalty for every day during which such default continues.
Section 64 provides for a penalty to comply with orders of the Appellate Tribunal by promoter which may extend up to three years of imprisonment or with fine for every day of such period, which may cumulatively extend up to ten percent of the estimated cost of the project by the Real Estate Regulatory Authority.
Section 65 provides for a penalty if a real estate agent fails to comply with orders of the Real Estate Regulatory Authority which may extend up to five percent of the total cost of the project.
Section 66 provides for a penalty if the real estate agent fails to comply with orders of the Real Estate Appellate Tribunal which may extend up to ten percent of the total cost of the project.
Section 67 for a penalty if the allottee fails to comply with orders of Real Estate Regulatory Authority (RERA) which may extend up to five percent of the total cost of the plot, apartment or building, as the case may be.
Section 68 provides penalty for failure to comply with orders of Appellate Tribunal by the allottee with one year imprisonment and fine which may extend to the ten percent of the plot, apartment or building, as the case may be.
Section 69 takes companies under the penalty for any offence. The company and every person who was in charge at the time of such offence shall be guilty and punished accordingly.
Need of RERA in combating Real Estate Fraud
The real estate sector in India historically was struggling with malpractices in transactions. There has been no transparency, no proper document work, deception regarding title of the property, etc.Prevalence of assertion of power by the developers and builders by way of keeping arbitrary prices in the name of premium, facilities, delaying in possession or not giving possession at all.
This impacts the buyers or investors severely. They hand over money to the developer on misleading advertisements or because of their need to have their own place of living. They are already giving rents to the landlord, but under the housing loan agreement now they start paying EMIs to their respective banks to repay the loan. This further added a barrier to their prosperity. They were not provided with a home, and many of them even cannot pay their EMIs. This caused an immense financial drain on the home-buyers. They cannot pay their EMIs so their loan turns to non-performing assets which further affects their credit score/credit worthiness.
Further the home buyers didn’t have proper grievance redressal mechanism. Banks also suffered due to too many loans and further NPAs. This also led to the aggregation of unaccounted wealth from the public to the real estate players.
Now The Real Estate (Regulation and Development) Act, 2016 aims at:
- To provide for mandatory business practices and transactions in the real estate sector.
- To ensure consumer protection
- To establish Real Estate Regulatory Authority at state level to be approached for redressal of grievances against any builder.
- To manage and control transactions related to both residential and commercial projects.
- To ensure timely completion of projects and delivery of possession.
- To make it obligatory for developers to post all information on issues such as Project plan,Layout,Government approvals,Land title status,Subcontractors to the project,Completion schedule.Now, the developers have to enter this information in the webpage of Real Estate Regulatory Authority (RERA) and then in effect pass this information on to the consumers.
Separate Bank Account requirement
Section 13 of the Act makes it mandatory for the Real Estate Developer that 70% of the amount collected from the buyers should be deposited in a separate account which is to be maintained in a scheduled Bank and they cannot divert it without the permission of buyers and bank. This provision may also ensure money safety but not so practical in business. Cost of construction and land parcels may be low or higher than 70% of the cost so deposited. As this restricts utilization of money and hence increases borrowing by the developers. This increases the burden over the developers. It further led to default in loan repayment.
Threshold Size of the project registration
Smaller projects of size less than 500 square meters or eight apartments have been excluded from the ambit of Real Estate Regulatory Authority (RERA).
So small scale developers have no worries about RERA. They may easily commit frauds on buyers as well as banks. Or maybe big home developers switch to the small projects and increase the dark figures of crime in the real estate sector.
Carpet area has become the prime focus but the definition is quite ambiguous in nature as it encompasses “net usable floor area” which is again not clear, as not all floor area within the precinct is “usable” area. Hence, this “net usable” is not clear. This may give rise to false information.
Completion Certificate before march 2016
If any developer has received the completion certificate before march 2016, such projects do not require the registration with the RERA. And if someone invests in such projects then the burden falls upon him.
Applicability of RERA on Private Property
This Act does not deal with the buying and selling of the flats, floors and other private properties. Such flats, floors are also part of the real estate sector. So frauds can be done here. These matters are covered by Transfer of Property Act,1882, which follows the principle of “caveat emptor” i.e. due diligence of the purchaser that the court imputes a constructive notice on the buyer that why you didn’t make the reasonable inquiry, which includes going to all offices comprising municipality,water, electricity and others. Real Estate players may take the advantage of this to dupe the buyers.
RERA in the Digital Age
Digital media has provided a platform to reach masses and promote goods and services by the business entities. Every business, whether small scale or large scale, is adopting this platform to expand their business.
Now people are turning tech-savvy, and also running short of time due to their commitments, it provides a hands-on opportunity to stay vigilant.
Now the new legislation The Real Estate (Regulation and Development) Act,2016 (RERA), has mandated digitization of this sector by registration and creating Log-in by both the promoters and real estate agents/consultants on the official website of the RERA.
Professional standards and accountability
Earlier the Real Estate sector was highly unregulated. People used to sit in a precinct claiming themselves as land and building experts/brokers/agents.
Even after fixing a board having written Land & Building/ property agent, the real face used to stay absent from the office and any other person may his family member, friend or even servant used to sit at his place. There used to be fake promises on the part of the brokers.
Now the new legislation has incorporated new standards for all the stakeholders, this has made every stakeholder a right and duty bearing person, be it developer or promoter, property agent, even the allottee.
This is purely about standardization of practices to evade malpractices. Now the real-estate sector has become regularized due to digitization and in turn enhanced professionalism.
- Now every consultant has to register themselves with the Real Estate Regulatory Authority and obtain a RERA number( registration) for five years subject to renewal.Without registration they are not allowed to assist in and carry out the transactions.
- Every developer/ promoter has to register himself and obtain the project number and certificate as shown.This is an advantage to the home buyers that ensures transparency in real estate transactions. That means assurance of safety or no fraud.
- Earlier the builders used to sell the property at super built up area and used to amend the layout thereby duping the home buyers. But the new legislation has defined the term “carpet area” and ruled out other terminology.
- The developers/builders have to necessarily rectify any “structural defect” in the building up to 5 years of possession caused due to poor services by the construction team.
- Earlier developers used to promise handing over of possession say for three years but used to refuse/delay just before the due date.But now if they refuse to give possession they have to face penalties.
Role of RERA Consultant in ensuring compliance
RERA Consultants guide both the developer and home buyer. These consultants are providing directions to the home buyer who is however pretty educated but not so well versed with the formalities. Their role is to ensure that RERA compliance is observed by both the developer and promoters. RERA consultants cannot guide or support any such person in the event of non compliance of the Act. These consultants help both the developer/promoter and home buyer in all document work. So that chance of any discrepancy is minimized. And the chance of fraud from either party is lessened.
Influence Of The Real Estate (Regulation and Development) Act, 2016
RERA has brought significant changes in the real estate sector by bringing transparency, regularization of RERA consultants, accountability and consumer welfare and protection. There is a balance of positive changes and challenges.
Positive Outcomes
- The Act has brought good control over the Real Estate Sector. Earlier builders used to pick land parcels before completion of constructions. Now they don’t indulge in this practice.
- This Act has reduced the burden on courts with respect to land and building court cases.
- Depositing 70% in the Separate Account of scheduled banks, preserves buyer’s money. As builders cannot use the buyer’s money for other petty-construction expenses.
- After the coming into force of the Act, there were very few launches of projects. And they were found working in a time bound manner.
- Developers have started to adhere to compliances as set out by the Act to avoid litigation.
- Due to digitization of real estate projects, agents and promoters. People have regained their confidence in the real estate sector.
- Yesteryear practices like double booking of the same flat, plot or misrepresentation are curbed now.
- Now there is a clear picture of everything( projects) and everyone(promoters) and agents.
- Now the developers cannot cheat by taking the signature of home-buyers on unconscionable papers. And if anyone does it then the home-buyer has a remedy to file a complaint under section 31 of the Act.
- Consent of home-buyers is made very necessary to do any modification or change by the developer. It means the very basis of fraud is itself shattered.
Limitations and Challenges
- As to the separate bank account of 70%, the developers cannot use this money for any other-construction expenses, so these developers have to take further loans from the banks. These bank loans lead to more Non- Performing Assets(NPA).
- The Act recognizes every phase of development as standalone. For example:
Developer D plans to develop one project in 15 acres with three different areas viz. 2000 sq. Ft., 1500 sq. Ft., 1600 sq. Mt. respectively. He has done the construction at the gap of one year. Then these all three are taken as different projects. And will be registered as a separate project. This creates hassles for builders/ developers.
- As fewer projects are launched, so there is very less competition, it leads to a hike in property prices.
- Rights and duties of the buyers have increased burden on the shoulder of home buyers regarding lot of miscellaneous payments, and other formalities;
- The Act seems very stringent towards malpractices, but is seen more home-buyer friendly then builder/ promoter friendly.
Conclusion
The introduction of RERA has significantly strengthened the transparency and accountability in the real estate sector of India. RERA was enacted to redress highly irregular and unethical practices, which were causing financial hardship on homebuyers, impacting financial institutions, and fostering an environment conducive to fraudulent activities.
The exclusion of smaller projects from RERA oversight raises concerns that buyers of small apartments could be exploited by unscrupulous developers. The ambiguity in defining “carpet area” and the Act’s omission of dealing with private property transactions underline areas where fraud could still potentially occur.
The Act’s focus on digitalization is a significant step in adapting to the demands of the digital age, by enhancing transparency, and providing a platform for both developers and homebuyers to engage more efficiently. The mandatory registration of consultants and developers with RERA, further contributes to the Act’s aim of eliminating malpractices.
Despite its positive impacts, the Act does not address certain critical issues, such as the exclusion of renovation, repair, and redevelopment projects, leaving room for poor quality construction. The Act’s limited scope regarding private property transactions and the impact of pre-2016 completion certificates also need careful consideration.
The legislation has undoubtedly brought positive changes, such as reducing court cases, curbing misrepresentations, and instilling confidence in the real estate market. However, challenges persist, particularly in the financial strain on developers, potential loopholes, and the Act’s impact on property prices due to reduced competition.
In essence, The Real Estate (Regulation and Development) Act, 2016, represents a pivotal step towards transforming the real estate sector into a more transparent, accountable, and consumer-friendly industry. However, continual evaluation and refinement of its provisions are necessary to address emerging challenges and ensure the sustained growth and integrity of the real estate market in India.
