How to use the RERA to your advantage

New home buyers in India find it hard to keep up with the developers, real estate agents and all the rules and regulations involved in the process. One policy that has tried to make this process less tedious is the Real Estate Regulatory Authority, 2016 (RERA). This came into force from May 2017 onwards and has brought merit to the sector. The Real estate sector before 2017 was considered an unregulated one especially in the metro cities around India, and with a constant flow of black money.

On the 19th of August 2019, at the National real estate development council convention. The housing and urban affairs secretary Durga Shanker stated that the government may soon consider amendments in the real estate law under RERA. Mishra stated, “Based on the inputs (received at the conference), we have felt that there is a need to bring about many changes in the RERA Act.” He added, “We will soon make relevant amendments in the law, to make it more effective.”

Here is a checklist to understand if RERA is applicable to the property you have purchased?

  • The area of the plot under construction is 500 sq mts or more.
  • The number of apartments under construction are more than 8.
  • The Act does not apply to projects that are under repairs, renovation or redevelopment.
  • The Act is only valid on development of property and not rentals.
  • The Act covers all commercial projects like shops, offices, work spaces and buildings as well as residential properties.

Let’s take a look at the benefits the Act offers to buyers, the developers and the real estate sector.

Right To Information About The Property Through The Online Portal

As an online portal, RERA is a great way to work around every issue regarding your under-construction home. You can request for full layouts, plans, the date of completion and even the competition in your area. The Maharashtra Real Estate Regulatory Authority- MahaRERA website is one of the best RERA state platforms. It exhibits the most number of residential projects registered under it across the country. As per the norms in the Act, all real estate registered projects both commercial and residential must submit all of the registered project details on the RERA website.

Standardized Definition Of Carpet Area

Prices correspond with the carpet area of the property that is being purchased. The RERA act has defined a standardized definition of carpet area. This helps to eliminate any form of manipulation or inflation of property values through wrongful measuring of carpet area. These measurements were devised by each individual builder and acted against the interest of real estate investors. The RERA act thus protects the innocent buyers from any form of misguidance by the developer.

The Implications On Builders And Developers

As per the RERA guidelines, under-construction projects is funded firstly by money obtained from downpayments from home buyers and lenders i.e. banks and NBFCs. The RERA Act has given home buyers the ability to question the developers. If any builder is unable to provide satisfactory information regarding the under-construction project, he can get penalized under the act.

Section 7 states that projects, free from litigation, may form their own society and with the approval of 51 per cent or more of its members, can divest the developer from the project.

Section 8 further states that if the builder is pulled out of the project, the first opportunity of completing the project will be accorded to the society formed by the flat purchasers.

These sections of the RERA Act, help ensure that projects are not delayed and that the builders do not misuse funds, as they can be held responsible for any defect or fault in the construction of the project, in turn protecting the interest of the home buyer.

Keep a track of RERA Approved Real estate Agents

RERA-approved Real estate agents do make the sacred passage of home buying easier and more peaceful. They are aware of the projects that have been approved by the Real estate regulatory authority. They already have an understanding of the shortcomings of the developers and provide a clear picture of issues that the buyer could face and ways to tackle the issues.

All these factors make the Act a clear benefit for any new home buyer. It provides information to any home buyer and also makes it easier to settle on down payments, home loans and future home expenses.

All these factors have been giving homebuyers an assurance about their housing investments. Homebuyers are now heading towards a safer position in the property arena, where their investments now have accountability, which in turn makes it a favourable time to invest.

An additional resource that has come into play to help you own your dream house is down payment assistance.

Let HomeCapital help you commence your home-buying journey.

question

Should you buy property with the current market scenario?

Is it a good idea to buy property with the current market situation? The Price of a house is declining, but is it a good investment? We’ve compared the advantages, the disadvantages and the risks for you, to make a smarter decision.

The advantages

Valuing real estate is easy compared to other assets

At first, looking at others such as the stock market, mutual funds, those that generate cash flow, are good investments compared to real estate. To buy property is generally a great investment option and is easier to manage compared to other assets. It can be a good long-term investment. Though that depends on the growth of its value over time.

Attractive and stable income

If you are planning to buy property as an investment and rent it out to tenants, it will generate cash flow over time. Rents go up with inflation and your EMIs for the home loans remain the same. Eventually, you pay off your loan and the cash flow will increase significantly.

The Repo rate

Recent cuts in the repo rate by the Reserve Bank of India by 35 points to 5.45 percent from 5.75 percent will have a great impact on the interest charged by private banks on home loans. With private banks such as the State bank of India already reducing their interest rates on home loans, buying real estate will be more economical.

The disadvantages

Lack of liquidity

To buy property as an investment means a lack of liquidity. Though it may generate cash flow through tenants, it isn’t a liquid asset and won’t be a strong investment if you are in need of capital. We suggest you invest half your fortune into a property and the rest into movable investments.

An unpredictable asset

It is also an unpredictable asset. With home rates falling in the country, one needs to be smart and take into consideration the idea and need for purchasing real estate. Value of the asset depends on location, the type of property, the age of the building, the state of the home, etc. Thus, when you buy property, you are investing in an unpredictable asset whose value may decrease or increase in the near future.

The risks

The present property scene in India

In urban cities, real estate investments are now cheaper compared to a few years ago. The slight dip in the price of homes and offices is the result of a lack of demand, huge inventories, and regulations. These were mapped out by the latest reports by Knight Frank, the real estate research firm.

Chennai faced a decrease in property prices due to the water shortage. There were few new launches while sales in the past one year suffered. This also led to a fall in inventory.

Kolkata looked at low property prices in the past 6-12 months, but it saw no increase in sales or launches.

While cities like Delhi NCR, Bengaluru, Hyderabad and Mumbai have been able to have some balance in price, launches and sales.

Builders are playing it safe because of the RERA act

The RERA Act has definitely changed the property scene in India. The act as a way of protecting buyers from financial and inversely mental trauma, have placed in the hands of the consumer a platform to question the developers regarding issues like date of completion and possession in the past would be left out by the builder.

The Real Estate (Regulation and Development) Act, 2016, passed by the Indian Parliament, seeks to protect the interests of those who buy property. It also looks to boost investments in the real estate sector.

With RERA and the government’s model code, it aims to create a more fair platform between the seller and the buyer, mostly in a primary real estate market. But this has led builders to reduce risks taken on projects and properties.

Before you buy property, you need to answer a few questions

  1. What is your reason for the purchase?
    1. Do I want to live here?
    2. Will I rent this out?
  2. Can I see this as an asset or a liability?
    1. Does this investment put money in my pocket?
    2. Is it worth the risk?
    3. Will I be able to manage maintenance and taxes?

It is crucial that an individual understands all aspects of an investment before. Take time to map out financial requirements like your down payment, housing loans and personal finances. Keep in mind that you are looking for an asset and not a liability.

Your next steps towards buying a property would involve checking your eligibility and arranging for the required funds, for which we have solutions!

We’d be happy to help you with the down payment for your property investment.

Understanding RERA

How Has RERA Helped Home Buyers and Property Investors In 2018?

RERA as an Act has been beneficial to buyers but this meant complete transparency from the developer’s end which brought out all the hidden rodents to the surface for clear transactions. RERA is the RTI (Right to information) in the Real Estate world, but our question here is, was it necessary? If yes, then did home buyers benefit from the Act?

Many home buyers believed that the real estate transactions were heavily skewed in favor of brokers, developers, and other middlemen. The Act was set in place to protect home buyers from fraudulent activities like money laundering and to mainly establish a more streamlined process for the Realty sector. The whole purpose of the act is to basically make every real estate transaction safer by inculcating more transparency and accountability.

Ashutosh Limaye, head of research at consultancy JLL India, says while so-called ‘fly-by-night’ developers have been exiting since RERA was implemented, it would be unfair to think that all small players are unscrupulous. “It has nothing to do with the size or scale at which developers operate, it is about their intent. Several small players have made themselves RERA-compliant, because they want to be in this space for the long term,” Limaye says.

RERA’s Benefits to home buyers

Carpet Area Standardisation

The Act introduced a carpet area formula for an even calculation. The carpet area is therefore defined as ‘The net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment’.

This standardization has kept the builders away from inflating the carpet area price which works perfectly in favour of the buyer.

Rate of Interest for Defaulters

The Act has brought both the buyer and seller parties on a common platform by maintaining an equal rate of interest for defaulters. Before the act, the interest paid by the builder to the home buyer was less but if the buyer defaulted, the interest was higher, and this was an unfair deal that discouraged home buyers.

No More False Promises

The buyer has every right according to the act to withdraw from the project with a full refund if the builder fails to deliver any commitments. This increased the faith of home buyers back in the whole Real Estate system and we shall give you the proof to it further.

Advance Payments

The builder can’t take more than 10% of the cost of the apartment, villa, etc. or any other application fee before entering into an agreement of sale. This works in the buyer’s favour yet again!

In case of defects

Any infrastructural defect in quality, workmanship, provision or service if discovered within the first 5 years is entitled to rectification by the builder at no extra cost within 30 days and buyers can also claim compensation for the same.

Delay in Possession

The buyer has all the rights to withdraw from the project with a full refund, along with interest payable from the due date of completion until the amount is refunded. If the buyer decides to continue with the project, till the completion, he will be entitled to compensation along with interest payable from the due date of completion of the project until the project gets completed. This ensures proactive commitments and a fair process that is beneficial for both the buyer and the builder.

A Title Compensation

A defect in the title of the property can also result in compensation which is not barred by any limitation and this means there isn’t any time limit within which you need to discover the defect.

Right To All Information

The buyer is entitled to all the information related to the project in terms of the plan, layout, execution, completion status, facilities, etc. What more could a buyer ask for?

Grievance Redressal

In case the builder fails to comply with the terms of this act, the buyer can take it to the state authority set up under the act, which has the power to redress the grievances.

A MahaRERA official said, “If a homebuyer or a developer is not satisfied with the RERA order, he/she can make an appeal to the appellate board instead of approaching the high court.” 

Did Housing Purchases Increase Post RERA?

Housing sales in the top seven cities grew by 12% in the first quarter of 2018 which indicated that the act restored the faith of serious home buyers, attracted by the new environment of transparency, accountability and financial discipline back in the Real Estate sector – Anarock Property Consultants.

Around 49, 000 units were sold in the quarter, with NCR, MMR, Bengaluru, and Pune alone accounting for 80% of the sales, while the only state that experienced a 12% drop was Chennai.

Homebuyers are now encouraged to make their first home purchase because of the security provided by the state. There couldn’t be a riper season than now, to take advantage of the schemes implemented by the government and an array of firms that are trying to close the massive gaps between the desire of owning a house to turning those dreams into reality.

If you are a new home buyer, we’re happy to let you know that you can now own your dream house without even worrying about the total down payment, because HomeCapital takes care of that!

Understanding RERA

Chapter 6: RERA

The Real Estate (Regulation & Development) Act, 2016 (RERA) was enacted by the Indian Parliament in 2016 to regulate the real estate industry in India with the objective to ensure transparent and fair transactions. It is a landmark development and a much-needed consumer-oriented reform introduced with the aim to usher in a new era of transparency and accountability. RERA is a blessing for home buyers as it is launched with the vision to create a more balanced ecosystem in their favour. Our HomeCapital experts for put together this guide to educate you about the RERA Act.

The purpose of RERA is to curb the inflow of black money into the primary and secondary markets and help end speculation & price control. It is introduced to improve the financial discipline of the developers as they will not be able to divert funds from a given project. This will ensure timely completion of the projects.

About The Act

Real Estate (Regulation & Development) Act, 2016 (RERA) is an Act of Parliament of India passed in March 2016. It received the consent of the President of India on 25th March 2016 and came into force from 1st May 2017. The Act aims to establish a Real Estate Regulatory Authority in each state and union territory for the promotion and regulation of the real estate industry. It aims to ensure the sale of real estate properties (plots, apartments buildings) and projects in an efficient and transparent manner by protecting the interests of consumers.

The Act is applicable to ongoing and upcoming commercial and residential projects. However, it is not applicable to redevelopment, repair or renovation projects that do not include new allotment, selling, advertising and marketing.

The chance of a delayed possession has been the biggest cause of concern for any home buyer. In the absence of a regulator and no rules in place, it was the home buyer who had to suffer at the hands of builders. Now with RERA, each state and union territory will have its own Regulatory Authority (RA). The RA is responsible for framing rules and regulations according to the Act.

The Act aims to empower the RA or an Adjudicating Officer to resolve disputes and pass judgements. It also aims to create Appellate Tribunals to hear appeals against the orders, directions or decisions of the RA or the Adjudicating Officer.

Under the Act, the centre and the states are stipulated to notify their own versions of RERA based on the model rules framed under the Parliament Act within six months of its commencement date.

Features of the Real Estate (Regulation & Development) Act, 2016 (RERA)

  • Mandatory Registration: All the real estate developers across the country need to register mandatorily with the Real Estate Regulatory Authority of the state or union territory where the projects are developed. The projects (total size >= 500 sq.m. or number of apartments >= 8), which are new, ongoing or where the completion/occupancy certificates have not been obtained come under the purview of RERA. The Act also calls for compulsory registration of real estate agents.
  • Deliver as Promised: The promises made by the developer/promoter would be legally binding on them. Developers will now have to notify the buyers of the ‘carpet area’ of the units sold to them. They will now have to provide a declaration along with a written affidavit about the time period within which a project or a specific phase would be completed. The promoter is liable to compensate the buyers if any incorrect or false statement is given related to the building, apartment, plot or real estate project with a full refund of the property value and the interest amount.
  • Customer Centricity: RERA aims to protect the interest of property buyers and has empowered them with enormous rights to deal with errant developers. Its penal measures act as a deterrent for builders against cheating home buyers. RERA also contains provisions for speedy and effective redressal to aggrieved buyers.
  • Financial Discipline: Developers cannot accept more than 10% of the cost of unit sold as an Advance or Application Fee from the buyers. The developers will now have to deposit 70% of the amount collected from home buyers for the project in an Escrow Account, which is an entirely different dedicated account. This account is maintained in a scheduled bank to cover the cost of land and construction. The withdrawals from this account depend on the progress of the project, which has to be certified by an engineer, authorised architect or a Chartered Accountant. All the project accounts need to be audited on a timely basis, failing which would lead to freezing of the account by the RERA.
  • Land Title: The developers must provide a declaration that they possess the legal title to the land on which the development will take place. The declaration has to be supported by legally valid documents and a written affidavit. A separately written affidavit has to be provided by the promoter stating that the land is free from all encumbrances.

Consequences of Non-Compliance

In case of non-compliance with the RERA rules & regulations, the developers can lose the registration of the project. They can also face imprisonment up to a maximum period of three years and/or can be fined up to a maximum of 10% of the total estimated project costs.

In case of a default or delay in granting possession of the property by the developer as stipulated in the ‘agreement of sale’, the buyers have a right to withdraw from the project and get a full refund of the amount along with a certain rate of interest. Even if the registration of the developer/project is cancelled, the buyers will have full right to refund.

In case the buyer does not want to withdraw from the project and ask for a refund, the developer has to compensate the buyer every month with interest payments until the possession is granted. In case the buyers default in making payments to the developer, they will also have to compensate the developer with the same rate of interest.

The rate at which the developers or the buyers will compensate each other will be the same and will be determined by the state RA. This rate may differ from state to state. In most states, the rate of compensation is SBI MCLR + 2%.

The Real Estate Appellate Tribunal (REAT)

If buyers are not satisfied with the decision passed on by the Real Estate Regulatory Authority or the Adjudicating Officer, they can approach the REAT to challenge the same.

Benefits for the Home Buyers

  • Developers cannot delay the project. If delayed, the buyers should be compensated at the rate of SBI MCLR + 2% by the developers.
  • Home buyers need to pay only for the carpet area.
  • The developers must inform the buyers about any minor changes or additions to the project.
  • For any major changes or additions, the developer must seek the consent of at least 2/3 of the buyers.
  • Consent of the above-mentioned ratio of buyers is also required if the majority of rights are passed on to a third-party.
  • Mandatory disclosure by developers regarding project-related details such as project plan, layout and government approval like sanctioned Floor Space Index (FSI) and the number of buildings, among other aspects.
  • Mandatory registration of the projects by developers with RERA before launching, advertising or marketing.
  • Any structural defects or developer obligations as per the sales agreement should be rectified free of cost if brought to the notice of developers within five years.